<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INSIGHT ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0766246
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1912 WEST FOURTH STREET
TEMPE, ARIZONA 85281
(602) 902-1001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC J. CROWN, CHIEF EXECUTIVE OFFICER
INSIGHT ENTERPRISES, INC.
1912 WEST FOURTH STREET
TEMPE, ARIZONA 85281
(602) 902-1001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
JON S. COHEN, ESQ. THERESE A. MROZEK, ESQ.
SNELL & WILMER L.L.P. BROBECK, PHLEGER & HARRISON LLP
ONE ARIZONA CENTER TWO EMBARCADERO PLACE
PHOENIX, ARIZONA 85004-0001 2200 GENG ROAD
(602) 382-6000 PALO ALTO, CALIFORNIA 94303
(415) 812-2583
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being 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, please check the following box. / /
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 statement 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. / /
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value... 1,755,188 Shares(1) $38.50 $67,574,738 $20,478
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</TABLE>
(1) Includes 228,938 shares to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c), based on the average of the high and low sale prices of the
Common Stock on October 14, 1996, as reported on the Nasdaq National Market.
------------------------
THE 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.
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<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1996
1,526,250 SHARES
LOGO
COMMON STOCK
Of the 1,526,250 shares of Common Stock offered hereby, 1,000,000 shares
are being offered by Insight Enterprises, Inc. (the "Company" or "Insight") and
526,250 shares are being offered by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "NSIT." On October 16, 1996, the last reported sale price of the
Common Stock, on the Nasdaq National Market, was $38.25 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------------
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.
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<TABLE>
<S> <C> <C> <C> <C>
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount(1) Company(2) Stockholders
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated offering expenses of $350,000, which will be
payable by the Company.
(3) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 228,938 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discount will total $ , the Proceeds to Company
will total $ and the Proceeds to Selling Stockholders will total
$ . See "Principal and Selling Stockholders" and "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any orders in whole or in part. It is expected that
delivery of the certificates representing the shares will be made against
payment therefor at the office of Montgomery Securities, on or about
, 1996.
-------------------------
MONTGOMERY SECURITIES
LAZARD FRERES & CO. LLC
PIPER JAFFRAY INC.
, 1996
<PAGE> 3
(PICTURES ON INSIDE FRONT COVER)
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10b-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the consolidated financial statements and the notes
thereto) included elsewhere in this Prospectus and incorporated by reference
herein, which should be read in its entirety. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." As used in this Prospectus,
references to a "fiscal" year refer to the Company's fiscal year ended June 30.
For example, the year ended June 30, 1996 is the Company's fiscal 1996.
THE COMPANY
Insight is a leading direct marketer of microcomputers, peripherals and
software. The Company markets primarily to small and medium-sized enterprises
("SMEs"), comprised of 10 to 1,000 employees, through a combination of targeted
direct mail catalogs, advertising in computer magazines and publications and a
strong outbound telemarketing sales force. The Company offers an extensive
assortment of more than 20,000 SKUs of microcomputer hardware and software,
including such popular name brands as AST, Hewlett-Packard, IBM, Microsoft,
Seagate, Toshiba and Western Digital. Insight's aggressive marketing strategies,
knowledgeable sales force and streamlined distribution, together with its
advanced proprietary information system, have resulted in high customer loyalty
and strong, profitable growth.
Net sales have doubled in the past two years from $170.4 million in fiscal
1994 to $342.8 million in fiscal 1996. Net earnings have grown at an even faster
rate from $1.5 million in fiscal 1994 to $5.7 million in fiscal 1996. For the
fiscal quarter ended September 30, 1996, net sales grew by 44.7% and net
earnings grew by 69.1% over the prior year period. The Company has improved the
profitability of its business by achieving inventory turns of 21 times and a
reduction in selling, general and administrative expenses as a percent of net
sales from 13.9% in fiscal 1994 to 11.4% in fiscal 1996. In addition, the
Company achieved an average order size of $656 in fiscal 1996, which increased
to $756 for the first quarter of fiscal 1997.
The Company seeks to create a strong, long-term relationship with its
customers through the use of a well-trained, dedicated outbound sales force
designed to increase the productivity of its existing accounts, encourage repeat
buying and ensure customer satisfaction. To that end, the Company has more than
tripled its number of account executives from 102 in fiscal 1992 to 388 at the
end of the first quarter of fiscal 1997, most of whom focus on outbound
telemarketing. More than 50% of the Company's orders in each of fiscal 1995 and
fiscal 1996 were placed by customers who had previously purchased products from
the Company.
The Company has developed a highly-refined operating model to support an
efficient fulfillment and distribution infrastructure. The Company believes its
technologically advanced, proprietary real-time information systems enhance the
integration of its sales, distribution and accounting functions, allow it to
leverage operating expenses and further improve customer service. Moreover, its
efficient use of technology has resulted in an expanded product offering while
maintaining a just-in-time inventory system.
The Company operates in one of the fastest growing segments of the economy.
According to industry data, the U.S. PC product resellers market totaled $64.3
billion in 1995 and is expected to grow at a 20% compound annual growth rate to
$131.1 billion in 1999. Direct marketing is one of the fastest growing
distribution channels of this market and is expected to grow at a compound
annual growth rate of 23% from $4.8 billion in 1995 to $11.2 billion in 1999.
Insight believes it is well positioned to take advantage of this anticipated
growth through its close relationships with vendors and its efficient operating
model.
The Company's objective is to increase sales and generate improved
profitability by (i) increasing the penetration of its existing customer base,
(ii) leveraging its existing infrastructure, (iii) expanding its product
offerings and customer base and (iv) utilizing emerging technologies. The
Company's goal is to become the primary source of microcomputer and related
products to its targeted SME market.
The Company's principal executive offices are located at 1912 West Fourth
Street, Tempe, Arizona 85281 and its telephone number is (602) 902-1001. The
Company maintains a World Wide Web site at http://www.insight.com. Information
contained in the Company's Web site shall not be deemed to be part of this
Prospectus.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 1,000,000 shares
Common Stock offered by the Selling
Stockholders.................................... 526,250 shares
Common Stock to be outstanding after the
Offering........................................ 6,542,536 shares(1)
Use of proceeds................................... General corporate purposes, including working
capital, capital expenditures, facilities
expansion, and potential acquisitions of
businesses to expand or complement its
operations.
Nasdaq National Market symbol..................... NSIT
</TABLE>
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(1) Based on shares outstanding at September 30, 1996. Includes 86,250 shares of
Common Stock to be issued upon exercise of outstanding warrants and 40,000
shares of Common Stock to be issued upon the exercise of outstanding
options, all of which will be sold in connection with this offering. See
"Principal and Selling Stockholders." Excludes up to 661,317 shares of
Common Stock issuable upon exercise of options outstanding as of September
30, 1996, of which 166,557 are exercisable at a weighted average exercise
price of $4.79. Of the 166,557 options that are exercisable as of September
30, 1996, 96,942 of such options are subject to agreements restricting the
sale of such shares for a period of 120 days after the date of this
Prospectus and such options have a weighted average exercise price of $.72.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should carefully consider the various factors
identified in this Prospectus, including matters set forth under the caption
"Risk Factors," which would cause actual results to differ materially from those
indicated by such forward-looking statements.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales...................... $117,740 $142,951 $170,400 $ 244,953 $ 342,813 $ 70,777 $102,383
Gross profit................... 17,881 24,757 26,214 37,849 48,521 10,038 13,949
Selling, general and
administrative expenses(1)... 16,269 22,831 23,742 31,848 38,917 8,139 10,919
Earnings from operations....... 1,612 1,926 2,472 6,001 9,604 1,899 3,030
Net earnings................... $ 873 $ 1,206 $ 1,502 $ 3,224 $ 5,720 $ 1,099 $ 1,858
Net earnings per share(2)...... $ 0.61 $ 0.89 $ 1.08 $ 0.24 $ 0.32
Shares used in per share
calculation(2)............... 3,092 3,711 5,290 4,645 5,823
OPERATING DATA:
"Insight" catalogs
distributed.................. 0 657,000 2,667,000 5,740,000 12,880,000 3,348,000 3,069,000
Account executives (end of
period)...................... 102 114 143 239 321 222 388
Orders filled.................. 179,000 197,000 261,000 406,000 518,000 114,000 135,000
Average order size............. $ 658 $ 724 $ 644 $ 598 $ 656 $ 617 $ 756
Inventory turnover(3).......... 16x 17x 21x 21x 21x 15x 23x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
AS
ACTUAL ADJUSTED(4)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $34,407 $ 71,259
Total assets........................................................................... 79,375 116,227
Long-term debt, excluding current portion.............................................. -- --
Stockholders' equity................................................................... 43,975 80,827
</TABLE>
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(1) For a discussion of the adoption of American Institute of Certified Public
Accountants Statement of Position 93-7, "Reporting on Advertising Costs" in
the fourth quarter of fiscal 1995, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
(2) Net earnings per share and shares used in per share calculation for the
years ended June 30, 1994 and 1995 are pro forma and unaudited and (i) for
fiscal 1994 and fiscal 1995, reflect the elimination of executive
compensation expense in excess of the amounts due under employment contracts
with two officers effective as of October 1, 1994 and (ii) for fiscal 1994,
reflect the additional income taxes on S corporation earnings assuming an
effective tax rate of 39.6%. Certain subsidiaries of the Company were S
corporations prior to June 30, 1994 and were not subject to federal and
state income taxes. As a result of these adjustments, pro forma net earnings
are $1,889,000 and $3,307,000 for the year ended June 30, 1994 and 1995,
respectively. Shares used in per share calculation are calculated using the
treasury stock method. Earnings per share calculations reflect the
reincorporation of the Company as a Delaware corporation and the related
share exchange. See Note 15 of Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended June
30, 1996.
(3) Inventory turnover is calculated by dividing cost of goods sold for the
period by the average of the beginning and ending inventory for the period.
Inventory turnover for the three-month periods is annualized.
(4) Adjusted to reflect the issuance and sale of 1,000,000 shares of Common
Stock offered by the Company hereby, 86,250 shares upon the exercise of
outstanding warrants and 40,000 shares upon the exercise of stock options,
and the application of the estimated net proceeds therefrom.
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including those set forth in the following "Risk Factors" and elsewhere in this
Prospectus. The following factors should be carefully considered in evaluating
the Company and its business before purchasing the Common Stock offered hereby.
HIGHLY COMPETITIVE INDUSTRY
The microcomputer and related products industry is highly competitive. The
Company expects competition to increase as retailers and direct marketers who
have not traditionally sold microcomputers and related products enter the
industry and as the industry's rate of growth in the United States slows. The
Company competes with a large number and wide variety of marketers and resellers
of microcomputers and related products, including traditional microcomputer and
related products retailers, computer superstores, consumer electronics and
office supply superstores, mass merchandisers and national direct marketers
(including value-added resellers and specialty retailers, aggregators,
distributors, franchisors, manufacturers and national computer retailers which
have commenced their own direct marketing operations). Certain of the Company's
competitors have longer operating histories and greater financial, technical,
marketing and other resources than the Company. In addition, many of these
competitors offer a wider range of products and services than the Company, and
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Many current and potential competitors
also have greater name recognition, more extensive promotional activities and
adopt more aggressive pricing policies than the Company. There can be no
assurance that the Company will be able to compete effectively with current or
future competitors or that the competitive pressures faced by the Company will
not have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Competition."
The microcomputer and related products industry is undergoing significant
change. The Company believes that consumers have become more accepting of
large-volume, cost-effective channels of distribution such as computer
superstores, consumer electronic and office supply superstores, national direct
marketers and mass merchandisers. Computer superstores and direct marketers that
compete with the Company have significantly increased their market share and
certain traditional microcomputer and related products resellers and direct
marketers are combining operations or acquiring or merging with other resellers
and direct marketers to increase efficiency. Moreover, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products and services.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and acquire significant market share. Generally, pricing is very
aggressive in the industry and the Company expects pricing pressures to
continue. There can be no assurance that the Company will be able to offset the
effects of price reductions with an increase in the number of customers, higher
sales, cost reductions or otherwise. Such pricing pressures could result in an
erosion of the Company's market share, reduced sales and reduced operating
margins, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Industry Background" and "-- Competition."
MANAGING RAPID GROWTH; NO ASSURANCE OF ADDITIONAL FINANCING
Since its inception, the Company has experienced substantial changes in and
expansion of its business and operations. The Company's past expansion has
placed, and any future expansion would place, significant demands on the
Company's administrative, operational, financial and other resources. The
Company's operating expenses and staffing levels have increased and are expected
to increase substantially in the future. In particular, the Company has hired a
significant number of additional personnel, including several senior sales
managers, account executives and other persons with experience in both the
computer and direct marketing industries, and there can be no assurance that
such persons will perform to the Company's expectations. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to continue to attract, assimilate and retain additional highly qualified
persons in the future. In
6
<PAGE> 8
addition, the Company expects that any future expansion will continue to
challenge the Company's ability to hire, train, motivate and manage its
employees. The Company also expects over time to expend considerable resources
to expand its management system, to implement a variety of new systems and
procedures and to complete its new sales and administrative facility. The
failure to complete this new facility within the time and budget expected or the
inability to transition smoothly from the current offices to the new facility
could result in increased costs and a disruption in the operations of the
Company. If the Company's sales do not increase in proportion to its operating
expenses, the Company's management systems do not expand to meet increasing
demands, the Company fails to attract, assimilate and retain qualified
personnel, or otherwise fails to manage its expansion effectively, there would
be a material adverse effect on the Company's business, results of operations
and financial condition. There can be no assurance that the Company will achieve
its growth strategy.
Historically, cash flow from operations has been insufficient to finance
the Company's growth and the Company has relied upon a line of credit, loans
from stockholders and proceeds from its initial and second public offerings to
finance working capital requirements. There can be no assurance that the
Company's operations will generate sufficient cash flow or that adequate
financing will be available to finance continued growth. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON VENDORS; ALLOCATION OF GOODS
The Company acquires products for resale both directly from manufacturers
and indirectly through distributors. Purchases from Merisel, a distributor of
microcomputers and related products, accounted for approximately 19% of the
Company's aggregate purchases for fiscal 1996. No other vendor or supplier
accounted for more than 10% of purchases in fiscal 1996. However, the top five
suppliers as a group accounted for approximately 51% of the Company's product
purchases during this period. There are few supply agreements between the
Company and any vendors. The loss of Merisel or any other vendor could cause a
short-term disruption in the availability of products. Certain of the products
offered by the Company are subject to manufacturer allocation which limits the
number of units of such products available to resellers, including the Company.
The inability of the Company to obtain a sufficient quantity of products, in
particular, high demand products such as notebooks, or an allocation of products
from a manufacturer in a way which favors one of the Company's competitors
relative to the Company, could cause the Company to be unable to fill customers'
orders in a timely manner, or at all, which could have a material adverse effect
on the Company's business, results of operations and financial condition.
Certain vendors provide the Company with substantial incentives in the form of
discounts, advertising allowances and rebates. Vendor funds are used to offset,
among other things, marketing costs, and the Company competes with other market
competitors for these funds. A reduction in or discontinuance of, or a
significant delay in receiving, such incentives could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Marketing and Customers" and "-- Purchasing and Distribution."
RAPID CHANGES IN PRODUCT STANDARDS AND RISK OF INVENTORY OBSOLESCENCE
The microcomputer and related products industry is characterized by rapid
technological change and the frequent introduction of new products and product
enhancements which can decrease demand for current products or render them
obsolete. In addition, in order to satisfy customer demand and to obtain greater
purchasing discounts, the Company expects to carry increased inventory levels of
certain products in the future. The Company can have limited or no return
privileges with respect to certain of its products. There can be no assurance
that the Company will be able to avoid losses related to inventory obsolescence.
See "Business -- Purchasing and Distribution."
FLUCTUATIONS IN OPERATING RESULTS; VOLATILITY OF STOCK PRICE
The Company's results of operations have varied from quarter to quarter and
will continue to do so in the future. The Company's results of operations are
influenced by a variety of factors, including general economic conditions, the
condition of the microcomputer and related products industry, shifts in demand
for or availability of microcomputer and related products and industry
announcements of new products or upgrades.
7
<PAGE> 9
Sales can be dependent on specific product categories and any change in demand
for or supply of such products could have a material adverse effect on the rate
of growth of the Company's sales. The Company's operating results are also
highly dependent upon its level of gross profit as a percentage of net sales
which fluctuates due to numerous factors including the availability of
opportunistic purchases, changes in prices from suppliers, general competitive
conditions, and the relative mix of products sold during the period. If sales do
not meet expectations in any quarter or if the Company experiences difficulty in
controlling operating expenses or maintaining gross margins, the market price of
the Company's Common Stock could be materially adversely effected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The technology sector of the United States stock markets has experienced
substantial gains in recent months, and the market price of the Company's Common
Stock has, likewise, increased during this period. The financial and trade press
have attributed these gains to a number of factors. The deterioration of other
conditions which favor the technology sector or the stock markets in general or
the Company in particular, whether or not such events relate to or reflect upon
the Company's operating performance, could adversely affect the market price of
the Company's Common Stock. Furthermore, fluctuations in the Company's operating
results, increased competition, reduced vendor incentives and trade credit,
higher postage and operating expenses and other developments may impact public
perception and analyst reports regarding the Company which could have a
significant impact on the market price of the Common Stock.
BUSINESS INTERRUPTION; RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient service to customers. In addition, the Company's success is
largely dependent on the accuracy, quality and utilization of the information
generated by its management information systems, which affect its ability to
manage its sales, accounting, inventory and distribution systems. Although the
Company has redundant systems, with full data backup, a substantial interruption
in these systems or in the Company's telephone communication systems would have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, in connection with the move to the Company's
new sales and administrative facility, the Company is upgrading its computer
equipment and there can be no assurance that the transition to the new equipment
will be accomplished without interrupting the Company's business. See
"Business -- Technology Based Operations."
CHANGING METHODS OF DISTRIBUTION
The manner in which microcomputers and related products are distributed and
sold is changing, and new methods of distribution and sale, such as on-line
shopping services have emerged. Hardware and software manufacturers have sold,
and may intensify their efforts to sell, their products directly to end-users.
From time to time, certain manufacturers have instituted programs for the direct
sales of large order quantities of hardware and software to certain major
corporate accounts. These types of programs may continue to be developed and
used by various manufacturers. In addition, manufacturers may attempt to
increase the volume of software products distributed electronically to
end-users. An increase in the volume of products sold through or used by
consumers of any of these competitive programs or distributed electronically to
end-users could have a material adverse effect on the Company's business,
results of operations and financial condition.
STATE SALES OR USE TAX COLLECTION
The Company presently collects sales tax only on sales of products to
residents of the State of Arizona. Sales to customers located within the State
of Arizona were approximately 12% of the Company's net sales during fiscal 1996.
Various states have sought to impose on direct marketers the burden of
collecting state sales taxes on the sales of products shipped to that state's
residents. The United States Supreme Court recently affirmed its position that
it is unconstitutional for a state to impose sales or use tax collection
obligations on an out-of-state mail order company whose only contacts with the
state are the distribution of catalogs and other advertising materials through
the mail and the subsequent delivery of purchased goods by United States mail or
by interstate common carrier. If the Supreme Court changes its position or if
legislation is passed to overturn the Supreme Court's recent decision, the
imposition of a sales or use tax collection
8
<PAGE> 10
obligation on the Company in states to which it ships products would result in
additional administrative expenses to the Company, could result in price
increases to the customer or could otherwise have a material adverse effect on
the Company's business, results of operations and financial condition. From time
to time, legislation to overturn this decision of the Supreme Court has been
introduced, although to date, no such legislation has been passed. See
"Business -- Sales or Use Tax."
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
The Company may seek to acquire businesses to expand or complement its
operations. The magnitude, timing and nature of any future acquisitions will
depend on a number of factors, including suitable acquisition candidates, the
negotiation of acceptable terms, the Company's financial capabilities, and
general economic and business conditions. There is no assurance that the Company
will identify acquisition candidates that would result in successful
combinations or that any such acquisitions will be consummated on acceptable
terms. Any future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and
amortization of expenses related to goodwill and intangible assets, all of which
could adversely affect the Company's profitability. In addition, acquisitions
involve numerous risks, including difficulties in the assimilation of operations
of the acquired company, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has had no or
only limited direct experience and the potential loss of key employees of the
acquired company, all of which in turn, could have a material adverse effect on
the Company's business, results of operations and financial condition.
RISK OF INCREASING MARKETING, POSTAGE AND SHIPPING COSTS
The Company mails catalogs through the United States Postal Service,
generates sales leads through marketing and ships products to customers by
commercial delivery services. Shipping, postage and paper costs are significant
expenses in the operation of the Company's business. Historically, the Company
has experienced increases in postage and paper costs. There can be no assurance
that any such increases can be recouped through an increase in vendor supported
advertising rates or that the Company will be able to offset future increased
costs. The inability to pass on these increased costs could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the Company ships primarily through Federal Express, and
labor disputes or other service interruptions with Federal Express, the U.S.
Postal Service or other commercial carriers could have an adverse effect on the
Company's operating costs and ability to deliver products on a timely basis. See
"Business -- Marketing."
POSSIBLE NONRENEWAL OR CANCELLATION OF OUTSOURCING ARRANGEMENTS
The Company performs outsourcing services for certain manufacturers
pursuant to various arrangements. These parties may cancel such arrangements on
relatively short notice or fail to renew them upon expiration. There is no
assurance that the Company will be able to replace any manufacturers that
terminate or fail to renew their relationships with the Company. The failure to
maintain such arrangements or the inability to enter into new ones could have a
material adverse effect on the Company's business, results of operations and
financial condition.
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company will have cash proceeds from the offering in excess of the uses
specified in "Use of Proceeds." Consequently, the Board of Directors and
management of the Company will have broad discretion in allocating a significant
portion of the net proceeds of this offering. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL
The Company's future success will be largely dependent on the efforts of
key management personnel, including Eric J. Crown, Chief Executive Officer,
Timothy A. Crown, President, and other key employees. The loss of one or more of
these key employees could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company maintains
and is the beneficiary of a
9
<PAGE> 11
$1,000,000 key-man life insurance policy on each of Eric J. Crown and Timothy A.
Crown. In addition, the Company believes that its future success will be largely
dependent on its continued ability to attract and retain highly qualified
management, sales and technical personnel, and there can be no assurance that
the Company will be able to attract and retain such personnel. Further, the
Company makes a significant investment in the training of its sales account
executives. The inability of the Company to retain such personnel or to train
them rapidly enough to meet its expanding needs could cause a decrease in the
overall quality and efficiency of its sales staff, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Personnel and Training" and "Management."
CONTROL BY EXISTING STOCKHOLDERS
Upon the closing of this offering, Eric J. Crown, Chief Executive Officer,
and Timothy A. Crown, President, will beneficially own in the aggregate
approximately 24% (approximately 23% if the Underwriters' overallotment option
is exercised in full) of the outstanding Common Stock. Because of their
beneficial stock ownership, these stockholders will be in a position to continue
to influence the election of the members of the Board of Directors and decisions
requiring stockholder approval. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
There will be 6,542,536 shares of Common Stock outstanding upon the
consummation of this offering. Of such shares, 4,974,478 shares of Common Stock
are freely tradeable. The 1,568,058 remaining shares are held by certain
executive officers, directors and stockholders who, together with the Company,
have agreed not to sell, contract to sell, or otherwise dispose of, any shares
of Common Stock without the consent of Montgomery Securities for a period of 120
days after the date of this Prospectus. Upon expiration of such agreements, such
shares will be eligible for sale in the public markets in accordance with Rule
144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, upon consummation of the offering, there will be
outstanding options to purchase a total of 661,317 shares of Common Stock.
Except as limited by the agreements described above and by Rule 144 volume
limitations applicable to affiliates, shares issued upon the exercise of stock
options generally are available for sale in the open market. Future sales of
substantial amounts of Common Stock in the open market, or the availability of
such shares for sale following this offering, could adversely affect the
prevailing market price of the Common Stock. See "Shares Eligible for Future
Sale," "Principal and Selling Stockholders," and "Underwriting."
ANTI-TAKEOVER EFFECT OF CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws empower the Board of
Directors, without approval of the stockholders, to fix the rights and
preferences and to issue shares of preferred stock, prohibit a substantial
stockholder of the Company from entering into a business combination or
otherwise significantly increasing its interest in the stock or assets of the
Company without the consent of the Board of Directors or a two-thirds majority
of the stockholders of the Company, prohibit stockholders of the Company from
calling a special meeting unless requested by at least 25% of the outstanding
voting shares, and require that the Board of Directors be divided into three
classes, one of which classes would be elected each year. These provisions could
have the effect of deterring unsolicited takeovers or other business
combinations or delaying or preventing changes in control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over then-current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company are estimated to be $35.9 million ($41.3
million if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $38.25 per share and after deducting the estimated
underwriting discount and offering expenses. The Company, to facilitate its
planned growth, intends to use the net proceeds of this offering for: (i)
general working capital purposes, including the financing of expected increases
in inventories and accounts receivable; (ii) capital expenditures, including
investment in hardware, software enhancements, telecommunications systems and
furniture and fixtures; (iii) completion of the Company's new sales and
administrative facility; and (iv) acquisition of businesses to expand or
complement its operations. The Company has no present plans, commitments or
agreements with respect to any such acquisitions, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending the use of
proceeds as described above, the net proceeds will be invested in short-term
interest bearing securities. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders, although it will
receive $960,164 upon exercise of warrants and options by certain Selling
Stockholders in connection with this offering.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "NSIT" since the Company's initial public offering on January
24, 1995. The following table sets forth the high and low sale prices of the
Company's Common Stock as reported by the Nasdaq National Market for the periods
indicated. The last sale price of the Common Stock on October 16, 1996 was
$38.25 per share.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
Third Quarter (January 24, 1995-March 31, 1995)...................... $12 $ 9
Fourth Quarter....................................................... 17 1/4 10 1/4
FISCAL YEAR ENDED JUNE 30, 1996
First Quarter........................................................ 25 1/2 15 7/8
Second Quarter....................................................... 23 10
Third Quarter........................................................ 15 1/2 11 5/8
Fourth Quarter....................................................... 27 14 3/8
FISCAL YEAR ENDING JUNE 30, 1997
First Quarter........................................................ 37 1/2 19 1/4
Second Quarter (through October 16, 1996)............................ 39 3/4 34 1/4
</TABLE>
As of September 30, 1996, there were 5,416,286 shares outstanding of the
Common Stock of the Company held by approximately 72 stockholders of record.
DIVIDEND POLICY
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the growth and development of its business and to
repay indebtedness, and therefore the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. In addition, the
Company's credit agreement contains financial covenants which prohibit the
Company from paying cash dividends without its lender's consent. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the total capitalization of the Company as
of September 30, 1996, on an actual basis and as adjusted to reflect the sale by
the Company of 1,000,000 shares of Common Stock pursuant to this offering, the
receipt by the Company of the estimated net proceeds thereof, at an assumed
public offering price of $38.25 per share, and after deducting the estimated
underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Line of credit(2)................................................. $ -- $ --
------- -------
Total long-term debt........................................... -- --
------- -------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no
shares issued or outstanding................................... -- --
Common Stock, $.01 par value, 10,000,000 shares authorized,
5,416,286 actual shares and 6,542,536 as adjusted shares issued
and outstanding(3)............................................. 54 65
Additional paid-in capital........................................ 29,758 66,599
Retained earnings................................................. 14,163 14,163
------- -------
Total stockholders' equity..................................... 43,975 80,827
------- -------
Total capitalization...................................... $43,975 $ 80,827
======= =======
</TABLE>
- ---------------
(1) Includes estimated net proceeds from the exercise of warrants to purchase
86,250 shares of Common Stock and of options to purchase 40,000 shares of
Common Stock, all of which will be sold in connection with this offering.
(2) As of September 30, 1996, the Company did not have an outstanding balance on
its line of credit. The Company anticipates that it will draw down on its
line of credit in the second quarter of fiscal 1997 to fund the cost of its
sales and administrative facility and related expenses.
(3) The number of outstanding shares does not include up to 661,317 shares of
Common Stock issuable upon the exercise of options to purchase shares of
Common Stock. The number of authorized shares does not reflect a proposed
increase in the number of authorized shares of Common Stock to 30,000,000
and Preferred Stock to 3,000,000, which management expects will be submitted
for stockholder approval at the Annual Meeting of Stockholders in December
1996.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth the selected consolidated financial and
operating data for the Company. The selected "Statement of Earnings Data" and
"Balance Sheet Data" presented below for, and as of the end of, each of the
years in the five-year period ended June 30, 1996 are derived from the
consolidated financial statements of the Company, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The selected "Statement of Earnings Data" and "Balance Sheet Data"
presented below for, and as of, the three months ended September 30, 1995 and
1996 are derived from the unaudited interim consolidated financial statements of
the Company which, in the opinion of management, have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the financial data shown. The
results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the year ending June
30, 1997. This information should be read in conjunction with the consolidated
financial statements and the notes thereto incorporated herein by reference and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1995 1996
-------- -------- --------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales.......................... $117,740 $142,951 $ 170,400 $ 244,953 $ 342,813 $ 70,777 $ 102,383
Cost of goods sold................. 99,859 118,194 144,186 207,104 294,292 60,739 88,434
-------- -------- -------- -------- -------- ------- --------
Gross profit....................... 17,881 24,757 26,214 37,849 48,521 10,038 13,949
Selling, general and administrative
expenses(1)...................... 16,269 22,831 23,742 31,848 38,917 8,139 10,919
-------- -------- -------- -------- -------- ------- --------
Earnings from operations........... 1,612 1,926 2,472 6,001 9,604 1,899 3,030
Non-operating expense (income),
net.............................. 144 355 409 663 136 79 (45)
-------- -------- -------- -------- -------- ------- --------
Earnings before income taxes....... 1,468 1,571 2,063 5,338 9,468 1,820 3,075
Income tax expense................. 595 365 561 2,114 3,748 721 1,217
-------- -------- -------- -------- -------- ------- --------
Net earnings....................... $ 873 $ 1,206 $ 1,502 $ 3,224 $ 5,720 $ 1,099 $ 1,858
======== ======== ======== ======== ======== ======= ========
Net earnings per share(2).......... $ 0.61 $ 0.89 $ 1.08 $ 0.24 $ 0.32
Shares used in per share
calculation(2)................... 3,092 3,711 5,290 4,645 5,823
OPERATING DATA:
"Insight" catalogs distributed..... 0 657,000 2,667,000 5,740,000 12,880,000 3,348,000 3,069,000
Account executives (end of
period).......................... 102 114 143 239 321 222 388
Orders filled...................... 179,000 197,000 261,000 406,000 518,000 114,000 135,000
Average order size................. $ 658 $ 724 $ 644 $ 598 $ 656 $ 617 $ 756
Inventory turnover(3).............. 16x 17x 21x 21x 21x 15x 23x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, SEPTEMBER 30,
---------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1995 1996
-------- -------- --------- --------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 802 $ 1,661 $ 1,922 $ 21,920 $ 34,567 $ 28,066 $ 34,407
Total assets....................... 16,399 18,242 27,732 42,402 73,618 59,831 79,375
Short-term debt.................... 3,077 3,006 7,057 -- -- -- --
Long-term debt, excluding current
portion.......................... 496 371 1,015 6,541 -- 14,115 --
Stockholders' equity............... 1,704 2,910 3,465 18,561 41,785 19,679 43,975
</TABLE>
- ---------------
(1) For a discussion of the adoption of American Institute of Certified Public
Accountants Statement of Position 93-7 "Reporting on Advertising Costs" in
the fourth quarter of fiscal 1995, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Net earnings per share and shares used in per share calculation for the
years ended June 30, 1994 and 1995 are pro forma and unaudited and (i) for
fiscal 1994 and fiscal 1995, reflect the elimination of executive
compensation expense in excess of the amounts due under employment contracts
with two officers effective as of October 1, 1994 and (ii) for fiscal 1994,
reflect the additional income taxes on S corporation earnings assuming an
effective tax rate of 39.6%. Certain subsidiaries of the Company were S
corporations prior to June 30, 1994 and were not subject to federal and
state income taxes. As a result of these adjustments, pro forma net earnings
are $1,889,100 and $3,307,100 for the year ended June 30, 1994 and 1995,
respectively. Shares used in per share calculation are calculated using the
treasury stock method. Earnings per share calculations reflect the
reincorporation of the Company as a Delaware corporation and the related
share exchange. Note 15 of Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended June
30, 1996.
(3) Inventory turnover is calculated by dividing cost of goods sold for the
period by the average of the beginning and ending inventory for the period.
Inventory turnover for the three-month periods is annualized.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Conditions
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference in
this Prospectus.
OVERVIEW
The Company commenced operations in 1988 as a direct marketer of hard disk
drives and other mass storage products. In fiscal 1991, the Company began
marketing its own Insight-brand microcomputers and in fiscal 1992 and 1993 added
peripherals, software and other name brand microcomputers to its product line.
Through fiscal 1992, the Company based its marketing practices primarily on
advertising in computer magazines and the use of inbound toll-free
telemarketing. In fiscal 1993, the Company shifted its marketing strategy to
include the publication of proprietary catalogs and the use of outbound account
executives focused on the business, education and government markets. During
fiscal 1995, the Company began to de-emphasize the sale of Insight-brand
computers and discontinued the sale of Insight-brand computers in the second
quarter of fiscal 1996. Although the cost savings from this decision have
positively impacted earnings from operations, gross margin has been negatively
affected.
In fiscal 1996, Insight increased its focus on the business, education and
government markets, which aggregated approximately 80% of its business in the
fourth quarter of fiscal 1996. During fiscal 1996, the Company doubled its
catalog circulation to generate leads and aggressively tested new lists. The
Company expects the rate of growth in catalog circulation to decrease in the
future as the Company, using information generated from such testing, targets
mailings to its best prospective customers and increases its focus on
penetrating existing accounts. To that end, the Company has recently hired a
number of senior sales managers and account executives, and plans to continue to
actively increase its account executive base for the foreseeable future.
In order to leverage its infrastructure, the Company, in fiscal 1992, began
outsourcing direct marketing services to third parties, including the
distribution of catalogs and mailings featuring brand name or Insight-brand
products. The Company initiated its turnkey direct marketing outsourcing program
for leading manufacturers in fiscal 1993. Under most of the Company's
outsourcing arrangements, the Company takes title to inventories of products and
assumes the risk of collection of accounts receivable in addition to its sales
functions. Revenues derived from the sales of such products are included in the
Company's net sales. Certain other outsourcing arrangements are primarily
service-based, and the Company generally derives net sales from these types of
arrangements based on a percentage of the revenue generated from products sold.
Accordingly, the rate of the Company's net sales growth in future periods may be
affected by the mix of outsourcing arrangements which are in place from time to
time. Outsourcing represented 12.2% and 9.8% of the Company's sales in fiscal
1995 and fiscal 1996, respectively.
Generally, pricing in the microcomputer and related products industry is
very aggressive. The Company expects pricing pressures to continue and that it
will be required to reduce its prices to remain competitive. Such a reduction
could have a material adverse effect on the Company's financial condition and
results of operations.
14
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
consolidated statement of earnings data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------- -------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold.............................. 84.6 84.6 85.8 85.8 86.4
----- ----- ----- ----- -----
Gross profit..................................... 15.4 15.4 14.2 14.2 13.6
Selling, general and administrative expenses..... 13.9 13.0 11.4 11.5 10.6
----- ----- ----- ----- -----
Earnings from operations......................... 1.5 2.4 2.8 2.7 3.0
Non-operating expense (income), net.............. 0.3 0.3 0.0 0.1 0.0
----- ----- ----- ----- -----
Earnings before income taxes..................... 1.2 2.1 2.8 2.6 3.0
Income tax expense............................... 0.3 0.8 1.1 1.0 1.2
----- ----- ----- ----- -----
Net earnings..................................... 0.9% 1.3% 1.7% 1.6% 1.8%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Net Sales. Net sales increased $31.6 million, or 44.7%, to $102.4 million
in the first quarter of fiscal 1997 from $70.8 million in the first quarter of
fiscal 1996. The Company's net sales are comprised of two components: direct
marketing sales and sales from outsourcing arrangements with manufacturers and
third-party marketers. Sales derived from direct marketing increased $30.0
million, or 47.8%, to $92.8 million in the first quarter of fiscal 1997 from
$62.8 million in the first quarter of fiscal 1996. The increase in direct
marketing sales resulted primarily from the increased demand for notebook
computers, the continued shift to business customers (including education and
government entities) and the corresponding increase in average order size of
22.4% to $756 in the first quarter of fiscal 1997 compared to $617 in the first
quarter of fiscal 1996, as well as the continued building of the Company's
customer base. The sales increase occurred despite a decrease in the "Insight"
catalog circulation from 3.3 million in the first quarter of fiscal 1996 to 3.1
million in the first quarter of fiscal 1997. The Company is refining its
circulation strategy with the goal of more efficiently targeting its business
customer audience and improving the profitability and return on investment of
its marketing activities. Sales derived from outsourcing arrangements increased
$1.6 million, or 19.6%, to $9.6 million in the first quarter of fiscal 1997 from
$8.0 million in the first quarter of fiscal 1996. The increase in sales from
outsourcing services resulted from the addition of outsourcing contracts with
manufacturers and increased sales from existing outsourcing arrangements.
Gross Profit. Gross profit increased $3.9 million, or 39.0%, to $13.9
million in the first quarter of fiscal 1997 from $10.0 million in the first
quarter of fiscal 1996. As a percentage of sales, gross margin decreased from
14.2% in the first quarter of fiscal 1996 to 13.6% in the first quarter of
fiscal 1997. The gross margin on the Company's direct marketing sales decreased
due to industry pricing pressure, but was partially offset by the Company's
ability, as a result of its increased volume and financial position, to take
advantage of vendor discounts, rebates and bulk purchasing opportunities. In
addition, the Company's decision to eliminate its private label line and instead
emphasize other name brand computers has had a negative impact on the gross
margin, although the cost savings from this decision have positively affected
earnings from operations. Sales of Insight-brand computers accounted for 11% of
sales in the first quarter of fiscal 1996, but did not account for any sales in
the first quarter of fiscal 1997. Additionally, the Company has experienced
significant growth in the name brand microcomputer category which carries a
lower gross margin. The Company anticipates continued pressure on gross margins
in fiscal 1997 primarily due to the continued shift in product mix and to
industry-wide pricing pressures. The gross margin on the Company's outsourcing
business also declined primarily as a result of a decrease in the Company's
service-based outsourcing business, which has margins that are higher than those
in other outsourcing arrangements.
15
<PAGE> 17
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.8 million, or 34.1%, to $10.9 million in
the first quarter of fiscal 1997 from $8.1 million in the first quarter of
fiscal 1996, and decreased as a percentage of net sales to 10.6% in the first
quarter of fiscal 1997 from 11.5% in the first quarter of fiscal 1996. The
decline was primarily attributable to the Company's continued shift in marketing
strategy, the elimination of higher general and administrative expenses
associated with the Insight-brand computers and increased economies of scale as
general and administrative expenses were allocated over a greater net sales
base. In addition, the Company decreased circulation of catalogs, reduced more
expensive advertising in computer publications and received greater cooperative
marketing reimbursements from manufacturers.
During the fourth quarter of fiscal 1995, the Company adopted the American
Institute of Certified Public Accountants Statement of Position 93-7, "Reporting
on Advertising Costs" (SOP 93-7). SOP 93-7 requires the capitalization and
amortization of direct response advertising costs over their expected revenue
stream, generally three months. This adjustment resulted in a net increase of
$143,000 and a net deferral of $85,000 of advertising costs for the three months
ended September 30, 1996 and 1995, respectively.
Non-Operating Expense (Income), net. Non-operating expense (income), net,
which consists primarily of interest, changed from $79,000 of interest expense,
net in the first quarter of fiscal 1996 to $45,000 of interest income, net in
the first quarter of fiscal 1997. Interest expense primarily relates to
borrowings under the Company's line of credit which have been necessary to
finance the Company's growth. Interest expense has decreased as a result of the
use of the net proceeds from Insight's initial and second public offerings in
January 1995 and November 1995. Additionally, the interest expense associated
with the Company's new facility has been capitalized. Interest income is
generated by the Company through overnight investments in government repurchase
agreements with a financial institution acting as the principal.
Income Tax Expense. The Company's effective tax rate was 39.6% in each of
the quarters ended September 30, 1996 and 1995.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased $97.9 million, or 40.0%, to $342.8 million
in fiscal 1996 from $244.9 million in fiscal 1995. Sales derived from direct
marketing increased $94.3 million, or 43.9%, to $309.3 million in fiscal 1996
from $215.0 million in fiscal 1995. This increase resulted primarily from an
increase in the number of account executives from 239 to 321, increased emphasis
on outbound telemarketing, a more than doubling in catalog circulation from
5,740,000 to 12,880,000, and an increase in the Company's customer base and
average order size. A significant factor in the average order size increase was
an increase in sales of notebook computers. Sales derived from outsourcing
arrangements increased $3.6 million, or 12.0%, to $33.5 million in fiscal 1996
from $29.9 million in fiscal 1995. The increase in outsourcing sales resulted
from increased sales from existing outsourcing arrangements and the addition of
new outsourcing contracts with manufacturers and retailers, offset in part by a
de-emphasis of sales to third-party marketers and the termination of outsourcing
services provided to Ambra, a subsidiary of IBM.
Gross Profit. Gross profit increased $10.7 million, or 28.2%, to $48.5
million in fiscal 1996 from $37.8 million in fiscal 1995. As a percentage of
sales, gross margin decreased from 15.4% in fiscal 1995 to 14.2% in fiscal 1996.
The gross margin on the Company's direct marketing sales decreased due to
industry pricing pressures but was partially offset by the Company's ability, as
a result of its increased volume and financial position, to take advantage of
vendor discounts, rebates and bulk purchasing opportunities. In addition, the
Company's decision to eliminate its private label computer line and instead
emphasize other name brand computers has had a negative impact on the gross
margin, although the cost savings from this decision has positively affected
operating margins. Sales of Insight-brand computers accounted for 21% of sales
in fiscal 1995 but only 3% of sales in fiscal 1996. Additionally, the Company
experienced significant growth in the notebook category which carries a lower
gross margin. The gross margin on the Company's outsourcing business also
declined primarily as a result of the loss of the Company's outsourcing business
with Ambra, which had a higher gross margin than other outsourcing arrangements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.1 million, or 22.3%, to $38.9 million in
fiscal 1996 from $31.8 million in fiscal 1995, but decreased as a
16
<PAGE> 18
percent of sales to 11.4% in fiscal 1996 from 13.0% in fiscal 1995. This decline
was attributable to increased economies of scale, a $137,500 reduction in
compensation expense and the Company's continued shift in its marketing
strategy, including the reduction in advertising costs as a percent of sales due
to the increase in cooperative marketing reimbursements from manufacturers and a
reduction of more expensive advertising in computer publications. These
decreases were partially offset by additional costs associated with an increase
in catalog circulation, the number of account executives and losses experienced
in the initial months of new outsourcing contracts.
During the fourth quarter of fiscal 1995, the Company adopted the American
Institute of Certified Public Accountants Statement of Position 93-7, "Reporting
on Advertising Costs" (SOP 93-7), that requires the capitalization and
amortization of direct response advertising costs over their expected revenue
stream (generally three months). This adjustment resulted in deferrals of
advertising costs of $143,000 and $214,000 in fiscal 1996 and fiscal 1995,
respectively.
Non-Operating Expense, net. Non-operating expense, net, which consists
primarily of interest expense, decreased from $633,000 in fiscal 1995 to
$136,000 in fiscal 1996. Interest expense primarily relates to borrowings under
the Company's line of credit which have been necessary to finance the Company's
growth. Interest expense has decreased because of Insight's initial and second
public offerings in January 1995 and November 1995 and a more favorable interest
rate available to the Company under its new credit facility entered in June
1995. Additionally, the interest expense associated with the Company's new
facility has been capitalized.
Income Tax Expense. The Company's effective tax rate was 39.6% in each of
fiscal 1996 and 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased $74.5 million, or 43.8%, to $244.9 million
in fiscal 1995 from $170.4 million in fiscal 1994. Sales derived from direct
marketing increased $67.5 million, or 45.8%, to $215.0 million in fiscal 1995
from $147.5 million in fiscal 1994. This increase resulted primarily from a more
than doubling in catalog circulation ("Insight" and outsourcing) from 3,363,000
to 7,451,000, added account executives and the continued building of the
Company's customer base. Sales from outsourcing arrangements increased $7.0
million, or 30.6%, to $29.9 million in fiscal 1995 from $22.9 million in fiscal
1994. The increase in outsourcing sales resulted from increased sales from
existing outsourcing arrangements and the addition of new outsourcing contracts
with manufacturers and retailers, offset in part by a de-emphasis of sales to
third-party marketers and the termination of outsourcing services provided to
Ambra, a subsidiary of IBM.
Gross Profit. Gross profit increased $11.6 million, or 44.3%, to $37.8
million in fiscal 1995 from $26.2 million in fiscal 1994. As a percentage of
sales, gross margin remained constant at 15.4% in fiscal 1995. Gross margin on
the Company's direct marketing sales decreased due to increased industry pricing
pressures, but was offset by the Company's ability to take advantage of vendor
payment term discounts, increased bulk purchasing opportunities and increased
price protection received from vendors. Additionally, gross margin was
positively affected by the Company's new outsourcing business with Ambra, a
subsidiary of IBM, which had higher gross margin than its other outsourcing
arrangements since the Company did not maintain inventory and did not ship
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.1 million, or 34.1%, to $31.8 million in
fiscal 1995 from $23.7 million in fiscal 1994, but decreased as a percent of
sales to 13.0% in fiscal 1995 from 13.9% in fiscal 1994. This decline was
attributable to increased economies of scale, a $927,000 reduction in
compensation expense and the Company's continued shift in its marketing
strategy, including the increase in circulation of catalogs offset by an
increase in cooperative marketing reimbursements from manufacturers and a
reduction in advertising costs as a percent of sales. These declines were
partially offset by additional costs associated with an increase in the number
of account executives and the addition of new outsourcing contracts which
typically incur operating losses during their initial months of operation.
During the fourth quarter of fiscal 1995, the Company adopted the American
Institute of Certified Public Accountants Statement of Position 93-7, "Reporting
on Advertising Costs" (SOP 93-7), that requires the
17
<PAGE> 19
capitalization and amortization of direct response advertising costs over their
expected revenue stream (generally three months). This adjustment resulted in
deferrals of advertising costs of $214,000 in fiscal 1995 and fiscal 1994.
Non-Operating Expense, net. Non-operating expense, net, which consists
primarily of interest expense, increased from $409,000 in fiscal 1994 to
$663,000 in fiscal 1995. This increase was due to increased borrowings under the
Company's line of credit incurred to finance the Company's growth.
Income Tax Expense. The Company's effective tax rate for fiscal 1995 was
39.6%. On June 30, 1994, a corporate reorganization occurred in which certain
corporations owned by individuals who at that time were the Company's sole
stockholders became subsidiaries of the Company. The subsidiaries elected to be
treated as S corporations for federal income taxes prior to June 30, 1994 and,
accordingly, were not subject to federal and state income taxes. At June 30,
1994, these subsidiaries terminated their S corporation elections and became
subject to federal and state income taxes. Accordingly, the primary difference
between the Company's effective tax rate of 39.6% and the tax rate shown on the
financial statements of 27.2% in fiscal 1994 relates to income tax expense that
would have been incurred by these S corporation subsidiaries had they been taxed
as C corporations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its net sales, earnings from operations and
net earnings. As the Company continues to increase its percentage of sales from
business, education and government markets, management believes that the
Company's quarterly net sales will be less impacted by seasonality. The
following table sets forth certain quarterly information for the Company's two
most recent fiscal years and the first quarter of fiscal 1997:
<TABLE>
<CAPTION>
FISCAL
FISCAL 1995 FISCAL 1996 1997
-------------------------------------- -------------------------------------- --------
SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. JUNE SEPT.
30, 31, 31, 30, 30, 31, 31, 30, 30,
1994 1994 1995 1995 1995 1995 1996 1996 1996
------- ------- ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $53,726 $66,384 $64,238 $60,605 $70,777 $76,431 $94,655 $100,950 $102,383
Gross profit....................... 8,921 10,014 9,848 9,066 10,038 11,036 13,431 14,016 13,949
Earnings from operations........... 1,162 1,615 1,517 1,707 1,899 2,094 2,673 2,938 3,030
Net earnings....................... $ 596 $ 840 $ 833 $ 955 $ 1,099 $ 1,232 $ 1,599 $ 1,790 $ 1,858
Net earnings per share............. $ 0.22(1) $ 0.27 $ 0.20 $ 0.21 $ 0.24 $ 0.24 $ 0.29 $ 0.31 $ 0.32
Shares used in per share
calculation...................... 3,092 3,092 4,123 4,539 4,645 5,202 5,585 5,727 5,823
</TABLE>
- ---------------
(1) Pro forma net earnings per share for the quarter ended September 30, 1994 of
$0.22 includes the impact of pro forma adjustments as described in Note 15
of Notes to Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In January 1995, the Company completed its initial public offering of
Common Stock. The Company received approximately $11.9 million, net of
underwriting discounts, commissions and offering expenses. The Company primarily
used the proceeds to repay indebtedness under its then-existing line of credit
and to repay certain stockholder loans.
In November 1995, the Company completed a second public offering of Common
Stock. The Company received $16.6 million, net of underwriting discounts,
commissions and offering expenses. The Company used a substantial portion of the
net proceeds to repay amounts outstanding under the line of credit. The balance
of the net proceeds from that offering were used for general corporate purposes.
The Company's primary capital needs have been to fund the working capital
requirements and capital expenditures necessitated by its sales growth. During
fiscal 1996, the Company's capital expenditures totaled approximately $4.9
million primarily for the purchase of 17 acres of vacant land and the
construction, in
18
<PAGE> 20
progress, of a facility on that site which will consolidate its sales, executive
and administrative functions. Construction is expected to be completed in fiscal
1997. Based on current plans, the Company estimates that it will incur
approximately $11 million in capital expenditures, the majority of which will be
incurred in fiscal 1997, related to the acquisition of the land and constructing
and equipping the facility. Capital expenditures for the first three months of
fiscal 1997 were approximately $3.0 million.
The Company's net cash provided by operating activities was $6.8 million
for the three months ended September 30, 1996 as compared to $7.9 million used
in operating activities for the three months ended September 30, 1995. The
positive cash flow in the current year is primarily due to a $3.4 million
increase in accounts payable net earnings of $1.8 million and a $.9 million
decrease in inventory.
Cash flows from operations generally have been negative due primarily to
increases in accounts receivable and inventories necessitated by the sales
growth of the Company and the continued shift from sales to the home market to
sales in the business, education and government markets. Accounts receivable
have increased due to an increase in open account purchases by commercial
customers due to the Company's continued efforts to increase its sales to end
users in the business, education and government markets as well as the overall
Company sales increase. The Company's net cash used by operating activities was
$7.7 million for fiscal 1996, including $25.8 million and $4.5 million to fund
the increase in account receivables and inventories, respectively. These
increases were primarily funded with the proceeds from the public offerings of
Common Stock and an increase of trade accounts payable of $14.3 million.
In June 1995, the Company entered into a new $30 million credit facility
with a finance company. The agreement provides for cash advances outstanding at
any one time up to a maximum of $22.5 million on the line of credit, subject to
limitations based upon the Company's eligible accounts receivable and
inventories. As of June 30, 1996, the Company had no outstanding balance under
its line of credit, and $22.5 million was available under the line of credit at
that date. Cash advances bear interest at the London Interbank Offered Rate
(LIBOR) plus 1.90% (7.37% at June 30, 1996) payable monthly. The additional $7.5
million of the credit facility is used to facilitate the purchases of
inventories from certain vendors and is classified on the balance sheet as
accounts payable. The credit facility expires in June 1998. The line is secured
by substantially all of the assets of the Company. The line of credit contains
various covenants including the requirement that the Company maintain a
specified dollar amount of tangible net worth.
The Company's future capital requirements include financing the growth of
working capital items such as accounts receivable and inventories, the
construction of the Company's sales and administrative facility, and the
purchase of equipment, furniture and fixtures. The Company anticipates that cash
flow from operations, amounts available under its existing line of credit and
the proceeds of this offering should be adequate to support the Company's
presently anticipated cash and working capital requirements through the
foreseeable future.
INFLATION
Management does not believe that inflation has had a material effect on the
Company's results of operations during the past three fiscal years.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123) requires that companies can elect to
account for stock-based compensation plans using a method based upon fair value
or can continue measuring compensation expense for those plans using the
"intrinsic value method" prescribed by Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB 25). Companies electing to
continue using the intrinsic value method must make pro forma disclosures in
fiscal 1997 of net earnings and earnings per share as if the "fair value based
method" had been applied. The Company will continue using APB 25; therefore,
SFAS 123 is not expected to have an impact on the Company's results of
operations or financial position.
19
<PAGE> 21
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Insight is a leading direct marketer of microcomputers, peripherals and
software. The Company markets primarily to small and medium-sized enterprises
("SMEs"), comprised of 10 to 1,000 employees, through a combination of targeted
direct mail catalogs, advertising in computer magazines and publications and a
strong outbound telemarketing sales force. The Company offers an extensive
assortment of more than 20,000 SKUs of microcomputer hardware and software
including such popular name brands as AST, Hewlett-Packard, IBM, Microsoft,
Seagate, Toshiba and Western Digital. Insight's aggressive marketing strategies,
knowledgeable sales force and streamlined distribution, together with its
advanced proprietary information system, have resulted in high customer loyalty
and strong, profitable growth.
INDUSTRY BACKGROUND
According to industry data published in August 1996, domestic sales of
microcomputers, peripherals, software and accessories reached $64.3 billion in
1995. Such sales are projected to reach $131.1 billion in 1999, representing a
compound annual growth rate of 20%. The Company believes that the sales of
microcomputers and related products have increased principally as a result of
the following: (i) decreases in prices of microcomputers, peripherals and
software resulting primarily from intense competition among manufacturers,
retailers and resellers; (ii) improvements in microcomputer hardware performance
and development of new software applications; (iii) increased use of
microcomputers by businesses, education institutions and governments; (iv)
increased user familiarity with microcomputers; (v) rapid technological advances
and resulting short product life cycles; and (vi) the emergence of industry
standards and component commonality.
The market for microcomputers and related products is served by a variety
of distribution channels, and intense competition for market share has forced
microcomputer manufacturers to seek new channels through which to distribute
their products. According to industry data, the direct marketing channel is one
of the fastest growing segments of the U.S. PC product resellers market, and is
expected to increase at a compound annual growth rate of 23% from $4.8 billion
in 1995 to $11.2 billion in 1999.
Many individuals and businesses, increasingly familiar with microcomputers,
seem to have become more receptive to direct marketing and now make their
purchase decisions based primarily on product selection and availability, price,
convenience and customer service. Direct marketers generally are able to offer
broader product selection, lower prices and greater purchasing convenience than
traditional retail stores.
The Company believes new entrants into the direct marketing channel must
overcome a number of significant barriers to entry, including the time and
resources required to build a customer base of sufficient size, quality and
responsiveness for cost-effective circulation, the significant investment
required to develop the information and operating infrastructure required for a
direct catalog marketer, the advantages enjoyed by larger established
competitors in terms of purchasing and operating efficiencies, the established
relationships of manufacturers who may be reluctant to allocate product and
cooperative advertising funds to additional participants and the difficulty of
identifying and recruiting management personnel with significant relevant
experience.
The Company believes that it will continue to benefit from industry changes
as a cost-effective provider of a full range of microcomputer and related
products through direct marketing. The Company believes that traditional
distribution channels, such as retail stores, have not satisfied the key
customer purchase criteria of product selection and availability, price,
convenience and service, thus creating an opportunity for growth of direct
marketers of microcomputer products such as the Company.
20
<PAGE> 22
OPERATING STRATEGY
The Company's objective is to become the leading direct marketer of
microcomputer and related products to the computer literate end-user. The key
elements of the Company's strategy are as follows:
Small to Medium-Sized Enterprises (SME) Market Focus. The Company targets
the SME market, businesses with 10 to 1,000 employees, which it believes is one
of the most valuable segments of the computer market. The Company's operating
model positions it to more effectively serve this business segment of the market
through its extensive product selection, high service levels, cost-effective
distribution system, and technological innovation. The Company believes these
business customers represent the most attractive segment of the industry because
they demand leading, high-performance technology products, purchase frequently,
are value conscious and require less technical support.
Targeted Marketing. The Company has continued to increase its focus on
outbound telemarketing and, to this end, has increased the number of account
executives at a compound annual rate of 33% over the last four years to 321 in
fiscal 1996. To support this effort, the Company has prioritized its database,
assigned account responsibility and enhanced sales training. In addition, the
Company is refining its circulation strategy to more efficiently target its
business customer audience and improve the profitability and return on
investment of its catalog operations. The Company continues to offer its
products through integrated direct marketing that includes print, direct mail,
catalogs, inbound and outbound telemarketing, electronic marketing such as the
Internet, package inserts and fax broadcasts.
Building Customer Loyalty. The Company strives to create a strong,
long-term relationship with its customers to increase the productivity of its
existing accounts, encourage repeat buying and ensure customer satisfaction. The
Company believes that a key to building customer loyalty is a team of
knowledgeable and empowered account executives backed by a strong technical and
support staff. Most business customers are assigned a trained account executive
who handles customer orders, notifies them of products and services that may be
of specific interest and acts as a liaison between the customer and the rest of
the Company. The Company believes these strong one-on-one relationships improve
the likelihood that the customer will consider the Company for future purchases.
Product support technicians are available to customers and account executives
during an extended workday. As a result of this effort, more than 50% of the
Company's orders in each of fiscal 1995 and fiscal 1996 were placed by customers
who had previously purchased products from the Company.
Broad Selection of Branded Products. The Company provides the convenience
of one-stop shopping by offering its customers a broad, comprehensive selection
of more than 20,000 computer and computer-related products primarily based on
the Wintel standard. The Company has received authorization from and offers
brand name products of vendors, including, among others, AST, Hewlett-Packard,
IBM, Microsoft, Seagate, Toshiba and Western Digital. The Company's breadth of
product offering combined with its efficient, high-volume and cost-effective
direct marketing practices allow it to offer its customers competitive prices.
The Company has developed "direct-ship" programs with some of its suppliers
through the use of electronic data interchange, allowing it to expand further
its product offerings without increasing its inventory and handling costs or
exposure to inventory risk.
Efficient Technologically-Driven Operator. The Company has developed a
highly refined operating model to support an efficient fulfillment and
distribution infrastructure. The Company's business model has yielded inventory
turns approximating 21 times for each of the past three fiscal years. The
Company also uses technologically advanced, proprietary, real-time information
systems to enhance the integration of its sales, distribution and accounting
functions, with the goal of lowering operating expenses and further improving
customer service and satisfaction levels. To minimize its inventory exposure,
the Company uses a variety of inventory control procedures and policies,
including automated just-in-time management and electronic drop-ship programs
with vendors. In addition, the Company uses other automated systems involving
telephone, credit card processing, and electronic catalog production to further
streamline operations and to continue to improve profitability and increase
customer satisfaction. The Company has leveraged these core operating
competencies by offering outsourcing of direct marketing services to leading
manufacturers and expects to continue to opportunistically leverage these
capabilities in the future.
21
<PAGE> 23
GROWTH STRATEGY
The Company's growth strategy is to increase sales and earnings by (i)
increasing penetration of its existing customer base, (ii) leveraging its
existing infrastructure, (iii) expanding its product offerings and customer base
and (iv) utilizing its emerging technologies.
Increase Penetration of Existing Customer Base. The Company seeks to
become the primary source of computer and related products to its target market.
To achieve this goal, the Company's principal focus going forward will be to
increase penetration of existing accounts by developing the ranks of account
executives who focus on outbound telemarketing opportunities. The Company
believes proactive account management and the assignment of individual account
executives, dedicated to developing closer relationships with active business
customers, will enable it to increase the volume, frequency and breadth of the
business. The Company has more than tripled the number of its account executives
since 1992 to 388 at the end of the first quarter of fiscal 1997, a substantial
portion of which are dedicated to outbound telemarketing. In addition, the
Company has added four high-level sales managers to its management team in order
to enhance sales productivity. The Company continues to prioritize its customer
database to better understand and service its customers and to expand the
long-term nature of its customer relationships.
Leverage Existing Infrastructure. The Company has expended considerable
resources to develop its infrastructure to support its planned growth. Since the
end of fiscal 1995, the Company has added four senior sales managers, increased
the number of its account executives by 149, invested in system upgrades and
improvements and begun construction of a new sales and administrative facility.
The Company believes that these investments should allow the Company to increase
its sales without a corresponding increase in selling, general and
administrative expenses. The Company expects to continue to reduce its selling,
general and administrative expenses as a percent of sales to further improve
profitability through increased productivity of the new account executives,
cost-effective marketing, and economies of scale. In addition, the Company has
developed strong relationships with its vendors and continues to reduce
advertising expenses through increases in cooperative marketing reimbursements.
The Company intends to continue to leverage its core operations by offering
outsourcing of direct marketing services to leading manufacturers of
microcomputer and related products.
Expand Product Offering and Customer Base. The Company offers an extensive
assortment of products and has recently expanded its offerings through the use
of its proprietary technology which enables the Company to maintain a "virtual
inventory" through real-time access to vendor products via electronic data
interchange. The Company will continue to expand its product offerings through
increased use of the electronic drop-ship programs with vendors as well as
seeking new product authorizations as they become available to direct channels.
In addition, the Company, from time to time, analyzes acquisition opportunities
that would further expand and enhance its existing product offerings to the
business customer. The Company seeks to acquire new accounts through targeted
catalog mailings, its outbound telemarketing force, and its other marketing
strategies.
Utilize Emerging Technologies. The Company believes it has historically
been a leader in creating and capitalizing on emerging technologies within
direct marketing, and it expects to continue to capitalize on such new advances.
The Company has begun to and expects to continue to utilize emerging marketing
and distribution channels such as the Internet and on-line computer services to
distribute product information, provide product support, generate sales and
obtain additional customer leads. The Company believes that its business
customer audience is technologically sophisticated and will be early adopters of
such services. These new distribution channels continue to increase the scope of
the Company's marketing efforts, and management believes that they will lead to
increased sales and profitability. In particular, the Company believes that its
direct marketing capabilities will provide it a competitive advantage in the
rapidly expanding Internet commerce channel. The Company expects to further
utilize its direct marketing expertise in order fulfillment and distribution to
take advantage of these new direct marketing channels as they continue to
develop.
22
<PAGE> 24
MARKETING AND CUSTOMERS
The Company sells its products through the direct marketing channel. The
Company's marketing programs are designed to attract new customers and to
stimulate additional purchases from existing customers. Through its marketing
programs, the Company emphasizes its broad product offering, competitive
pricing, fast delivery, customer support and multiple payment options. The
Company uses a number of marketing techniques to reach existing and prospective
customers including catalogs, outbound telemarketing, advertising and specialty
marketing programs.
Outbound Telemarketing. The Company maintains a core group of outbound
telemarketing account executives who contact specified customers on a systematic
basis to generate additional sales. In addition, when time permits, these
account executives utilize various prospecting techniques in order to increase
the size of their customer base. The Company believes that SMEs respond
favorably to a one-on-one relationship with personalized, well-trained account
executives. Once established, these one-on-one relationships are maintained and
enhanced through frequent telecommunications and supplemented by customized
marketing materials designed to meet each customer's specific computing needs.
At September 30, 1996, the Company employed 388 account executives, an increase
of 75% from 222 account executives at September 30, 1995, a substantial portion
of which are focused on outbound marketing.
Catalogs. The Company's catalogs are mailed to the Company's customers and
to potential customers. During fiscal 1995 and 1996, the Company published and
distributed 5.7 million and 12.9 million catalogs, respectively. The Company
publishes three separate catalogs: a business catalog for SMEs and the education
and government markets; a network catalog for technology managers; and a general
catalog for non-business customers. Active customers receive a catalog several
times a year depending on their purchasing history. Each catalog provides
detailed product descriptions, manufacturers' specifications, pricing and the
Company's service and support features. As part of its outsourcing services, the
Company also produces catalogs for certain manufacturers. These catalogs are
circulated periodically, and for select manufacturers, the catalog is inserted
into the manufacturer's product packaging.
The Company's catalog circulation strategy is supported by sophisticated
database marketing techniques which identify customer needs through the
collection, analysis and delivery of customer and prospect information. Detailed
demographic, psychographic and behavioral data collected from internal and
external sources, allows the Company to create a composite picture of the best
customers and prospects.
Advertising. The Company places advertising in selected personal computer
and trade magazines, such as Computer Shopper and PC Magazine. These color
advertisements provide detailed product descriptions, manufacturers'
specifications and pricing information, and emphasize the Company's service and
support features. The Company uses 800-INSIGHT as the phone number in its
advertising as part of its brand awareness strategy. The Company also advertises
its sales oriented Web site through independent content providers on commercial
on-line services such as C/Net(R), AudioNet(R), Computer News Daily(R), and
Computer Shopper(R).
Specialty Marketing. Specialty marketing includes direct mail, other
inbound and outbound telemarketing services, bulletin board services, "fax on
demand" services, package inserts and fax broadcasts. The Company also
communicates with customers through the emerging technology of the Internet. The
Company has developed, and continuously updates, a Web site that features
selected product offerings and specials and other useful information.
Cooperative Marketing. The Company enters into cooperative marketing
agreements with product manufacturers. Under these agreements, the Company
places advertisements in catalogs and personal computer and trade magazines that
feature the manufacturer's product. The manufacturer may provide a mailing list
and generally reimburses the Company through discounts, advertising allowances
and rebates. Additionally, the Insight logo and telephone number are included in
promotions by selected manufacturers and incoming calls are handled by Insight
account executives. The Company believes that cooperative marketing leverages
the Company's marketing reach and builds relationships with leading
manufacturers. Cooperative marketing reimbursements totaled $5.7 million in
fiscal 1995 and $10.0 million in fiscal 1996.
23
<PAGE> 25
Customers. The Company currently maintains an extensive database of
customers and potential customers. Based on dollar volume, approximate
percentages of net sales for fiscal 1996 to end-users in the Company's four
major market segments were as follows: business - 64%, education
institutions - 8%, government organizations - 5%, and home - 23%. The percentage
of sales to business customers has increased from 54% in fiscal 1995. No single
customer accounted for more than 3% of net sales during fiscal 1996.
SALES
Insight believes that its ability to establish and maintain long term
relationships and to encourage repeat purchases is dependent, in part, on the
strength of its account executives. Because its customers' primary contact with
the Company is through its account executives, the Company is committed to
maintaining a qualified and knowledgeable sales staff.
The Company emphasizes recruiting and training high-quality personnel. New
account executives are required to participate in an extensive training program
to develop proficiency and knowledge of the Company's products. This program
consists of class work focusing on technical product information, sales and
customer service and inbound and outbound sales experience. Additionally, the
Company, in conjunction with product manufacturers and distributors, sponsors
mandatory, weekly training sessions introducing new products and emphasizing
fast-selling products. The Company also has a training program which seeks to
refine sales skills and introduce new policies and procedures. The Company's
main sales division is open 365 days a year, 24 hours a day.
Each account executive is responsible for building a customer base. Most
first time callers are assigned to an account executive. All subsequent incoming
calls from that customer are then directed to this account executive. The
Company's information system allows on-line retrieval of relevant customer
information, including the customer's history and product information, including
list price, cost and availability, as well as upselling and cross-selling
opportunities. The account executive is empowered to negotiate sales prices and
is compensated based upon the gross profit dollars generated. Most account
executives also make outbound sales calls to customers. If required, a technical
product engineer can be conferenced into any customer telephone call to provide
additional assistance.
The Company attributes its high inbound call volume and favorable repeat
orders in part to the strength of its account executives. During fiscal 1995 and
1996, more than 50% of the Company's orders were placed by repeat customers. The
Company has established a dedicated sales division focusing on business,
education and government accounts. These account executives have been promoted
from the direct inbound sales division or have been hired directly into this
position and have demonstrated the experience needed to interact with
sophisticated purchasing agents and the management information staffs of larger
organizations.
The Company has experienced an increase in average order size of 9.7% from
$598 in fiscal 1995 to $656 in fiscal 1996. This increase in average order size
is primarily attributable to the increased sales of high-end notebooks and was
partially offset by decreasing prices on many products offered by the Company
and the lower average order size associated with the Company's outsourcing
programs, which tend to feature accessory and peripheral products.
24
<PAGE> 26
MERCHANDISING
The Company offers microcomputers, hardware and software products. The
following chart provides information regarding selected products offered by the
Company during fiscal 1995 and fiscal 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------
PRODUCT CATEGORIES 1995 1996 SELECTED PRODUCT MANUFACTURERS
- --------------------------- -------------- -------------- -------------------------------------
<S> <C> <C> <C> <C>
Microcomputers:
Name brand............... 13% 29% AST Texas Instruments
IBM Toshiba
Insight-brand............ 21% 3% Insight
Hard disk drives........... 24% 23% Fujitsu Seagate
Quantum Western Digital
Memory..................... 6% 9% IBM PNY
Kingston Toshiba
Monitors/Video............. 10% 7% CTX NEC
Mag Innovision ViewSonic
Network/Connectivity....... 3% 6% Cisco 3Com
Intel U.S. Robotics
Printers................... 7% 5% Canon Hewlett-Packard
Epson Panasonic
Multimedia................. 6% 5% Creative Labs Sony
Plextor TEAC
Software................... 4% 5% Corel Microsoft
Lotus Novell
Miscellaneous.............. 6% 8% American Power Colorado Memory
Conversion Intel
</TABLE>
Name brand microcomputers, including notebooks, are the fastest growing
product category of the Company representing 29% of net sales in fiscal 1996, up
from 13% of net sales in fiscal 1995. The growth of this product category is due
to the increasing acceptance of the use of notebooks by the business customer,
the Company's emphasis on the sale of name brand microcomputers and the
elimination of Insight-brand microcomputers during the second quarter of fiscal
1996. Insight-brand microcomputers decreased from 21% of net sales in fiscal
1995 to 3% of net sales in fiscal 1996, and memory and network/connectivity
products increased as a percentage of net sales from 6% to 9% and 3% to 6% in
fiscal 1995 and 1996, respectively, due to computing needs as well as improved
price to performance values.
The Company selects its products based upon existing and proven technology.
The Company does not introduce a new product until it believes that a sufficient
market has developed for such product. The Company's product managers and buyers
evaluate new products and the effectiveness of existing products and select
products for inclusion in its marketing based upon product features, quality,
sales trend, price, margins and warranties. As a result of the Company's goal to
offer the latest in technology, the Company quickly replaces slower selling
products with new products. The Company offers more than 20,000 computer and
computer-related products primarily based on the Wintel standard.
More than 50% of the Company's orders in each of fiscal 1995 and fiscal
1996 were placed by repeat customers who had previously purchased products from
the Company.
SERVICE AND SUPPORT
Insight believes it achieves high levels of customer satisfaction. The
Company's dedication to prompt, efficient customer service and technical support
are important factors in customer retention and overall satisfaction.
Toll-Free Technical Support. The Company provides toll-free technical
support to its customers six days each week. Product support technicians assist
customers with questions concerning compatibility, installation, determination
of defects and general questions of product use. The product support technicians
25
<PAGE> 27
authorize customers to return defective or incompatible products to either the
manufacturer or to the Company for warranty service.
Fast Product Delivery. Utilizing the Company's proprietary information
system, customer orders are sent to the Company's distribution center for
processing immediately after they are credit approved. Federal Express has set
up its own packing facility within the Company's distribution facility and
integrated its labeling and tracking system into the Insight information system
to ensure prompt delivery. The Company ships most of its orders on the day the
orders are received at the distribution center. For an extra delivery charge,
the Company's customers can receive products on the same day the customer places
the order for deliveries within certain large metropolitan areas.
Specialty Communications. Company employees use the Internet network to
enhance customer support and inter-business correspondence. The network access
provides a convenient communication device enabling customers to contact their
sales, customer service and technical support representatives via text-based
messages. The customer receives a message via electronic mail immediately upon
shipment to confirm that the order has been shipped.
Warranties and Product Returns. The majority of the products marketed by
the Company are warranted by the manufacturer. The Company usually requests that
customers return their defective products directly to the manufacturer for
warranty service. On selected products and for selected customer services
reasons, the Company accepts returns directly from the customer and then either
credits the customer or ships the customer a similar but usually previously
repaired product from the Company's inventory. The Company offers a limited
30-day money back guarantee for all unopened products and selected opened
products, and selected products are subject to restocking fees. The returned
products are quickly processed and returned to the manufacturer for repair,
replacement or credit to the Company. Products that can not be returned to the
manufacturer for warranty processing are sold at a discount through a local
retail outlet and through the Company's Web site, which helps to minimize losses
to the Company from returned products.
TECHNOLOGY BASED OPERATIONS
The Company believes its implementation of advanced technological systems
provides competitive advantages by increasing the productivity of its account
executives, delivering more efficient customer service and reducing order
processing and inventory costs. The Company's account executives can access the
information system to obtain (i) a customer history, (ii) the cost and
availability of the current order, (iii) the compatibility of products ordered,
and (iv) cross-selling and up-selling opportunities based upon products ordered.
The Company believes that the information available to the Company's account
executives empowers them to make better decisions, provide superior customer
service and increase overall profitability. In addition, in connection with the
construction of the Company's new sales and administrative facility, the Company
is making a substantial investment in computer, telecommunication and other
technology. The Company believes that its investment in such technology will
continue to improve its efficiency, substantially increase redundancy in the
Company's management information systems and make available back-up systems and
generators that will help to minimize the impact of any interruption in the
Company's management information systems or telecommunication systems.
The Company has integrated its sales, accounting, inventory and
distribution systems. Utilizing the Company's proprietary information system,
orders are sent to the Company's distribution center for processing immediately
after they are received from a customer after credit approval. All products
received in the Company's distribution center have a UPC code, manufacturer bar
code or supplier bar code, or are issued an Insight bar code. The Company's
proprietary superscan process checks orders to ensure accurate fulfillment prior
to shipping and tracks the reduction in inventory. Currently, the Company has
implemented a re-ordering system that calculates lead times and, in some
instances, automatically re-orders from certain vendors. The Company has
developed a sophisticated re-ordering system that accepts vendor price quotes
from several competing vendors and automatically re-orders from the vendor with
the most competitive price. The Company has integrated its order processing,
labeling and tracking systems with Federal Express to
26
<PAGE> 28
ensure overnight delivery to the correct location. Additionally, the Company has
implemented an on-line, real time credit card address verification and approval
system through a third-party provider with Visa(R), MasterCard(R), American
Express(R) and Discover(R) to instantaneously match the address provided by the
customer with the specific credit card billing address and obtain transaction
approval.
Through the use of approximately 700 toll-free telephone numbers, the
Company can track specific catalog responses based on a variety of demographic
and product parameters and focus its marketing efforts and product selection to
specific target markets. The system can automatically route calls, depending on
their originating data, to specific sales groups or the best-selling account
executives. The telephone system also uses menu systems that permit the
customers to route themselves to the appropriate service or sales area, or to
their assigned account executives.
PURCHASING AND DISTRIBUTION
Purchasing/Inventory Management. During fiscal 1996, the Company purchased
products from approximately 300 suppliers. Approximately 61% (based on dollar
volume) of these purchases were directly from manufacturers, with the balance
from distributors. Purchases from Merisel, a distributor and the Company's
largest supplier, accounted for approximately 19% of the Company's product
purchases in fiscal 1996. The top five suppliers as a group (Merisel, Toshiba,
Seagate, Ingram MicroD (a distributor) and Western Digital) accounted for
approximately 51% of the Company's product purchases during the same period.
The Company believes it has excellent relationships with its suppliers,
which have resulted in favorable return and price protection policies, as well
as promotional and marketing allowances. Although brand names and individual
products are important to the Company's business, the Company believes that
competitive sources of supply are available in substantially all of its product
categories and therefore it is not dependent on any single vendor.
Inventory Management. Just-in-time inventory management is utilized by the
Company as a way of reducing inventory costs. The Company's order fulfillment
and inventory controls allow the Company to forecast and order products
just-in-time for shipping. The Company promotes the use of electronic data
interchange with its vendors, which helps to reduce overhead and the use of
paper in the ordering process. Additionally, some distributors will "direct
ship" products directly to the customer, which reduces physical handling by the
Company. Such direct-shipments are not apparent to the customer. These inventory
management techniques have allowed the Company to offer a greater range of
products without increased inventory requirements, and to maintain inventory
turns of 21 times a year.
The industry in which the Company operates is characterized by rapid
technological change and the frequent introduction of new products and product
enhancement, and, while the Company attempts to anticipate and react to new
product introductions and to mitigate its exposure to losses from inventory
obsolescence, there can be no assurance that such efforts will be successful or
that unexpected new product introductions will not have a material adverse
effect on the demand for the Company's inventory.
Distribution Center. Activities performed in the Company's approximately
122,000-square feet of distribution space in Tempe, Arizona, include receipt and
shipping of inventory, configuration of microcomputer systems, processing of
returned products, a "will call" facility where Arizona customers can pick up
orders and a retail outlet where heavily discounted products are offered for
sale. Orders are transmitted electronically from the account executive to the
distribution center after credit approval, where a packing slip is printed
automatically for order fulfillment. All inventory items are bar coded and
placed in designated bin locations that are marked with both readable and bar
coded identifiers. Product movement is computer directed and radio frequency
scanned for verification. Radio frequency technology also is used to perform
daily inventory cycle counts to ensure inventory accuracy. A proprietary
superscan process also is used to ensure accurate order fulfillment. Recently,
the Company expanded to a separate building where all return product and
technical services are now performed.
27
<PAGE> 29
OUTSOURCING
The Company seeks to leverage its core competencies in direct marketing by
providing turnkey direct marketing services to leading manufacturers. The
Company believes that outsourcing provides the manufacturers the ability to
reduce operational overhead, stimulate demand for their products through other
marketing channels, increase sales and enhance customer satisfaction.
The Company currently provides direct marketing services to certain
manufacturers, including Toshiba and Seagate. These services generally include
publishing and circulating catalogs, placing advertisements under the
manufacturer's name, providing account executives dedicated solely to the
manufacturer's product line and fulfilling and shipping orders. The account
executives interface with customers as representatives of the applicable
manufacturers. In most cases, the Company is responsible for the granting of
credit and for the collection of accounts generated by these product sales, but
the manufacturer typically retains responsibility for warranty, service and
technical support of its products. During fiscal 1996, the Company also provided
outsourcing services to Air Taser, a manufacturer of non-lethal self defense
products. The arrangement with Air Taser is the Company's first outsourcing
arrangement involving a non-computer-related product. While the Company's
predominant market focus will remain on computer-related products, the Company
intends to evaluate opportunities to leverage its sales, marketing and
distribution capabilities in areas involving selected non-computer products from
time to time.
The Company also made changes in its arrangements with other marketers,
such as American Express and Fingerhut, in which brand name products are
included in catalogs and other mailings produced and distributed by and under
the name of the marketer. The marketer purchases products from the Company that
are ordered by its customers and pays the Company the contracted-for purchase
price. The products were usually subject to the manufacturer's warranties and
servicing. Continued margin pressure caused these types of arrangements to
become less advantageous to the Company and other marketers. Consequently, the
Company phased out of sales to third party marketers in fiscal 1996.
COMPETITION
The microcomputer and related products industry is highly competitive. The
Company expects competition to increase as retailers and direct marketers who
have not traditionally sold microcomputer and related products enter the
industry and as the industry's rate of growth in the United States slows. The
Company competes with a large number and wide variety of marketers and resellers
of microcomputers and related products, including traditional microcomputer and
related products retailers, computer superstores, consumer electronics and
office supply superstores, mass merchandisers and national direct marketers
(including value-added resellers and specialty retailers, aggregators,
distributors, franchisors, manufacturers and national computer retailers which
have commenced their own direct marketing operations).
Certain of the Company's competitors have longer operating histories and
greater financial, technical, marketing and other resources than the Company. In
addition, many of these competitors offer a wider range of products and services
than the Company, and may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many current and
potential competitors also have greater name recognition and more extensive
promotional activities, offer more attractive terms to customers and adopt more
aggressive pricing policies than the Company. There can be no assurance that the
Company will be able to compete effectively with current or future competitors
or that the competitive pressures faced by the Company will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
SALES OR USE TAX
The Company presently collects sales tax only on sales of products to
residents of the State of Arizona. Sales to customers located within the State
of Arizona were approximately 12% of the Company's net sales during fiscal 1996.
Various states have sought to impose on direct marketers the burden of
collecting state sales taxes on the sales of products shipped to that state's
residents. The United States Supreme Court recently affirmed its position that
it is unconstitutional for a state to impose sales or use tax collection
28
<PAGE> 30
obligations on an out-of-state mail order company whose only contacts with the
state are the distribution of catalogs and other advertising materials through
the mail and the subsequent delivery of purchased goods by United States mail or
by interstate common carrier. If the Supreme Court changes its position or if
legislation is passed to overturn the United States Supreme Court's recent
decision, the imposition of a sales or use tax collection obligation on the
Company in states to which it ships products would result in additional
administrative expenses to the Company, could result in price increases to the
customer or otherwise have a material adverse effect on the Company. From time
to time, legislation to overturn this decision of the Supreme Court has been
introduced, although to date, no such legislation has been passed.
PATENTS, TRADEMARKS AND LICENSES
The Company does not maintain a traditional research and development group,
but works closely with microcomputer product vendors and other technology
developers to stay abreast of the latest developments in microcomputer
technology. Where necessary, the Company has obtained patent licenses for
certain technology. The Company conducts its business under the trademark and
service mark "Insight" and its related logo. The Company intends to use and
protect these and its other marks, as it deems necessary. The Company believes
its trademarks and service marks have significant value and are an important
factor in the marketing of its products.
PERSONNEL AND TRAINING
As of June 30, 1996, the Company employed 695 persons, 197 were in
management support services and administration; 321 were account executives; 66
were in technical support and customer service; and 111 were in
warehouse/distribution. The Company's employees are not represented by any labor
union, and the Company has experienced no work stoppages. The Company believes
its employee relations are good.
Insight has invested in its employees' future and the Company's future,
through Insight University, an ongoing program of internal and external
training. The training programs include: Sales Training Program, New Hire
Training Program, LEAD, TEAM, and Management Development. Insight's Sales
Training Program is dedicated to ensuring quality sales and customer services.
Classes offered target sales management, account executives, customer service,
customer engineers and technical support by providing new skills through the
entire sales process. The Company's New Sales Training Program encompasses a
three-week extensive product, system, and procedural training program. Insight
has contracted with Learning International to assist in focusing training in the
areas of account penetration and development. LEAD (Leadership Enhancement and
Development) is a weekly one-hour informational/training session for supervisors
and managers designed to improve management skills and enhance communication
throughout the Company. TEAM (Train Everyone to Achieve More) provides every
account executive with weekly product, industry, and operational training.
Management Development training is a new focus for Insight and provides each
manager with individual development plans by taking classes relevant to his/her
needs.
REGULATORY AND LEGAL MATTERS
The direct response business as conducted by the Company is subject to the
Merchandise Mail Order Rule and related regulations promulgated by the Federal
Trade Commission, the Arizona Attorney General and various regulatory
authorities in other states from which the customers purchase products. The
Company believes it is in compliance with such regulations and has implemented
programs and systems to assure its ongoing compliance with such regulations.
There are no material legal proceedings pending against the Company.
PROPERTIES
The Company's principal facilities include 174,000 square feet of leased
space in seven facilities in Tempe, Arizona which houses its executive,
administrative, sales, warehouse and distribution activities. The leases for
approximately 70% of such space expire in 1997 and the remaining 30% expire in
1999. In July 1995, the Company acquired approximately 17 acres of vacant land
in Tempe, Arizona. The Company started
29
<PAGE> 31
construction in the third quarter of fiscal 1996 and will be consolidating its
sales, executive and administrative functions into a 103,000 square foot
facility on the acquired land during fiscal 1997 to better support the Company's
expanding operations. Such functions currently are located in four facilities.
Based on current plans, the total cost of constructing and equipping this new
facility is expected to be approximately $11 million. The Company may require
more space in the future. The amount and timing of future space needs will
depend upon the extent of the Company's growth. The Company believes that
suitable facilities will be available as needed.
USE OF TRADENAMES AND PRODUCT NAMES
The following trademarks or tradenames are used in this Prospectus to
identify the entities claiming the marks or names of their products: "Air Taser"
for Air Taser, Inc., "American Express" for American Express Travel Related
Services Company, Inc., "American Power Conversion" for American Power
Conversion Corporation, "AST" for AST Research Inc., "Canon" for Canon Computer
Systems, Inc., "Cisco" for Cisco Systems, Inc., "Colorado Memory" for Colorado
Memory Systems, Inc., "Corel" for Corel Corporation, "Creative Labs" for
Creative Labs, Inc., "CTX" for CTX International, Inc., "Epson" for Epson
America, Inc., "Federal Express" for Federal Express Corporation, "Fingerhut"
for Fingerhut Companies, Inc., "Fujitsu" for Fujitsu Computer Products of
America, Inc., "Hewlett-Packard" for Hewlett-Packard Company, "IBM" for
International Business Machines Corporation, "Ingram Micro D" for Ingram Micro
D, Inc., "Kingston" for Kingston Technology Corporation, "Intel" for Intel
Corporation, "Lotus" for Lotus Development Corporation, "MAG Innovision" for MAG
InnoVision, Inc., "Merisel" for Merisel, Inc., "Microsoft" for Microsoft
Corporation, "NEC" for NEC Technologies, Inc., "Novell" for Novell Inc,
"Panasonic" for Matsushita Electric Corporation of America, "Plextor" for
Plextor, Inc., "Quantum" for Quantum Corporation, "Seagate" for Seagate
Technology, Inc., "Sony" for Sony Electronics Inc., "TEAC" for Teac America,
Inc., "Texas Instruments" for Texas Instruments, Incorporated, "3Com" for 3Com
Corporation, "Toshiba" for Toshiba America Information Systems, Inc., "U.S.
Robotics" for U.S. Robotics, Inc., "ViewSonic" for ViewSonic, a Division of
Keypoint Technology Corporation, and "Western Digital" for Western Digital
Corporation. None of the companies listed above has participated in or endorsed
this offering.
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<PAGE> 32
MANAGEMENT
The following table sets forth information with respect to directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------------- --- -------------------------------------
<S> <C> <C>
Eric J. Crown(1)............................ 34 Chief Executive Officer and Chairman
of the Board of the Company
Timothy A. Crown(1)......................... 32 President and Director of the Company
Stanley Laybourne(1)........................ 47 Chief Financial Officer, Secretary,
Treasurer and Director of the Company
Michael A. Gumbert.......................... 37 Chief Operating Officer of Insight
Direct, Inc.
Branson M. Smith............................ 40 Chief Operating Officer of Direct
Alliance Corporation
Larry A. Gunning(2)......................... 52 Director
Robertson C. Jones(2)....................... 52 Director
</TABLE>
- ---------------
(1) Member of Executive Committee of the Board of Directors.
(2) Member of Audit and Compensation Committees of the Board of Directors.
Eric J. Crown has been the Chief Executive Officer and Chairman of the
Board of the Company since 1988, and is one of its founders. In 1984, he
received a Bachelor of Science degree in Business Computer Information Systems
from Arizona State University. From 1983 to 1986, Mr. Crown operated an
independent computer firm. From 1986 to 1988, Mr. Crown was a partner in
MicroNet Consulting, a computer consulting and sales company. Eric J. Crown is
the brother of Timothy A. Crown.
Timothy A. Crown has been employed by the Company since its inception in
1988 and has been its President since 1989. He received a Bachelor of Science
degree in Business and Computer Science from the University of Kansas in 1986.
From 1986 until 1987, Mr. Crown was employed by NCR Corporation as an
Administrative Analyst. From 1987 to 1988, Mr. Crown was a partner in MicroNet
Consulting. Timothy A. Crown is the brother of Eric J. Crown.
Stanley Laybourne was an independent consultant to the Company from
September 1990 through March 1991 and became its Chief Financial Officer and
Treasurer in April 1991. In November 1994, he became Secretary of the Company.
Mr. Laybourne received a Bachelor of Science degree in Accounting from The Ohio
State University in 1971, with a Masters in Business Administration degree from
Arizona State University in 1972. From 1972 to 1985, he was employed by Touche,
Ross & Co., a predecessor to Deloitte & Touche, where he was an audit partner
from 1983 to 1985. From 1985 to 1989, Mr. Laybourne was President and Chief
Executive Officer of The Scottscom Group, a financial services company. From
1989 to 1990, Mr. Laybourne was Executive Vice President of Ovation Broadcasting
Company, a company which operated commercial radio broadcast properties. Mr.
Laybourne is the Chief Financial Officer of the Fiesta Bowl and a member of the
City of Scottsdale Citizen's Bond Review Commission. Mr. Laybourne is a
Certified Public Accountant.
Michael A. Gumbert was hired on July 1, 1996, as Insight Direct, Inc.'s
Chief Operating Officer. From August 1995 to June 1996, Mr. Gumbert was Senior
Vice President, General Manager of Tandy Corporation, a consumer electronics
retailer. From 1983 through 1990, Mr. Gumbert held various positions within
MicroAmerica, Inc., a value added computer distributor. In 1990, MicroAmerica,
Inc. was acquired by Merisel, Inc., a distributor of computers, software and
peripherals. From 1990 through June 1995, Mr. Gumbert held several positions
with Merisel, Inc., including Senior Vice President, Sales and Operation from
April 1992 to June 1995. Mr. Gumbert received a Bachelor of Business
Administration in Marketing from North Texas State University in 1981.
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<PAGE> 33
Branson M. Smith has been employed by Insight Direct, Inc. since March 1992
and has served as its Vice President of Distribution and Senior Vice President
of Fulfillment Services. In September 1996, Mr. Smith was promoted to Chief
Operating Officer of Direct Alliance Corporation. From May 1991 to March 1992,
Mr. Smith was a principal in Southwest Automation, an industrial operations
consulting firm. From December 1987 to May 1991, Mr. Smith was a Division
Manager of Shape West, a computer disk manufacturer. Mr. Smith received a
Bachelor of Science degree in Business Administration from the University of
Arizona in 1978. Mr. Smith is a member of the Board of Advisors of the National
Catalog Operations Forum.
Larry A. Gunning has been a director of the Company since January 1995. He
has been President of Pasco One, Inc. and Pasco Petroleum Corp., petroleum
marketing companies, since 1990 and 1988, respectively. Mr. Gunning received a
Bachelor of Science degree in Business Management from Arizona State University
in 1966. Mr. Gunning is a member of the Arizona State University College of
Business Dean's Council of 100 and a director of several nonprofit
organizations.
Robertson C. Jones has been a director of the Company since January 1995.
Mr. Jones has been Vice President and General Counsel of Del Webb Corporation, a
developer of master-planned residential communities, since January 1992. From
March 1990 to November 1991, he was a partner with the law firm of Gaston &
Snow, and from January 1985 to February 1990, he was a director and shareholder
of Moya, Bailey, Bowers & Jones, P.C., which was a partner of Gaston & Snow. In
October 1991, while Mr. Jones was a partner of such firm, Gaston & Snow filed a
voluntary petition under Chapter 11 of the Bankruptcy Code. Mr. Jones was never
a member of that firm's management or executive committees. All of Mr. Jones'
involvement with Gaston & Snow was formally terminated in September 1993. During
November and December 1991, Mr. Jones was an attorney with the law firm of
Quarles & Brady. Mr. Jones received his Bachelor of Arts degree from Williams
College in 1966, his Masters in Business Administration degree from Oklahoma
City University in 1969 and his Juris Doctor degree from the University of
California, Hastings College of Law, in 1977.
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<PAGE> 34
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of October 16, 1996 of the Company's Common Stock by (i) each
person or entity known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers, (iv) all directors and executive
officers of the Company as a group and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP OWNERSHIP
PRIOR TO THE NUMBER OF AFTER THE
OFFERING(1) SHARES OFFERING(1)
--------------------- BEING -------------------
NAME OF BENEFICIAL OWNER(2) NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Eric J. Crown(3)......................... 984,129 18.2% 200,000 784,129 12.0%
Timothy A. Crown(4)...................... 984,029 18.2% 200,000 784,029 12.0%
Stanley Laybourne(5)..................... 45,647 * 20,000 25,647 *
Denny J. Chittick(6)..................... 91,295 1.7% 20,000 71,295 1.1%
Michael A. Gumbert....................... 3,250 * -- 3,250 *
Branson M. Smith......................... -- -- -- -- --
Larry A. Gunning(7)...................... 5,750 * -- 5,750 *
Robertson C. Jones(7).................... 1,000 * -- 1,000 *
Principal Financial Securities,
Inc.(8)................................ 43,125 * 43,125 -- --
Pennsylvania Merchant Group Ltd.(9)...... 28,750 * 28,750 -- --
Lawrence E. Fish(10)..................... 14,375 * 14,375 -- --
All officers and directors as a group (7
persons)(11)........................... 2,023,805 37.0% 420,000 1,603,805 24.4%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options and warrants
options which are currently exercisable or which become exercisable within
60 days of the date of the information in the table, are deemed to be
beneficially owned by the optionee or warrant holder. Except as indicated
by footnote, and subject to community property laws where applicable, the
persons or entities named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) The address for Messrs. Crown, Crown, Laybourne, Chittick, Gumbert, Smith,
Gunning and Jones is c/o Insight Enterprises, Inc. 1912 West Fourth Street,
Tempe, Arizona 85281.
(3) Includes 100 shares beneficially owned by Mr. Crown's spouse. If the
Underwriters' over-allotment option is exercised in full, an additional
30,000 shares will be sold by Mr. Crown and thereafter Mr. Crown will
beneficially own 754,129 shares, representing 11.2% of the total shares
outstanding after the offering.
(4) If the Underwriters' over-allotment option is exercised in full, an
additional 30,000 shares will be sold by Mr. Crown and thereafter Mr. Crown
will beneficially own 754,029 shares, representing 11.2% of the total
shares outstanding after the offering.
(5) Consists of 45,647 shares subject to options exercisable within 60 days of
October 16, 1996. If the Underwriters' over-allotment option is exercised
in full, an additional 3,000 shares will be sold by Mr. Laybourne and
thereafter Mr. Laybourne will beneficially own 22,647 shares subject to
options representing less than 1% of the total shares outstanding after the
offering.
(6) Consists of 91,295 shares subject to options exercisable within 60 days of
October 16, 1996. If the Underwriters' over-allotment option is exercised
in full, an additional 3,000 shares will be sold by Mr. Chittick and
thereafter Mr. Chittick will beneficially own 68,295 shares subject to
options representing 1% of the total shares outstanding after the offering.
(7) Includes 500 shares subject to options exercisable within 60 days of
October 16, 1996.
(8) Consists of 43,125 shares underlying warrants that are exercisable within
60 days of October 16, 1996, which will be offered as part of this
offering. Principal Financial Securities, Inc. was an underwriter of two of
the Company's public offerings in 1995.
(9) Consists of 28,750 shares underlying warrants that are exercisable within
60 days of October 16, 1996, which will be offered as part of this
offering. Pennsylvania Merchant Group Ltd. was an underwriter of two of the
Company's public offerings in 1995.
(10) Consists of 14,375 shares underlying warrants that are exercisable within
60 days of October 16, 1996, which will be offered as part of this
offering. Mr. Fish was a principal of Pennsylvania Merchant Group Ltd. at
the time of the Company's public offerings in 1995.
(11) Includes 46,647 shares subject to options exercisable within 60 days of
October 16, 1996.
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<PAGE> 35
SHARES ELIGIBLE FOR FUTURE SALE
There will be 6,542,536 shares of Common Stock outstanding upon the
consummation of the offering. Of these shares, 4,974,478 shares are freely
tradeable, without restriction or further registration under the Securities Act
except for any of such shares held by "affiliates" of the Company.
The remaining 1,568,058 shares of Common Stock held by the existing
stockholders are "restricted securities" under the Securities Act, all of which
are held by executive officers, directors and certain stockholders who, together
with the Company, have agreed not to sell, contract to sell, or otherwise
dispose of, any shares of Common Stock without the consent of Montgomery
Securities for a period of 120 days after the date of this Prospectus. Upon
expiration of such agreements, such shares will be eligible for sale in the
public markets in accordance with Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, including persons who may be deemed "affiliates" of the
Company, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are also subject to certain other requirements relating to manner of
sale, notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule 144(k)
without regard to the limitations described above, provided that three years
have expired since the later of the date on which such restricted shares were
first acquired from the Company or from an affiliate of the Company.
Upon consummation of the offering, options to purchase 661,317 shares of
Common Stock granted to certain directors, officers and key employees of the
Company will be outstanding. Of the shares underlying these outstanding options,
241,942 are subject to the agreements described above restricting the sale of
such shares for a period of 120 days after the date of this Prospectus. The
Company has an effective registration statement under the Securities Act
relating to shares of Common Stock issuable upon the exercise of stock options
granted under the Company's stock option plan. Accordingly, except as limited by
the agreements described above and by Rule 144 volume limitations applicable to
affiliates, shares issued upon the exercise of stock options are available for
sale in the open market.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
34
<PAGE> 36
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions set forth in the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders the number of shares of Common Stock
indicated below opposite their respective names at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITERS SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities.....................................................
Lazard Freres & Co. LLC...................................................
Piper Jaffray Inc.........................................................
---------
Total................................................................... 1,526,250
=========
</TABLE>
The Underwriters have advised the Company and the Selling Stockholders that
the Underwriters propose initially to offer the Common Stock to the public on
the terms set forth on the cover page of this Prospectus. The Underwriters may
allow to selected dealers a concession of not more than $ per share;
and the Underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance by
the Underwriters, and to certain other conditions, including the right to reject
orders in whole or in part.
The Company and certain Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 228,938 additional shares of Common
Stock to cover over-allotments, if any, at the same price per share as the
initial shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise this option, the Underwriters will be committed, subject
to certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and its executive officers, directors and certain of the
Selling Stockholders have agreed, subject to certain limited exceptions, not to
offer, sell or otherwise dispose, directly or indirectly, of any shares of
Common Stock of the Company for a period of 120 days after the date of this
Prospectus, without the prior written consent of Montgomery Securities.
The Underwriters and selling group members (if any) that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock on Nasdaq in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 (the "Exchange Act"). Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed. Passive market making may stabilize the market price of the
35
<PAGE> 37
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this offering will be passed upon for the Company and the
Selling Stockholders by Snell & Wilmer L.L.P., Phoenix, Arizona. Certain legal
matters in connection with the Common Stock offered hereby will be passed upon
for the Underwriters by Brobeck, Phleger & Harrison LLP.
EXPERTS
The consolidated financial statements of Insight Enterprises, Inc. as of
June 30, 1995 and 1996, and for each of the years in the three-year period ended
June 30, 1996, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
with respect to the shares offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained herein concerning the
provisions of any documents are not necessarily complete and, in each instance,
reference is made to the copy of such documents filed as an exhibit to the
Registration Statement, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, and other information with the
Commission. A copy of the reports, and other information filed by the Company in
accordance with the Exchange Act may be inspected without charge at the offices
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and will also be available for inspection and copying at the Commission's
Regional Offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Information concerning the registrant is also available for
inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
36
<PAGE> 38
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated herein by reference: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 (ii) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1996; and (iii) the
description of the Company's Common Stock contained in the Company's Form 8-A
filed under the Exchange Act. All documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the termination of the offering of
the Common Stock registered hereby shall be deemed to be incorporated by
reference herein and to be a part hereof from the dates of filing of such
documents. 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 the Registration Statement and this Prospectus to the extent
that a statement contained herein or in any subsequently filed document which
also is, or is 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 the
Registration Statement or this Prospectus. The Company will provide, without
charge, to each person to whom this Prospectus is delivered, upon written or
telephonic request of such person, a copy of any or all of the foregoing
documents incorporated by reference into this Prospectus (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into this Prospectus). Requests should be delivered in writing to the Secretary,
Insight Enterprises, Inc., 1912 West Fourth Street, Tempe, Arizona 85281 or by
telephone at (602) 902-1001.
37
<PAGE> 39
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, the Selling
Stockholders or the Underwriters. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, to any person in any jurisdiction
in which such offer to sell or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Consolidated Financial and
Operating Data...................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 20
Management............................ 31
Principal and Selling Stockholders.... 33
Shares Eligible for Future Sale....... 34
Underwriting.......................... 35
Legal Matters......................... 36
Experts............................... 36
Available Information................. 36
Information Incorporated by
Reference........................... 37
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,526,250 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
LAZARD FRERES & CO. LLC
PIPER JAFFRAY INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 40
Appendix A
Description of graphic material
1. Location: Inside front cover shows 8 copies of Insight Catalogs.
2. Location: Inside back cover shows 3 photos.
Top left photo shows Insight's account executives.
Middle right photo shows numerous brand products.
Bottom left photo shows Insight's distribution center in Tempe.
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the offering being registered hereby:
<TABLE>
<S> <C>
SEC filing fee.......................................................... $ 20,478
NASD filing fee......................................................... $ 7,258
Nasdaq National Market fee.............................................. $ 17,500
Blue Sky fees and expenses, including legal fees*....................... $ 10,000
Printing and engraving*................................................. $ 90,000
Legal fees and expenses*................................................ $120,000
Accounting fees and expenses*........................................... $ 75,000
Miscellaneous*.......................................................... $ 9,764
-------
Total......................................................... $350,000
=======
</TABLE>
- ---------------
* Estimated
The Company will pay all expenses of the offering, including those incurred
by Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware (the
"General Corporation Law"), provides that a Delaware corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she 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 corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) Provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if be or she acted under similar standards,
except that no indemnification may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that despite the adjudication of liability,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense or any claim, issue or
matter therein, he or she shall be indemnified against expenses actually and
reasonably incurred by him or her in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that the corporation may
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or her or incurred by him
or her in any such capacity or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify him or her against such
liabilities under such Section 145.
II-1
<PAGE> 42
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for violations of a
director's duty of care.
However, no such provision may eliminate or limit the liability of a
director for breaching his or her duty of loyalty, acting or failing to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying an unlawful dividend or approving an unlawful stock repurchase, or
obtaining an improper personal benefit. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. The Company's Certificate of Incorporation contains
such a provision.
The Company's Bylaws provide that the Company shall indemnify officers and
directors to the full extent permitted by and in the manner permissible under
the laws of the State of Delaware.
The Company has a directors and officers' liability insurance policy with a
policy limit of $1,000,000 and coverage for, among other things, liability for
violations of federal and state securities laws.
The Company has entered into indemnity agreements with its directors and
officers for indemnification of and advance of expenses to such persons to the
full extent permitted by law. The Company intends to execute such indemnity
agreements with its future officers and directors.
The Company and its officers, directors and other persons are entitled to
be indemnified under certain circumstances for certain securities law violations
in the Underwriting Agreement (Exhibit 1.1 hereto).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ --------------------------------------------------------- -----------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement Filed herewith
2.1 Articles of Merger and Certificate of Merger between Incorporated by reference to
Insight Enterprises, Inc., an Arizona corporation, and Exhibit 2.1 of the Company's
Insight Enterprises, Inc., a Delaware corporation (the Form S-1 Registration
"Registrant") Statement No. 33-86142 (Form
S-1 No. 33-86142)
4.1 Specimen Common Stock Certificate Incorporated by reference to
Exhibit 4.1 of the Form S-1
No. 33-86142
4.2 Form of Common Stock Warrant between the Registrant and Incorporated by reference to
certain Warrant Holders Exhibit 4.4 of the Form S-1
No. 33-86142
5 Opinion of Snell & Wilmer L.L.P. Filed herewith
23 Consent of KPMG Peat Marwick LLP Filed herewith
24 Power of Attorney See signature page
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 indemnifica-
II-2
<PAGE> 43
tion by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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 Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities 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.
II-3
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Insight
Enterprises, Inc. certifies that it 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 on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on October 17, 1996.
INSIGHT ENTERPRISES, INC.
By: /s/ ERIC J. CROWN
------------------------------------
Eric J. Crown,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Eric J. Crown and Stanley Laybourne, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Form S-3
Registration Statement and to sign any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act of 1993, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person hereby ratifying and confirming that
all said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
PERSON TITLE DATE
- ------------------------------------- ----------------------------------- -----------------
<C> <S> <C>
/s/ ERIC J. CROWN Chairman of the Board of Directors October 17, 1996
- ------------------------------------- and Chief Executive Officer
Eric J. Crown (Principal Executive Officer)
/s/ TIMOTHY A. CROWN President and Director October 17, 1996
- -------------------------------------
Timothy A. Crown
/s/ STANLEY LAYBOURNE Chief Financial Officer, Secretary, October 17, 1996
- ------------------------------------- Treasurer and Director (Principal
Stanley Laybourne Financial and Accounting Officer)
/s/ LARRY A. GUNNING Director, October 17, 1996
- -------------------------------------
Larry A. Gunning
/s/ ROBERTSON C. JONES Director, October 17, 1996
- -------------------------------------
Robertson C. Jones
</TABLE>
II-4
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ --------------------------------------------------------- -----------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement Filed herewith
2.1 Articles of Merger and Certificate of Merger between Incorporated by reference to
Insight Enterprises, Inc., an Arizona corporation, and Exhibit 2.1 of the Company's
Insight Enterprises, Inc., a Delaware corporation (the Form S-1 Registration
"Registrant") Statement No. 33-86142 (Form
S-1 No. 33-86142)
4.1 Specimen Common Stock Certificate Incorporated by reference to
Exhibit 4.1 of the Form S-1
No. 33-86142
4.2 Form of Common Stock Warrant between the Registrant and Incorporated by reference to
certain Warrant Holders Exhibit 4.4 of the Form S-1
No. 33-86142
5 Opinion of Snell & Wilmer L.L.P. Filed herewith
23 Consent of KPMG Peat Marwick LLP Filed herewith
24 Power of Attorney See signature page
</TABLE>
<PAGE> 1
DRAFT
Exhibit 1.1
1,526,250 Shares
Insight Enterprises, Inc.
Common Stock
UNDERWRITING AGREEMENT
October __, 1996
MONTGOMERY SECURITIES
LAZARD FRERES & CO. LLC
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Ladies and Gentlemen:
SECTION 1. Introductory. Insight Enterprises, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell 1,000,000 shares of its
authorized but unissued Common Stock, par value $.01 per share (the "Common
Stock"), and certain stockholders of the Company named in Schedule B annexed
hereto (the "Selling Stockholders") propose to sell an aggregate of 526,250
shares of the Company's issued and outstanding Common Stock to the several
underwriters named in Schedule A annexed hereto (the "Underwriters"), for whom
you are acting as Representatives. Said aggregate of 1,526,250 shares are herein
called the "Firm Common Shares." In addition, the Company and certain Selling
Stockholders propose to grant to the Underwriters an option to purchase up to
228,938 additional shares of Common Stock (the "Optional Common Shares"), as
provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
1.
<PAGE> 2
The Company and each of the Selling Stockholders hereby
confirm(s) their respective agreements with respect to the purchase of the
Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company and
the Selling Stockholders. The Company and each of the Selling Stockholders
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-3 (File No.
333-_______) with respect to the Common Shares has been prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has prepared and has filed or proposes to file prior to the
effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form
of final prospectus, (ii) a final prospectus in accordance with Rules
430A and 424(b) of the Rules and Regulations, or (iii) a term sheet
(the "Term Sheet") as described in and in accordance with Rules 434 and
424(b) of the Rules and Regulations. As filed, the final prospectus, if
one is used, or the Term Sheet and Preliminary Prospectus (as
hereinafter defined), if a final prospectus is not used, shall include
all Rule 430A Information (as hereinafter defined) and, except to the
extent that you shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the date
and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus (as
hereinafter defined)) as the Company shall have previously advised you
in writing would be included or made therein.
2.
<PAGE> 3
The term "Registration Statement" as used in this
Agreement shall mean such registration statement at the time such
registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the First
Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term
shall also include (i) all Rule 430A Information deemed to be included
in such registration statement at the time such registration statement
becomes effective as provided by Rule 430A of the Rules and Regulations
and (ii) a registration statement, if any, filed pursuant to Rule
462(b) of the Rules and Regulations relating to the Common Shares. The
term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective
that omits Rule 430A Information. The term "Prospectus" as used in this
Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, or (ii) if a Term
Sheet is not used and no filing pursuant to Rule 424(b) of the Rules
and Regulations is required, the form of final prospectus included in
the Registration Statement at the time such registration statement
becomes effective, or (iii) if a Term Sheet is used, the Term Sheet in
the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations, together with the Preliminary
Prospectus included in the Registration Statement at the time it
becomes effective. The term "Rule 430A Information" means information
with respect to the Common Shares and the offering thereof permitted to
be omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A of the Rules and Regulations. Any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include the documents incorporated by reference therein
pursuant to Form S-3 under the Act, as of the date of such Preliminary
Prospectus or Prospectus, as the case may be.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus, and
each Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to
3.
<PAGE> 4
and including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements
thereto, will contain all material statements and information required
to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act
and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, no representation
or warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus,
the Registration Statement, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly
or through the Representatives, specifically for use in the preparation
thereof. The documents incorporated by reference in the Prospectus,
when they were filed with the Commission, conformed in all material
respects to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
Insight Direct, Inc., ITA, Inc., Direct Alliance Corporation, B&M
Distributing, Inc., Insight Credit Corporation and Insight Distribution
Network International, Inc. The Company and each of its subsidiaries
have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, with full power and authority (corporate and other) to
own and lease their properties and conduct their respective businesses
as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of all claims, liens,
charges and encumbrances; the Company and each of its subsidiaries are
in possession of and operating in all material respects in compliance
with all authorizations, licenses, permits, consents, certificates and
orders material to the conduct of their respective businesses, all of
which are valid and in full force and effect; the Company and each of
its subsidiaries are duly qualified to do business and in good standing
as foreign corporations in each jurisdiction in which the ownership or
4.
<PAGE> 5
leasing of properties or the conduct of their respective businesses
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect upon the
Company and its subsidiaries, taken as a whole; and no proceeding has
been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(d) The Company has an authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the
Prospectus; the issued and outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable,
are duly listed on the Nasdaq National Market under the symbol NSIT,
have been issued in compliance with all federal and state securities
laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All
issued and outstanding shares of capital stock of each subsidiary of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related
notes thereto, included or incorporated in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase,
any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold by the Company have
been duly authorized and, when issued, delivered and paid for in the
manner set forth in this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No stockholder of the Company has any right which has not
been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering
5.
<PAGE> 6
contemplated by this Agreement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required
for the transfer and sale of the Common Shares to be sold by the
Selling Stockholders or the issuance and sale of the Common Shares to
be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
obligation of the Company in accordance with its terms. The making and
performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of
the certificate of incorporation or bylaws, or other organizational
documents, of the Company or any of its subsidiaries, and will not
conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a
default under any material agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of its respective properties may be
bound or affected, any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the
Company or any of its subsidiaries or any of their respective
properties. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or
the consummation of the transactions contemplated by this Agreement,
except for compliance with the Act, the Blue Sky laws applicable to the
public offering of the Common Shares by the several Underwriters and
the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD").
(g) To the Company's knowledge, KPMG Peat Marwick
LLP, who have expressed their opinion with respect to the financial
statements and schedules filed with the Commission and incorporated by
reference as a part of the Registration Statement, are independent
accountants as required by the Act and the Rules and Regulations. The
phrase, "to the Company's knowledge," or similar statements, as used in
Section 2 hereof, shall mean the actual knowledge of the Company's
executive officers and directors who are named under the caption
"Management" in the Prospectus, and, with
6.
<PAGE> 7
respect to a representation and warranty, such other persons within the
Company responsible for such matters.
(h) The consolidated financial statements and
schedules of the Company, and the related notes thereto, incorporated
by reference into the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates
of such financial statements and schedules, and the results of
operations and changes in financial position of the Company for the
respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). No other financial
statements or schedules are required to be included in the Registration
Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Consolidated
Financial and Operating Data" fairly present the information set forth
therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except
as to defaults which individually or in the aggregate would not be
material to the Company, neither the Company nor any of its
subsidiaries is in violation or default in any material respect of any
provision of its certificate of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect to
any provision of any material agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which it is a party or by which it or any of its
properties are bound; and, to the Company's knowledge, there does not
exist any state of facts which constitutes an event of default on the
part of the Company or any such subsidiary as defined in such documents
or which, with notice or lapse of time or both, would constitute such
an event of default.
(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been described or filed as required. The
contracts so described in the Prospectus are in full force and effect
on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the Company's knowledge, any other party is in
breach of or default under any of such contracts.
(k) There are no legal or governmental actions, suits
or proceedings pending or, to the Company's knowledge,
7.
<PAGE> 8
overtly threatened to which the Company or any of its subsidiaries is
or may be a party or of which property owned or leased by the Company
or any of its subsidiaries is or may be the subject, or related to
environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or
otherwise), properties, business, results of operations or prospects of
the Company and its subsidiaries, taken as a whole; and no labor
disturbance by the employees of the Company or any of its subsidiaries
exists or, to the Company's knowledge, is imminent which might be
expected to materially adversely affect such condition, properties,
business, results of operations or prospects. Neither the Company nor
any of its subsidiaries is a party or subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good
and marketable title to all the properties and assets reflected as
owned in the financial statements hereinabove described (or elsewhere
in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect in any
material respect the use made and proposed to be made of such property
by the Company and its subsidiaries. The Company or the applicable
subsidiary holds its leased properties under valid and binding leases,
with such exceptions as are not materially significant in relation to
the business of the Company. Except as disclosed in the Prospectus, the
Company owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(m) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as described in or specifically contemplated by the Prospectus:
(i) the Company and its subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other material
transaction which is not in the ordinary course of business or other
transaction which could result in a material reduction in the future
earnings of the Company and its subsidiaries on a consolidated basis;
(ii) the Company and its subsidiaries have not sustained any material
loss or
8.
<PAGE> 9
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been
any change in the capital stock (other than upon the sale of the Common
Shares hereunder and upon the exercise of options and warrants
described in the Registration Statement) or indebtedness material to
the Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company and its subsidiaries, taken
as a whole.
(n) Except as disclosed in or specifically
contemplated by the Prospectus, the Company and its subsidiaries have
sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted; the expiration of any
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or its
subsidiaries, taken as a whole; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade
name rights, patent rights, mask works, copyrights, licenses, trade
secret or other similar rights of others, and there is no claim being
made against the Company or its subsidiaries regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no
knowledge that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations
of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries, taken as a whole.
9.
<PAGE> 10
(p) The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns,
or have obtained extensions of time for the filing thereof, and have
paid all taxes shown as due thereon; and the Company has no knowledge
of any tax deficiency which has been asserted or overtly threatened
against the Company or its subsidiaries which could materially and
adversely affect the business, operations or properties of the Company
and its subsidiaries, taken as a whole.
(q) The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other than
the Prospectus, the Registration Statement and the other materials
permitted by the Act.
(s) Each of the Company and its subsidiaries
maintains insurance of the types and in the amounts generally deemed
adequate for its business, including, but not limited to, insurance
covering real and personal property owned or leased by the Company and
its subsidiaries against theft, damage, destruction, acts of vandalism
and all other risks as the Company's management deems appropriate, all
of which insurance is in full force and effect.
(t) Neither the Company nor any of its subsidiaries
has at any time during the last five years (i) made any unlawful
contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States of any
jurisdiction thereof.
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of
the Common Shares.
(v) The Common Stock has been approved for quotation
on the Nasdaq National Market upon notice of issuance.
10.
<PAGE> 11
(w) Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or
affiliate located in Cuba in violation of Section 517.075 of the
Florida Statutes.
SECTION 3. Representations, Warranties and Covenants of the
Selling Stockholders.
(a) Each of the Selling Stockholders represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has (or with
respect to the warrants and options exercised by such Selling
Stockholder in connection with his sale of Common Stock
hereunder, has rights to acquire upon exercise thereof), and
on the First Closing Date and the Second Closing Date
hereinafter mentioned will have, good and marketable title to
the Common Shares proposed to be sold by such Selling
Stockholder hereunder on such Closing Date and full right,
power and authority to enter into this Agreement and to sell,
assign, transfer and deliver such Common Shares hereunder,
free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and
claims whatsoever; and upon delivery of and payment for such
Common Shares hereunder, the Underwriters will acquire good
and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed
and delivered a Power of Attorney and caused to be executed
and delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and
in connection herewith such Selling Stockholder further
represents, warrants and agrees that such Selling Stockholder
has deposited in custody, under the Stockholders Agreement,
with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be
sold hereunder by such Selling Stockholder or warrant or
option agreement that when exercised on the First or Second
Closing Date will be exchanged for certificates in negotiable
form for the Common Shares, for the purpose of further
delivery pursuant to this Agreement. Such Selling Stockholder
agrees that the Common Shares to be sold by such Selling
Stockholder are subject to the interests of the Company and
the
11.
<PAGE> 12
Underwriters, that the arrangements made for custody of such
Common Shares are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or in the
Stockholders Agreement, by any act of such Selling
Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other
event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the
delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agent shall
be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether or not the
Agent shall have received notice thereof. This Agreement and
the Stockholders Agreement have been duly executed and
delivered by or on behalf of such Selling Stockholder and the
form of such Stockholders Agreement has been delivered to you.
(iii) The performance of this Agreement and
the Stockholders Agreement and the consummation of the
transactions contemplated hereby and by the Stockholders
Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its
properties.
(iv) Such Selling Stockholder has not taken
and will not take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the
Prospectus, insofar as it has related to such Selling
Stockholder, has conformed in all material respects to the
requirements of the Act and the Rules and Regulations and has
not included any untrue statement
12.
<PAGE> 13
of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading in
light of the circumstances under which they were made; and
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as it relates to such Selling
Stockholder, will include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(b) Each of the Selling Stockholders agrees with the
Company and the Underwriters not to offer to sell, sell or contract to
sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a
period of 120 days after the first date that any of the Common Shares
are released by you for sale to the public, without the prior written
consent of Montgomery Securities, which consent may be withheld at the
sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters.
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company and to the Selling Stockholders that the information set
forth (i) on the cover page of the Prospectus with respect to price,
underwriting discounts and commissions and terms of offering and (ii) under
"Underwriting" in the Prospectus was furnished to the Company by and on behalf
of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, (i) the Company agrees
to issue and sell to the Underwriters 1,000,000 of the Firm Common Shares, and
(ii) the Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of 526,250 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling Stockholders, respectively, shall be $_________ per
share.
13.
<PAGE> 14
The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to 1,000,000 the same proportion as the
number of shares set forth opposite the name of such Underwriter in Schedule A
hereto bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 526,250 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and the Representatives)
at such time and date, not later than the third (or, if the Firm Common Shares
are priced, as contemplated by Rule 15c6-1(c) of the Exchange Act, after 4:30
P.M. Washington D.C. Time, the fourth) full business day following the first
date that any of the Common Shares are released by you for sale to the public,
as you shall designate by at least 48 hours' prior notice to the Company (or at
such other time and date, not later than one week after such third or fourth, as
the case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public (as set forth
above) or the date that is 48 hours after the date that the Prospectus has been
so recirculated.
Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company and the Selling Stockholders to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholders against payment by
you, for the accounts of the several Underwriters, of the purchase price
therefor by certified or official bank checks payable in next day funds to the
order of the Company and of the Agent in proportion to the number of Firm Common
Shares to be sold by the Company and the Selling Stockholders, respectively. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
14.
<PAGE> 15
New York, New York, as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and certain Selling Stockholders identified on Schedule B
hereby grant an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 228,938 Optional Common Shares (168,938 of
such Optional Common Shares by the Company and 66,000 of such Optional Common
Shares by said Selling Stockholders as set forth on Schedule B) at the purchase
price per share to be paid for the Firm Common Shares, for use solely in
covering any over-allotments made by you for the account of the Underwriters in
the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the first date that any of the Common Shares are released by you for sale
to the public, upon written notice by you to the Company and said Selling
Stockholders, setting forth the aggregate number of Optional Common Shares as to
which the Underwriters are exercising the option, the names and denominations in
which the certificates for such shares are to be registered and the time and
place at which such certificates will be delivered. Such time of delivery (which
may not be earlier than the First Closing Date), being herein referred to as the
"Second Closing Date," shall be determined by you, but if at any time other than
the First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company and
said Selling Stockholders pursuant to such notice of exercise by a fraction, the
numerator of which is the number of Firm Common Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is 1,526,250 (subject to such adjustments to eliminate any fractional
share purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York, as may be designated by you. The manner of payment for and delivery of the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Company and said Selling Stockholders as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company and said Selling
Stockholders. Notwithstanding the foregoing, in the event that the Registration
Statement is amended or the Prospectus is supplemented between
15.
<PAGE> 16
the date hereof and any Closing Date, the Underwriters shall have the right to
delay the Closing Date to a date which will allow the Underwriters the time
necessary to distribute the Prospectus as amended or supplemented.
You have advised the Company and the Selling Stockholders that
each Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will use its best efforts to cause
the Registration Statement and any amendment thereof, if not effective
at the time and date that this Agreement is executed and delivered by
the parties hereto, to become effective. If the Registration Statement
has become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such
timely filing. The Company will promptly advise you in writing (i) of
the receipt of any comments of the Commission, (ii) of any request of
the Commission for amendment of or supplement to the Registration
Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose. If the Commission shall enter any
such stop order at any
16.
<PAGE> 17
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. The Company will not file
any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or
the Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements
to the Registration Statement or the Prospectus which in your judgment
may be necessary or advisable to enable the several Underwriters to
continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period
referred to in Section 10(a)(3) of the Act during which a prospectus
relating to the Common Shares is required to be delivered under the Act
any event occurs, as a result of which the Prospectus, including any
amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
if it is necessary at any time to amend the Prospectus, including any
amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission
or an amendment or supplement which will effect such compliance and
will use its best efforts to cause the same to become effective as soon
as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but
at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45
days after the end of the first quarter ending after one year following
the "effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and
17.
<PAGE> 18
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of
the Registration Statement which will satisfy the provisions of the
last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by
law to be delivered in connection with sales by an Underwriter or
dealer, the Company, at its expense, but only for the nine-month period
referred to in Section 10(a)(3) of the Act, will furnish to you and the
Selling Stockholders or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon
as available and in such quantities as you and the Selling Stockholders
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your
counsel in order to qualify or register the Common Shares for sale
under (or obtain exemptions from the application of) the Blue Sky laws
of such jurisdictions as you designate, will comply with such laws and
will continue such qualifications, registrations and exemptions in
effect so long as reasonably required for the distribution of the
Common Shares. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any such jurisdiction where it is not presently qualified or where
it would be subject to taxation as a foreign corporation. The Company
will advise you promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of any
Representative, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on
18.
<PAGE> 19
Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or
other report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of
its Common Stock.
(h) During the period of 120 days after the first
date that any of the Common Shares are released by you for sale to the
public, without the prior written consent of Montgomery Securities
(which consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not other than pursuant to outstanding
stock options and warrants disclosed in the Prospectus issue, offer,
pledge, sell, grant options to purchase or otherwise dispose of,
directly or indirectly, any of the Company's equity securities or any
other securities convertible into or exchangeable with its Common Stock
or other equity security, other than pursuant to its Employee Stock
Purchase Plan and Stock Option Plan as described in the Registration
Statement.
(i) The Company will apply the net proceeds of the
sale of the Common Shares sold by it substantially in accordance with
its statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify
or register its Common Stock for sale in non-issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of the
State of California (and thereby permit market making transactions and
secondary trading in the Company's Common Stock in California), will
comply with such Blue Sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after
the date hereof.
(k) The Company will use its best efforts to maintain
the Common Stock as a national market system security on The Nasdaq
Stock Market.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company and, unless otherwise paid by the
Company, the Selling Stockholders agree to pay in such proportions as they may
agree upon among
19.
<PAGE> 20
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws (such fees and expenses
not to exceed $15,000), (vii) the filing fee of the National Association of
Securities Dealers, Inc., and (viii) all other fees, costs and expenses referred
to in Item 14 of the Registration Statement. The Underwriters may deem the
Company to be the primary obligor with respect to all costs, fees and expenses
to be paid by the Company and by the Selling Stockholders. Except as provided in
this Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay all
of their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by
reimbursement) all fees and expenses incident to the performance of their
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to (i) any fees and expenses of counsel
for such Selling Stockholders, (ii) any fees and expenses of the Agent, and
(iii) all expenses and taxes incident to the sale and delivery of the Common
Shares to be sold by such Selling Stockholders to the Underwriters hereunder.
20.
<PAGE> 21
SECTION 8. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M. (or, in the case of a registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares, not later than 10:00 P.M.), Washington,
D.C. Time, on the date of this Agreement, or at such later time as
shall have been consented to by you; if the filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b) of the
Rules and Regulations, the Prospectus shall have been filed in the
manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company, the
Selling Stockholders or you, shall be contemplated by the Commission;
and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have
been complied with to your satisfaction.
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement
and Prospectus, (i) there shall not have been any change in the capital
stock other than pursuant to the exercise of outstanding options and
warrants disclosed in the Prospectus of the Company or any of its
subsidiaries or any material change in the indebtedness (other than in
the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other material transaction shall have been entered into by
the Company or any of its subsidiaries which is not in the ordinary
course of business or other transaction shall have been entered into by
the Company or any of its subsidiaries which could result in a material
reduction in the future
21.
<PAGE> 22
earnings of the Company and its subsidiaries on a consolidated basis,
(iii) no loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries shall have been sustained which
materially and adversely affects the condition (financial or
otherwise), business, results of operations or prospects of the Company
and its subsidiaries, taken as a whole, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of its
subsidiaries which is material to the Company or any of its
subsidiaries, taken as a whole, or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted
or overtly threatened and (v) there shall not have been any material
change in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company or any of its
subsidiaries which makes it impractical or inadvisable in the judgment
of the Representatives to proceed with the public offering or purchase
the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Snell & Wilmer L.L.P.,
counsel for the Company and the Selling Stockholders,
addressed to the Underwriters and dated the First Closing
Date, or the Second Closing Date, as the case may be, to the
effect that:
(1) Each of the Company and Insight
Direct, Inc., an Arizona corporation, Direct Alliance
Corporation, an Arizona corporation, and ITA, Inc.,
an Arizona corporation ("Opinion Subsidiaries") has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation and is in good
standing in all other jurisdictions where the
ownership or leasing of properties or the conduct of
its business requires such qualification, except
where the failure to so qualify would not have a
material adverse effect on the Company and Opinion
Subsidiaries, taken as a whole, and has full
corporate power and authority to own its properties
and conduct its business as described in the
Registration Statement;
22.
<PAGE> 23
(2) The authorized, issued and
outstanding capital stock of the Company is as set
forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate
proceedings have been taken in order to authorize
validly such authorized Common Stock; all outstanding
shares of Common Stock (including the Firm Common
Shares and any Optional Common Shares) have been duly
and validly issued, are fully paid and nonassessable,
have been issued in compliance with federal and state
securities laws, were not issued in violation of or
subject to any preemptive rights in the Company's
charter documents or, to such counsel's knowledge,
other rights to subscribe for or purchase any
securities and conform to the description thereof
contained in the Prospectus; without limiting the
foregoing, there are no preemptive rights in the
Company's charter documents or, to such counsel's
knowledge, other rights to subscribe for or purchase
any of the Common Shares to be sold by the Company
hereunder;
(3) All of the issued and
outstanding shares of capital stock of the Company's
Opinion Subsidiaries have been duly and validly
authorized and issued, are fully paid and
nonassessable and are owned of record and, to such
counsel's knowledge, beneficially by the Company or a
wholly-owned subsidiary of the Company free and clear
of any perfected security interest and, to such
counsel's knowledge, any other adverse claim;
(4) The certificates evidencing the
Common Shares to be delivered hereunder are in due
and proper form under Delaware law, and when duly
countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement,
the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable, will not have been issued in violation
of or subject to any preemptive rights in the
Company's charter documents or, to such counsel's
knowledge, other rights to subscribe for or purchase
securities and will conform in all respects to the
description thereof contained in the Prospectus;
23.
<PAGE> 24
(5) Except as disclosed in or
specifically contemplated by the Prospectus and any
document incorporated by reference into the
Prospectus, to such counsel's knowledge, there are no
outstanding options, warrants or other rights calling
for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;
(6) (a) The Registration Statement
has become effective under the Act, and, to such
counsel's knowledge, no stop order proceeding
suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has
been issued and no proceedings for that purpose have
been instituted or are pending or, to such counsel's
knowledge, overtly threatened by the Commission; any
required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and within
the time period required by such Rule 424(b);
(b) The Registration Statement,
the Prospectus and each amendment or supplement
thereto (except for the financial statements and
schedules and all other financial or statistical
information included therein as to which such counsel
need express no opinion) comply as to form in all
material respects with the requirements of the Act
and the Rules and Regulations;
(c) To such counsel's knowledge,
there are no franchises, leases, contracts,
agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as
required;
(d) To such counsel's knowledge,
there are no legal or governmental actions, suits or
proceedings pending or overtly threatened against the
Company which are required to be described in the
Prospectus which are not described as required; and
(e) The documents incorporated
by reference in the Prospectus (except for any
24.
<PAGE> 25
financial statements and schedules and all other
financial and statistical information included in
such documents as to which such counsel need express
no opinion), when they were filed with the
Commission, complied as to form in all material
respects with the requirements of the Exchange Act
and the rules and regulations of the Commission
thereunder; and although such counsel has not
undertaken, except as otherwise indicated in their
opinion, to determine independently, and does not
assume any responsibility for, the accuracy and
completeness of the statements in such documents, to
such counsel's knowledge, none of such documents
(except for any financial statements and schedules
and all other financial and statistical information
included in such documents as to which such counsel
need express no opinion), when they were so filed,
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order
to make the statements therein, in the light of the
circumstances under which they were made when such
documents were so filed, not misleading;
(7) The Company has full right,
power and authority to enter into this Agreement and
to sell and deliver the Common Shares to be sold by
it to the several Underwriters; this Agreement has
been duly and validly authorized by all necessary
corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of
the Company, and, assuming California law is the same
as Arizona law for this purpose, is a valid and
binding agreement of the Company in accordance with
its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and
except as to those provisions relating to indemnity
or contribution for liabilities arising under the Act
as to which no opinion need be expressed; such
counsel has no reason to believe that California law
would not govern this Agreement; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any
court, regulatory, administrative or other
governmental body or agency is required for the
execution and delivery of this Agreement by the
Company or the consummation of the transactions
contemplated by this Agreement,
25.
<PAGE> 26
except such as have been obtained and are in full
force and effect under the Act and such as may be
required under applicable Blue Sky laws in connection
with the purchase and distribution of the Common
Shares by the Underwriters and the clearance of such
offering with the NASD;
(8) The execution and performance of
this Agreement and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture,
permit or other instrument that is filed as an
exhibit to the Registration Statement or any exhibit
to any document incorporated by reference into the
Prospectus, to which the Company or any of its
subsidiaries is a party or by which the Company or
any of its subsidiaries or any of its or their
property may be bound or affected which is material
to the Company and its subsidiaries, or violate any
of the provisions of the certificate of incorporation
or bylaws, or other organizational documents, of the
Company or any of its Opinion Subsidiaries or, to
such counsel's knowledge, violate any statute,
judgment, decree, order, rule or regulation of any
court or governmental body having jurisdiction over
the Company or any of its Opinion Subsidiaries or any
of its or their property;
(9) To such counsel's knowledge,
neither the Company nor any Opinion Subsidiary is in
violation of its certificate of incorporation or
bylaws, or other organizational documents, or to such
counsel's knowledge, in default with respect to any
provision of any agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other
instrument that is filed as an exhibit to the
Registration Statement or any exhibit to any document
incorporated by reference into the Prospectus to
which the Company or any of its subsidiaries is a
party or by which it or any of its properties may be
bound or affected, except where such default would
not materially adversely affect the Company and its
Opinion Subsidiaries;
(10) To such counsel's knowledge, no
holders of securities of the Company have rights
26.
<PAGE> 27
which have not been honored or waived to the
registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated
hereby;
(11) To such counsel's knowledge,
this Agreement and the Stockholders Agreement have
been duly authorized, executed and delivered by or on
behalf of each of the Selling Stockholders; the Agent
has been duly and validly authorized to act as the
custodian of the Common Shares to be sold by each
such Selling Stockholder; and, to such counsel's
knowledge, the performance of this Agreement and the
Stockholders Agreement and the consummation of the
transactions herein contemplated by the Selling
Stockholders will not result in a material breach of,
or constitute a material default under, any material
indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument
to which any of the Selling Stockholders is a party
or by which any of the Selling Stockholders or any of
their properties may be bound, or violate in any
material respect any statute, judgment, decree,
order, rule or regulation known to such counsel of
any court or governmental body having jurisdiction
over any of the Selling Stockholders or any of their
properties; and to such counsel's knowledge, no
approval, authorization, order or consent of any
court, regulatory body, administrative agency or
other governmental body is required for the execution
and delivery of this Agreement or the Stockholders
Agreement or the consummation by the Selling
Stockholders of the transactions contemplated by this
Agreement, except such as have been obtained and are
in full force and effect under the Act and such as
may be required under the rules of the NASD and
applicable Blue Sky laws;
(12) To such counsel's knowledge,
the Selling Stockholders have full right, power and
authority to enter into this Agreement and the
Stockholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing
Date by such Selling Stockholders hereunder and good
and marketable title to such Common Shares so sold,
free and clear of any perfected security interest
and, to such counsel's
27.
<PAGE> 28
knowledge, any other adverse claim, has been
transferred to the Underwriters (whom counsel may
assume to be bona fide purchasers) who have purchased
such Common Shares hereunder; and
(13) To such counsel's knowledge,
this Agreement and the Stockholders Agreement are,
assuming California law is the same as Arizona law
for this purpose, valid and binding agreements of
each of the Selling Stockholders in accordance with
their terms except as enforceability may be limited
by general equitable principles, bankruptcy,
fraudulent conveyance, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions
relating to indemnities or contributions for
liabilities under the Act, as to which no opinion
need be expressed; such counsel has no reason to
believe that California law would not govern this
Agreement.
(14) No transfer taxes are required
to be paid in connection with the sale and delivery
of the Common Shares to the Underwriters hereunder.
In rendering such opinion, such counsel may rely as
to the matters set forth in paragraphs (11), (12), (13) and (14), on
opinions of other counsel retained by the Selling Stockholders, and, as
to matters of fact, on certificates of the Selling Stockholders and of
officers of the Company and of governmental officials and, as to
matters of fact, the representations and warranties of the Company and
the Selling Stockholders in this Agreement, in which case their opinion
is to state that they are so doing and copies of said opinions or
certificates, as applicable, are to be attached to the opinion. Such
counsel shall also include a statement to the effect that (except for
financial statements and schedules and all other financial and
statistical information as to which such counsel need express no
opinion) although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy and completeness of the
Registration Statement, nothing has come to such counsel's attention
that would lead such counsel to believe that either at the effective
date of the Registration Statement or at the applicable Closing Date
the Registration Statement or any such amendment or supplement,
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
28.
<PAGE> 29
statements therein not misleading, and the Prospectus, as of its date,
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
Snell & Wilmer L.L.P. may state that counsel's knowledge means in the
actual knowledge of the Snell & Wilmer L.L.P. lawyers actively involved
in the preparation of the Registration Statement or actively involved
within the last twelve months in providing legal services to the
Company or Opinion Subsidiaries.
(ii) Such opinion or opinions of Brobeck,
Phleger & Harrison LLP, counsel for the Underwriters dated the
First Closing Date or the Second Closing Date, as the case may
be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal
matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the Prospectus and
other related matters as you may reasonably require, and the
Company and the Selling Stockholders shall have furnished to
such counsel such documents and shall have exhibited to them
such papers and records as they may reasonably request for the
purpose of enabling them to pass upon such matters. In
connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(iii) A certificate of the Company executed by the
Chairman of the Board or President and the chief financial or
accounting officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the
effect that:
(1) The representations and
warranties of the Company set forth in Section 2 of
this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the
Company has complied with all the agreements
hereunder and satisfied all the conditions on its
part to be performed or satisfied on or prior to such
Closing Date;
(2) The Commission has not issued
any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as
29.
<PAGE> 30
a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to
the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers
of the certificate has carefully examined the
Registration Statement and the Prospectus; in his
opinion and to his knowledge, the Registration
Statement and the Prospectus and any amendments or
supplements thereto contain all statements required
to be stated therein regarding the Company and its
subsidiaries; and neither the Registration Statement
nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material
fact or omits to state any material fact required to
be stated therein or necessary to make the statements
therein not misleading;
(4) Since the initial date on which
the Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company and its subsidiaries, taken as a whole; and
no legal or governmental action, suit or proceeding
is pending or, to the Company's knowledge, overtly
threatened against the Company or any of its
subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business, or which may adversely affect the
transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered
30.
<PAGE> 31
into any verbal or written agreement or other
material transaction which is not in the ordinary
course of business or other transaction which could
result in a material reduction in the future earnings
of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of
record on a date prior to the First Closing Date or
Second Closing Date; and
(6) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus and except as disclosed
in or contemplated by the Prospectus, the Company and
its subsidiaries have not sustained a material loss
or damage by strike, fire, flood, windstorm, accident
or other calamity (whether or not insured).
(iv) On the First Closing Date or the Second
Closing Date, as the case may be, a certificate, dated such
Closing Date and addressed to you, signed by or on behalf of
each of the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of
the First Closing Date or the Second Closing Date, as the case
may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on his part to be
performed or satisfied prior to the First Closing Date or the
Second Closing Date, as the case may be.
(v) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date
a letter addressed to you, as Representatives of the
Underwriters, from KPMG Peat Marwick LLP, independent
accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and
substance satisfactory to you.
(vi) On or before the First Closing Date, letters
from each of the Selling Stockholders (other
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than Principal Financial Securities, Inc., Pennsylvania
Merchant Group Ltd., and Lawrence E. Fish), each holder of 5
percent or more of the Company's Common Stock and each
director and officer of the Company, in form and substance
satisfactory to you, confirming that for a period of 120 days
after the first date that any of the Common Shares are
released by you for sale to the public, such person will not
directly or indirectly offer to sell, pledge, sell or contract
to sell or otherwise dispose of any shares of Common Stock or
any right to acquire such shares or securities convertible
into or exchangeable for any shares of Common Stock without
the prior written consent of Montgomery Securities, which
consent may be withheld at the sole discretion of Montgomery
Securities.
(vii) The Common Stock shall have been approved
for quotation as a national market system security on The
Nasdaq Stock Market upon notice of issuance.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to you
and to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. The
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders (except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders) pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been
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<PAGE> 33
reasonably incurred by you and them in connection with the proposed purchase and
the sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, telegraph
charges and telephone charges relating directly to the offering contemplated by
the Prospectus. Any such termination shall be without liability of any party to
any other party except that the provisions of this Section, Section 7 and
Section 11 shall at all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the
Company and the Selling Stockholders will use your, its and their best efforts
to cause the Registration Statement to become effective, to prevent the issuance
of any stop order suspending the effectiveness of the Registration Statement
and, if such stop order be issued, to obtain as soon as possible the lifting
thereof.
SECTION 11. Indemnification.
(a) The Company and each of the Selling Stockholders,
jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or
such controlling person may become subject, under the Act, the Exchange
Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or
arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company or the Selling
Stockholders contained herein or any failure of the Company or the
Selling Stockholders to perform their respective obligations hereunder
or under law; and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses
are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action;
provided,
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however, that neither the Company nor the Selling Stockholders will be
liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with the information furnished to the Company pursuant to
Section 4 hereof. The Company and the Selling Stockholders may agree,
as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to their respective amounts of such liability
for which they each shall be responsible. In addition to its other
obligations under this Section 11(a), the Company and the Selling
Stockholders agree that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders herein or failure
to perform its obligations hereunder, all as described in this Section
11(a), it will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
or the Selling Stockholders' obligation to reimburse each Underwriter
for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have
been improper, each Underwriter shall promptly return it to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America
NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime
Rate from the date of such request. This indemnity agreement will be in
addition to any liability which the Company or the Selling Stockholders
may otherwise have.
(b) Each Underwriter will severally indemnify and
hold harmless the Company, each of its directors, each of its officers
who signed the Registration Statement, the Selling Stockholders and
each person, if any, who controls the Company or any Selling
Stockholder within the meaning of
34.
<PAGE> 35
the Act, against any losses, claims, damages, liabilities or expenses
to which the Company, or any such director, officer, Selling
Stockholder or controlling person may become subject, under the Act,
the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with the information furnished to the Company
pursuant to Section 4 hereof; and will reimburse the Company, or any
such director, officer, Selling Stockholder or controlling person for
any legal and other expense reasonably incurred by the Company, or any
such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. In
addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company pursuant to
Section 4 hereof, it will reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Underwriters' obligation to
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person or Selling Stockholder) for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
the
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<PAGE> 36
Company (and, to the extent applicable, each officer, director,
controlling person or Selling Stockholder) shall promptly return it to
the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Company within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained
in this Section or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there
may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence
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<PAGE> 37
(it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by
the Representatives in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) If the indemnification provided for in this
Section 11 is required by its terms but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an
indemnified party under paragraphs (a), (b) or (c) in respect of any
losses, claims, damages, liabilities or expenses referred to herein,
then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company, the Selling Stockholders and the Underwriters from the
offering of the Common Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company, the
Selling Stockholders and the Underwriters in connection with the
statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the
Company, the Selling Stockholders and the Underwriters shall be deemed
to be in the same proportion, in the case of the Company and the
Selling Stockholders, as the total price paid to the Company and to the
Selling Stockholders, respectively, for the Common Shares sold by them
to the Underwriters (net of underwriting commissions and discounts but
before deducting expenses), and in the case of the Underwriters as the
underwriting commissions and discounts received by them bears to the
total of such amounts paid to the Company and to the Selling
Stockholders and received by the Underwriters as underwriting
commissions and discounts. The relative fault of the Company, the
Selling Stockholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact or the inaccurate or the alleged
37.
<PAGE> 38
inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Stockholders or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in subparagraph (c) of
this Section 11, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be
required with respect to any action for which notice has been given
under subparagraph (c) for purposes of indemnification. The Company,
the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 11 were
determined solely by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in this subparagraph (d). Notwithstanding the provisions of
this Section 11, no Underwriter shall be required to contribute any
amount in excess of the amount of the total underwriting commissions
and discounts received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 11 are
several in proportion to their respective underwriting commitments and
not joint.
(e) It is agreed that any controversy arising out of
the operation of the interim reimbursement arrangements set forth in
Sections 11(a) and 11(b) hereof, including the amounts of any requested
reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation
38.
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of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim
reimbursement provisions contained in Sections 11(a) and 11(b) hereof
and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
such Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition
to this Agreement and the obligation of the Company and the Selling Stockholders
to sell and deliver the Common Shares hereunder, and of each Underwriter to
purchase the Common Shares in the manner as described herein, that, except as
hereinafter in this paragraph provided, each of the Underwriters shall purchase
and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase on such Closing Date
does not exceed 10% of the total number of Common Shares which the Underwriters
are obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to which such default occurs is more than the above percentage and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares by other persons are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders except for
the expenses to be paid by the Company and the Selling Stockholders pursuant to
Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are
to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to postpone the
First or Second Closing Date, as the case may be, for not more than five
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
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SECTION 13. Effective Date. This Agreement shall become
effective immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California Time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California Time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 13, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company
by notice to you and the Selling Stockholders or by you by notice to
the Company and the Selling Stockholders at any time prior to the time
this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company
or the Selling Stockholders to any Underwriter (except for the expenses
to be paid or reimbursed by the Company and the Selling Stockholders
pursuant to Sections 7 and 9 hereof and except to the extent provided
in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11
hereof).
(b) This Agreement may also be terminated by you
prior to the First Closing Date by notice to the Company (i) if
additional material governmental restrictions, not in force and effect
on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange
or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or
other national or
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<PAGE> 41
international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have
accelerated or escalated to such an extent, as, in the judgment of the
Representatives, to affect adversely the marketability of the Common
Shares, (iii) if any adverse event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement
or information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect,
or (iv) if there shall be any action, suit or proceeding pending or
overtly threatened, or there shall have been any development or
prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or
the transactions contemplated by this Agreement, which, in the
reasonable judgment of the Representatives, may materially and
adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any
termination pursuant to this subsection (b) shall be without liability
on the part of any Underwriter to the Company or the Selling
Stockholders or on the part of the Company or the Selling Stockholders
to any Underwriter (except for expenses to be paid or reimbursed by the
Company and the Selling Stockholders pursuant to Sections 7 and 9
hereof and except to the extent provided in Section 11 hereof.
SECTION 15. Failure of the Selling Stockholders to Sell and
Deliver. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders at the First Closing Date under the terms of this
Agreement, then the Underwriters may at their option, by written notice from you
to the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 7, 9 and 11 hereof, the Company or the Selling Stockholders, or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. In the event of a
failure by one or more of the Selling Stockholders to sell and deliver as
referred to in this Section, either you or the Company shall have the right to
postpone the Closing Date for a period not exceeding seven business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected.
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SECTION 16. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Stockholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Stockholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 17. Notices. All communications hereunder shall be in
writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Jack Levin, with a copy to Therese Mrozek at
Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, CA 94303; and if sent to the Company or the Selling Stockholders shall be
mailed, delivered or telegraphed and confirmed to the Company at 1912 W. 4th
Street, Tempe, AZ 85281, Attention: Stanley Laybourne, with a copy to Jon S.
Cohen at Snell & Wilmer L.L.P., One Arizona Center, Phoenix, AZ 85004. The
Company, the Selling Stockholders or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 12 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 11, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be
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deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Selling Stockholders and
you.
Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Stockholders represents by so doing that he has
been duly appointed as Attorney-in-fact by such Selling Stockholder pursuant to
a validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all the Selling Stockholders.
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If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters including you, all in accordance with
its terms.
Very truly yours,
Insight Enterprises, Inc.
By:__________________________
President
SELLING STOCKHOLDERS
By:__________________________
(Attorney-in-fact)
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
LAZARD FRERES & CO. LLC
PIPER JAFFRAY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:___________________________
Managing Director
44.
<PAGE> 45
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities...................................................................
Lazard Freres & Co. LLC.................................................................
Piper Jaffray Inc.......................................................................
---------
TOTAL.................................................................... 1,526,250
=========
</TABLE>
A-1
<PAGE> 46
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Number of Optional
Common Shares to Common Shares to
Name of Selling be Sold by Selling be Sold by Selling
Stockholder Stockholders Stockholders
----------- ------------ ------------
<S> <C> <C>
Eric J. Crown 200,000 30,000
Timothy A. Crown 200,000 30,000
Stanley Laybourne 20,000 3,000
Denny J. Chittick 20,000 3,000
Principal Financial
Securities, Inc. 43,125 0
Pennsylvania Merchant
Group Ltd. 28,750 0
Lawrence E. Fish 14,375 0
------- -------
526,250 60,000
TOTAL ======= =======
</TABLE>
B-1
<PAGE> 1
EXHIBIT 5
October 17, 1996
Insight Enterprises, Inc.
1912 West Fourth Street
Tempe, Arizona 85281
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3, including
amendments and exhibits thereto (the "Registration Statement"), for the proposed
offer and sale of up to 1,755,188 shares of Common Stock of Insight Enterprises,
Inc. (the "Company"), which includes 228,938 of such shares which may be sold
pursuant to an underwriters' over-allotment option (the "Shares"), by the
Company and certain of the Company's stockholders, we are of the opinion that:
1. at such time as (i) the pertinent provisions of the Securities Act of
1933, as amended, and such "Blue Sky" and securities laws as may be
applicable have been complied with, (ii) the proposed form of
Underwriting Agreement is duly executed and delivered by the parties
thereto, and (iii) the certificates representing the Shares to be
sold by the Company have been duly executed, countersigned,
registered, and delivered against payment therefore as contemplated
in the Registration Statement and in accordance with the terms of the
Underwriting Agreement, the Shares to be sold by the Company will be
legally issued, fully paid, and nonassessable;
2. the Shares being sold by certain of the Company's stockholders are
legally issued, fully paid, and nonassessable; and
3. the Shares being sold upon exercise of the outstanding options and
warrants, when duly exercised in accordance with their terms, will
be legally issued, fully paid and nonassessable.
In rendering this option, we have reviewed and relied upon such
documents and records of the Company as we have deemed necessary and have
assumed the following:
1. the genuineness of all signatures and the authenticity of documents
submitted to us as originals, and the conformity to originals of all
documents submitted to us as copies;
<PAGE> 2
Insight Enterprises, Inc.
October 17, 1996
Page 2
2. the accuracy, completeness, and genuineness of all
representations and certifications, with respect to factual matters,
made to us by officers of the Company and public officials; and
3. the accuracy and completeness of Company records.
The opinions expressed herein are limited solely to the laws of the
State of Delaware. We express no opinion on the laws of any other jurisdiction
or principles of conflicts of law and can assume no responsibility for the
applicability of any such laws or principles.
The opinions expressed herein are based upon the law and other matters
in effect on the date hereof, and we assume no obligation to review or
supplement this opinion should such law be changed by legislative action,
judicial decision or otherwise, or should any facts or other matters upon which
we have relied be changed.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement.
Very truly yours,
SNELL & WILMER, L.L.P.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Insight Enterprises, Inc.:
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the headings "Selected Consolidated
Financial and Operating Data" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Phoenix, Arizona
October 16, 1996
