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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-25092
INSIGHT ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF 86-0766246
INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
1912 WEST FOURTH STREET
TEMPE, ARIZONA 85281
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 902-1001
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing price of the Registrant's Common Stock
as reported on the NASDAQ National Market on September 17, 1996, was
approximately $111, 434, 000. Shares of Common Stock held by each officer and
director and by each person who owns 10% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes.
The number of outstanding shares of the Registrant's Common Stock on
September 17, 1996 was 5,415,786.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on December 4, 1996 are incorporated by reference in
Part III hereof.
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INSIGHT ENTERPRISES, INC.
FORM 10-K ANNUAL REPORT
YEAR ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I
ITEM 1. Business................................................................. 1
ITEM 2. Properties............................................................... 12
ITEM 3. Legal Proceedings........................................................ 12
ITEM 4. Submission of Matters to a Vote of Security Holders...................... 12
ITEM 4a. Executive Officers of the Registrant..................................... 13
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................ 14
ITEM 6. Selected Consolidated Financial Data..................................... 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and..........
Results of Operations.................................................. 16
ITEM 8. Financial Statements and Supplementary Data.............................. 25
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant....................... 25
ITEM 11. Executive Compensation................................................... 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........... 25
ITEM 13. Certain Relationships and Related Transactions........................... 25
PART IV
ITEM 14. Exhibits and Reports on Form 8-K......................................... 25
SIGNATURES ......................................................................... 27
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Insight is a direct marketer of microcomputers, hardware, software and
services. The Company markets a comprehensive line of brand name products to
price-conscious, computer literate end-users in the business, education,
government, and home markets throughout the United States and Canada. The
Company uses aggressive targeted marketing, a knowledgeable sales force and
streamlined distribution together with its advanced proprietary information
system to achieve volume sales and strong customer loyalty.
The Company markets its products primarily through the use of outbound
telemarketing and its own distinctive catalogs and advertisements in computer
industry publications. The Company's marketing campaigns prominently display the
prices and features of the products offered by the Company along with customer
service benefits and toll-free telephone numbers for direct ordering. Customer
inquiries are handled by well-trained, empowered account executives who attempt
to build long-term relationships with customers.
The Company believes that its sales force provides a significant
advantage in selling to and retaining loyal customers. Customer retention is
also aided by the Company's overall commitment to customer service. This service
includes fast delivery programs, free technical support, and industry standard
warranties on most products. During each of fiscal 1996 and 1995, more than 50%
of the Company's orders were from existing customers.
All major functional areas of Insight utilize the Company's own
proprietary information systems. The Company operates a UNIX-based information
system on a PC platform, which networks all of the Company's facilities and
integrates sales, accounting, inventory management, distribution,
e-mail/Internet communications and other areas to increase internal efficiencies
and facilitate consistent service to the customer.
The Company also leverages its core competencies in direct marketing by
providing outsourcing services to leading manufacturers. Under these various
programs, the Company offers a selection of turnkey direct marketing services
including marketing, sales, accounting and distribution. Currently, the Company
has ongoing outsourcing programs with Toshiba(R), Samsung(R) and others.
The Company's executive offices are located at 1912 West Fourth Street,
Tempe, Arizona 85281, and its telephone number is (602) 902-1001. The Company
was incorporated in Delaware in 1991 and is the successor to the business which
commenced operations in 1988. Unless the context otherwise requires, the
"Company" or "Insight" as used herein refers to Insight Enterprises, Inc., its
subsidiaries and predecessors.
INDUSTRY BACKGROUND
The Company is engaged in the business of selling microcomputer and
related products. The Company believes that microcomputer and related product
sales have increased principally as a result of the following: (i) decreases in
the 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,
educational institutions and governments; (iv) increased user familiarity with
microcomputers; and (v) the emergence of industry standards and component
commonality.
Microcomputers and related products traditionally have been sold by
retailers and resellers who integrated systems and provided a substantial level
of support services but offered a limited selection of products at or near
manufacturers' suggested retail prices. In recent years, a major change has
occurred in the channels of distribution of microcomputer products in the United
States. Mass merchandisers, national direct marketers, general office equipment
retailers and superstore-type microcomputer and non-microcomputer
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retailers have joined traditional retailers and resellers in the sale of
microcomputer products offering a broader selection of products at lower prices.
No single group of retailers or resellers presently enjoys a dominant share of
microcomputer sales.
The Company believes that knowledgeable and value-conscious businesses
and individuals are more likely to utilize the direct channel because direct
channel marketers generally offer greater product selection and lower prices
than, and delivery times comparable to, traditional retail stores, and because
such customers possess familiarity with technology products.
In response to competitive pressures, the traditional microcomputer
resellers are consolidating operations and acquiring or merging with other
resellers to increase efficiency. This industry consolidation could result in
short-term price-cutting in certain markets. In addition, some manufacturers
have their own direct marketing programs which seek to compete on price, but
which are limited by their inability to offer broad product selection with
multiple brand names. Other manufacturers, however, have recognized the
Company's expertise in the direct marketing channel and contracted with the
Company for the outsourcing of such activities. The Company also expects that it
will contract to perform outsourcing services of this type for other leading
manufacturers and retailers.
The Company believes that it will continue to benefit from these
changes as a cost-effective provider of a full range of microcomputer and
related peripheral products through the direct marketing format. The Company
believes that the traditional distribution channels have not satisfied the key
customer purchase criteria of selection, price and service, thus creating an
opportunity for the growth of direct marketing organizations such as the
Company.
STRATEGY
Insight is a direct marketer of microcomputer products to the computer
literate end-user. It offers a broad range of products with aggressive pricing
backed by strong customer service and support. The Company has developed a
mission statement, "to be the leading direct marketer of computer products and
services." The key elements of the Company's strategy are as follows:
Small to Medium-sized Enterprises (SME) Market Focus. During fiscal
1996, the Company increased its focus on computer literate, price-conscious
customers primarily in the SME market. The Company believes these business
customers represent the most attractive segment of the microcomputer direct
marketing industry because they tend to demand leading, high performance
technology products, purchase frequently, make large purchases, are value
conscious and require less technical support. The Company also serves the
education, government and home markets.
Aggressive, Targeted Marketing. The Company acquires and retains
customers through integrated direct marketing that includes, but is not limited
to, print, direct mail, catalogs, inbound and outbound telemarketing, electronic
marketing such as the Internet, package inserts, and fax broadcasts. All
communications with the customer feature value-pricing, detailed product
descriptions and full color photography. All communications are segmented by
customer type to deliver the right products, at the right time, to the right
customer. The Company believes that this strategy will maximize its return on
the investment of marketing dollars.
Broad Selection of Products. The Company offers more than 20,000
products providing its customers with the convenience of one-stop shopping for
their microcomputer-related needs. Access to a broad selection of products,
combined with high volume, cost-effective direct marketing, allows the Company
to competitively price its products. The Company utilizes electronic data
interchange with some of its suppliers. This has allowed the Company to develop
"direct-ship" programs with some of these suppliers and expand its product
offering. In these cases, product can be shipped directly from a supplier to the
customer without it being apparent to the customer. This allows the Company to
expand its product offering without increasing its inventory, handling costs or
inventory risk.
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Value Pricing. The Company offers a broad range of competitively priced
products providing its customers with the convenience of one-stop shopping for
their computer-related needs. Insight's product mix is based primarily on the
Wintel (i.e., microcomputers that run on Microsoft's operating systems and are
powered by Intel microprocessors.) standard. Insight's product and service
strategy is to be value priced; not necessarily the lowest price, but always
competitively priced. Value is created for our customers through competitive
pricing, product availability, quick delivery, and technical advice; all
managed by a strong relationship with an account executive.
Building Customer Loyalty. The Company believes in building a strong
relationship with its customers to ensure customer satisfaction and encourage
repeat buying. 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. The Company assigns each customer a trained account
executive, to whom subsequent calls to the Company will be directed. These
strong one-on-one relationships improve the likelihood that the customer may
consider the Company for future purchases. Product support technicians are
available during an extended workday and can be conferenced by account
executives for consultation. In addition, most Company products carry industry
standard guarantees. As a result of this effort, more than 50% of the Company's
orders in each of fiscal 1996 and fiscal 1995 were placed by customers who had
previously purchased products from the Company.
Technology Based Operations. Part of the Company's business strategy is
to develop an efficient and dynamic infrastructure. The Company uses
technologically advanced, proprietary, real-time information systems to support
customer service, enhance the integration of the sales, distribution and
accounting functions, and allow the Company to respond effectively to
opportunities in its industry. The Company uses automated systems involving
telephone, credit card processing, electronic data interchange with vendors and
electronic catalog production to streamline operations and increase customer
satisfaction.
Outsourcing Arrangements. The Company has leveraged its core
competencies in direct marketing by offering outsourcing of direct marketing
services to leading manufacturers. Under these various programs, the Company
offers a selection of turnkey direct marketing services including marketing,
sales, accounting and distribution. Currently, the Company has ongoing
outsourcing programs with Toshiba(R), Samsung(R), and certain other
manufacturers.
Utilization of Emerging Marketing Technologies. The Company believes
that its experience in the direct marketing industry, as well as the
technological sophistication of its customer base, allows it to exploit emerging
marketing technologies. Internet and on-line computer services are being used by
the Company to distribute product information, provide product support and
generate sales. These new efforts have increased the scope of the Company's
marketing and should provide increased customer sales and service. The Company
believes that its targeted customer base will have a greater acceptance of these
interactive services due to a greater familiarity with technology products and
services.
MARKETING
The Company markets its products through integrated direct programs.
The primary target market is small and medium-sized enterprises (SME's). The
Company also markets to the education, governmental and home markets. The
Company's various 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
believes that its outbound telemarketing efforts coupled with its extensive use
of print advertising and catalog distribution has established it as a leading
direct marketer to computer literate buyers of microcomputer products. The
Company uses both conventional and emerging marketing technologies to sell its
products and provide information about the Company using advertising, catalogs
and specialty marketing.
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Advertising. The Company uses magazine advertising primarily to attract
new customers. The Company places advertising in selected personal computer and
trade magazines, such as Computer Shopper and PC Magazine, and other
publications with a sophisticated, computer literate readership. 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 most of
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).
Catalogs. The Company uses catalogs to generate new orders from
existing customers and to attract new customers. The "Insight" catalogs are
mailed to the Company's customers and to potential customers on mailing lists
acquired from product manufacturers, distributors, computer magazine publishers
and list brokers. The Insight catalog has been segmented into three separate
catalogs, the Business Catalog for SME's, Government and Education; the Network
Catalog for technology managers and the General Catalog for non-business
customers. Each catalog provides detailed product descriptions, manufacturers'
specifications, pricing and the Company's service and support features. During
each of fiscal 1996 and 1995, the Company had a call response rate from its
catalogs of approximately 5% and 8% respectively. The decrease in the response
rate was a result of the increased circulation and the extensive list testing
performed in fiscal 1996. During fiscal 1996 and 1995, the Company published and
distributed 12.9 million and 5.7 million "Insight" catalogs, respectively. As
part of its outsourcing services the Company produces catalogs for certain
manufacturers. These catalogs are circulated periodically, and for select
manufacturers, the catalog is inserted into the manufacturer's product
packaging.
Specialty Marketing. Specialty marketing includes direct mail, inbound
and outbound telemarketing, bulletin board services "fax on demand" service,
package inserts and fax broadcasts. The Company also communicates with customers
through the emerging technology of the Internet. Customers can automatically
receive selected product offerings and specials, product information and
ordering instructions through the Company's World-Wide Web site at
http://www.insight.com.
Cooperative Marketing. The Company enters into cooperative marketing
agreements with product manufacturers. Under these agreements, the Company
places advertisements in personal computer and trade magazines or catalogs 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 $10.0 million in
fiscal 1996 and $5.7 million in fiscal 1995.
Database Management. The Company continues to invest in customer
retention and share of customer strategies through aggressive developments in
customer information systems. The Company's database marketing efforts involve
identifying 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. This in turn
drives the Company to focus more on relationship marketing and less on
acquisition activities to the masses. Customer centered solutions are the
result, which means extremely loyal and profitable customers. Customer
information will be a key resource in Insight's acquisition, conversion and
retention of high lifetime value customers.
CUSTOMERS
The Company's various marketing programs are designed to attract new
customers and to stimulate additional purchases from existing customers. The
Company continuously attracts new customers through advertising in the major
computer magazines as well as targeted mailing of catalogs to prospective
customers.
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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:
businesses - 64%, educational institutions - 8%, governmental organizations -
5%, and home - 23%. The comparable percentages in fiscal 1995 were as follows:
business - 54%, educational institutions -- 8%, governmental organizations - 5%,
and home - 33%. The increase in percentage of sales to business end-users in
fiscal 1996 reflects the Company's continued strategy to increase its emphasis
on this market segment. 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 actual inbound sales experience. The account executive
progresses from selling non-technical products such as software to complex
microcomputers that have a number of possible configurations and require
substantial product knowledge. 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. A
first time caller is assigned to an account executive. All subsequent incoming
customer calls 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. The Company also encourages the
account executives to 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
1996 and 1995, 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 following table sets forth certain data for the periods indicated:
<TABLE>
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YEARS ENDED JUNE 30,
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1996 1995 1994
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Account executives (at end of period)...... 321 239 143
Orders filled.............................. 518,000 406,000 261,000
Average order size......................... $656 $598 $644
</TABLE>
The 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.
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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, and increase sales.
The Company currently provides direct marketing services to certain
manufacturers, including Toshiba(R) and Samsung(R). 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(R) Inc., a manufacturer of non-lethal self
defense products. The arrangement with Air Taser(R) Inc. 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.
In late 1993, the Company was selected by Ambra Computer Corporation, a
subsidiary of IBM ("Ambra"), to provide direct marketing sales services for
IBM's newly introduced Ambra brand of microcomputers. The Company established
the necessary facilities and engaged the requisite personnel and, through
October 1994, effected sales of approximately $100 million of Ambra products. In
July 1994, IBM announced a corporate reorganization which included the
discontinuance of the Ambra brand in the United States. The Company's
arrangement with Ambra was terminated effective December 31, 1994.
The Ambra activity helped the Company develop its outsourcing techniques and
capacity.
The Company also made changes in its arrangements with other marketers,
such as American Express(R) and Fingerhut(R), 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. This phase
of sales to third party marketer did not have a material adverse effect on the
Company's operations or financial condition.
ARIZONA SALES
The Company has developed a local marketing force within the State of
Arizona to better serve the Arizona market. Sales to customers located within
the State of Arizona were approximately 12% of the Company's net sales during
fiscal 1996 and approximately 14% of the Company's net sales during fiscal 1995.
The Company's Arizona marketing strategy includes outbound field account
executives, call-in local delivery and a will-call outlet, located at its
distribution center, allowing the Company to leverage its operating efficiencies
and local presence. A portion of the outlet is dedicated to selling floor
models, slow-moving inventory and non-warrantable products.
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PRODUCTS AND MERCHANDISING
The Company offers microcomputers, peripherals, and software products.
The following chart provides information regarding selected products offered by
the Company during fiscal 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRODUCT CATEGORIES 1996 NET SALES SELECTED PRODUCT MANUFACTURERS
- ------------------ -------------- ------------------------------
<S> <C> <C> <C>
Microcomputers:
Name branded.............. 29% AST IBM
Compaq Texas Instrument
Digital Toshiba
Insight-branded........... 3% Insight
Hard disk drives.............. 23% Fujitsu Quantum
IBM Seagate
Micropolis Western Digital
Memory........................ 9% IBM PNY
Kingston Toshiba
Monitors/Video................ 7% CTX Magnavox/Philips
Hitachi NEC
Mag Innovision View Sonic
Network/Connectivity.......... 6% Cisco 3Com
Intel U.S. Robotics
Printers...................... 5% Canon Okidata
Epson Panasonic
Hewlett-Packard Texas Instruments
Multimedia.................... 5% Creative Labs Sony
New Com TEAC
Plextor Toshiba
Software...................... 5% Corel Microsoft
Lotus Novell
Miscellaneous................. 8% American Power Colorado Memory
Conversion Intel
</TABLE>
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 managers and
buyers evaluate new products and the effectiveness of existing products and
select products for inclusion in its marketing based upon their 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 also marketed microcomputers and certain hard drives under
Insight branded names. Insight-branded microcomputers accounted for
approximately 3% and 21% of the Company's net sales during fiscal 1996 and 1995,
respectively. Insight-branded computers consisted of private label computers
configured by other manufacturers as well as systems that were configured in the
Company's distribution center. The configuration process consisted of assembling
base component microcomputers with other components and testing the systems
through a dynamic burn-in period. The Company provided a limited warranty on all
Insight-branded microcomputer systems. The majority of the components that were
configured into these systems were warranted to Insight by the original
equipment manufacturer for a period equal to the period warranted by Insight. In
those cases where the components have not been warranted, expected future costs
have been provided for in the Statement of Earnings. During fiscal 1995, as the
result of the addition of various other
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brand computers to its product mix, the Company began to de-emphasize the
selling of the Insight-branded computer. The Company discontinued selling
Insight-branded computers during fiscal 1996, and the resources that were
devoted to configuration of Insight-branded computers are being utilized for the
configuration of other branded products.
PURCHASING AND DISTRIBUTION
Purchasing/Inventory Management. The Company purchases products from
approximately 300 suppliers. During fiscal 1996, approximately 61% (based on
dollar volume) of the products were purchased directly from manufacturers, with
the balance from distributors. Purchases from Merisel, Inc., 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,
Inc., Toshiba American Information Systems, Inc., Seagate Technology, Inc.,
Ingram MicroD (a distributor), and Western Digital Corporation) accounted for
approximately 51% of the Company's product purchases during the same period.
The Company believes it has excellent relationships with its suppliers,
resulting 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.
"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 ("EDI")
with its suppliers, which helps 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 allow the Company to offer a greater range of products without
increased inventory requirements, and 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
enhancements. 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 and processing of returned products. 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 barcoded and placed in designated areas
that are easily identified on the packing slip. Barcode scanners check all
orders for accurate fulfillment prior to final packing.
Product Returns. Products returned because of defects or
incompatibilities with the customer's existing equipment are processed by
distribution center personnel with prompt testing to determine the problem. As
part of the Company's customer service emphasis, most products returned are
processed and a replacement product is shipped or a credit issued for product
cost within 24 hours of when the product was received by the Company. Most
defective products are returned to manufacturers for credit or replacement
product. Products that cannot be returned to the manufacturer for credit or
replacement are typically sent to the retail outlet for sale at a discounted
price. The retail outlet allows the Company to sell non-warrantable goods and
minimize any loss to the Company. In each of fiscal 1996 and 1995, the Company
had a return rate of approximately 8% of gross sales.
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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 365 days a year. Product support technicians assist
customers with questions concerning compatibility, installation, determination
of defects and general questions of product use. The product support technicians
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. The Company recently introduced
same day delivery capability for products. 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.
Guarantee. During fiscal 1995, the Company aligned its return policy
with industry practice by providing that printers, notebooks, scanners and
non-Insight-branded computers can be returned if unopened within 15 days of
purchase, subject to a 15% restocking charge. Under this policy, most other
products can be returned within 30 days of purchase, subject to a 15% restocking
charge if the products are opened.
Warranties. 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 hard drives, the Company offers a one-year replacement
policy in which the Company accepts the returns directly from the customer and
then ships the customer a similar but previously repaired product from the
Company's inventory. Upon receipt, the customer's defective product is returned
to the manufacturer for repair or credit.
The microcomputers sold under the Company's brand names had a limited
warranty offered by the Company. All new sales of Insight-branded microcomputer
systems carried a one-year warranty. To obtain warranty repair, a customer must
return the product to the Company. Upon repair, the product is returned to the
customer. For the Insight-branded microcomputers, the majority of components
that were configured into the microcomputer are warranted to the Company by the
original manufacturer for a period equal to the period warranted by the Company.
The sale of Insight-branded microcomputers was discontinued in fiscal 1996.
TECHNOLOGY BASED OPERATIONS
The Company believes its implementation of advanced technological
systems provides competitive advantages by increasing the productivity of its
account executives, delivering 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. 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.
9
<PAGE> 12
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.
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 items are
barcoded upon arrival in the distribution facility. The Company's barcoding
system 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 ensure overnight delivery to the correct
location.
The Company has a staff of eleven full-time and four part-time software
programmers to develop, maintain and support its proprietary software systems.
COMPETITION
The microcomputer products retail industry is highly competitive.
Competitive pressures have intensified as the industry's rate of growth in the
United States has slowed. Pricing is very aggressive in the industry and the
Company expects pricing pressures to continue to intensify. The microcomputer
products retail industry is also characterized by rapid changes in technology
and consumer preferences, short product life cycles and evolving industry
standards.
Microcomputers are marketed through several distribution channels
including traditional microcomputer retailers, computer superstores, consumer
electronic and office supply superstores, mass merchandisers, national direct
marketers such as the Company, and other resellers. The Company competes with
national retail chains and other smaller regional or local retailers. With
respect to the direct marketing channel, the Company competes with companies
such as CDW Computer Centers, Inc., MicroWarehouse, Inc., and selected computer
storage specific marketers. Competitive factors include price, service and
support, the variety of manufacturers' products offered, and marketing and sales
capabilities. There can be no assurance that the Company can continue to compete
effectively against existing competitors or new competitors that may enter the
market in the future.
The Company competes with microcomputer manufacturers such as Dell
Computer Corporation and Gateway 2000 that market their products via direct
marketing. These manufacturers have greater financial, marketing and
technological resources than the Company. The principal elements of competition
are product reliability and quality, customization, price, customer service,
technical support and product availability.
10
<PAGE> 13
SALES OR USE TAX
The Company presently collects sales tax only on sales of products to
residents in the state of Arizona. Various states have attempted to impose on
direct marketers the burden of collecting sales or use taxes on the sales of
products shipped to state 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 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 could 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 suppliers 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. For example, the Company has entered into an
agreement with IBM for a non-exclusive license to use certain IBM patented
technology in its products. This contract has been canceled because the Company
discontinued the sales of Insight branded microcomputers.
While the Company does not believe that its continued success will
depend upon the rights to a patent portfolio, there can be no assurance that the
Company will continue to have access to existing or new technology for use in
its products. In situations where the Company or its suppliers are required to
obtain licenses to access protected technology, the Company could be placed at a
disadvantage if competitors were to obtain licenses which the Company or its
suppliers were unable to obtain, or if competitors were able to obtain licenses
with lower royalty fee payments or other terms more favorable than those
received by the Company or its suppliers. The Company could also incur
substantial costs to redesign its products around other parties' protected
technology and to defend patent or copyright infringement actions. If any of the
Company's products were found to infringe protected technology, the Company
could be enjoined from further use of that technology and could be required to
pay substantial damages.
The Company conducts its business under the trademarks and service
marks "Insight(R)" and "Hard Drives International(R). "The Company intends to
use and protect these and its other marks, as 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 of whom 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 ongoing internal and external training. The training programs
include: Insight's Sales Training Program, New Hire Training Program, LEAD,
TEAM, and Management Development. Insight's new Sales Training Program is
dedicated to ensuring quality sales and customer services. Classes offered
target sales management, account executives, customer service, customer
engineers and tech support by providing new skills through the entire sales
process. New Hire Training encompasses a three-week extensive product, system,
and procedural training program. Insight has contracted with Learning
International to assist us in focusing training in the areas of account
penetration and development. LEAD (Leadership Enhancement and Development) is a
weekly one-hour
11
<PAGE> 14
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.
The Company believes that its future success will depend in large part
upon its continued ability to attract and retain highly qualified management,
technical and sales personnel. There can be no assurance that the Company will
be able to attract and retain the qualified personnel necessary for its success.
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.
ITEM 2. PROPERTIES
The Company's principal facilities include 174,000 square feet of
leased space in seven facilities in Tempe, Arizona which house 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 17 acres of vacant land in Tempe,
Arizona. The Company started construction in the third quarter of fiscal 1996
and will be consolidating its executive, sales and administrative functions into
one facility on the acquired land during fiscal 1997 to better support the rapid
growth in sales. Such functions currently are located in four facilities. The
Company may require more space as its business expands. 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.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 15
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the executive
officers of the Company and certain key employees of its subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eric J. Crown.................. 34 Chief Executive Officer and Chairman of the Board of
the Company
Timothy A. Crown............... 32 President and Director of the Company
Stanley Laybourne.............. 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 IA Direct, Inc.
</TABLE>
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 electronic
retailer. From April 1983 to June 1995, Mr. Gumbert was employed by Merisel,
Inc., a distributor of computers, software and peripherals. He held several
positions, 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.
Branson M. Smith has been employed by Insight Direct, Inc. since March
1992 as its Vice President of Fulfillment, and in September 1996 was promoted to
Chief Operating Officer of IA Direct, Inc. 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. Mr. Smith is a member of the American Production and Inventory Control
Society.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock commenced trading on the
NASDAQ National Market on January 24, 1995 under the symbol "NSIT." The bid
price information included herein is derived from the Nasdaq Monthly Statistical
Report, represents quotations by dealers, may not reflect applicable markups,
markdowns or commissions, and does not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
HIGH BID LOW BID
-------- -------
<S> <C> <C>
Fiscal Year 1995
Third Quarter (commencing January 24, 1995)... $12 $ 9
Fourth Quarter................................ 17 1/4 10 1/4
Fiscal Year 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
</TABLE>
As of September 17, 1996, there were 5,415,786 shares outstanding of
the Common Stock of the Company held by approximately 72 stockholders of record.
Dividends. The Company has never paid a cash dividend on its Common
Stock. The Board of Directors currently anticipates that all of the Company's
earnings will be retained for use in its business and does not intend to pay any
cash dividends in the foreseeable future.
14
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere herein. The selected
consolidated financial data presented below under the captions "Consolidated
Statements of Earnings Data" and " Consolidated Balance Sheet Data" 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
consolidated financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The consolidated financial statements
as of June 30, 1996 and 1995, and for each of the years in the three-year period
ended June 30, 1996 and the report thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA
Net sales .................................. $ 342,813 $ 244,953 $ 170,400 $142,951 $117,740
Cost of goods sold ......................... 294,292 207,104 144,186 118,194 99,859
---------- ---------- ---------- -------- --------
Gross profit ............................... 48,521 37,849 26,214 24,757 17,881
Selling, general and administrative
expenses ................................ 38,917 31,848 23,742 22,831 16,269
---------- ---------- ---------- -------- --------
Earnings from operations ................... 9,604 6,001 2,472 1,926 1,612
Non-operating expense, net ................. 136 663 409 355 144
---------- ---------- ---------- -------- --------
Earnings before income taxes ............... 9,468 5,338 2,063 1,571 1,468
Income tax expense ......................... 3,748 2,114 561 365 595
---------- ---------- ---------- -------- --------
Net earnings ............................... $ 5,720 $ 3,224 $ 1,502 $ 1,206 $ 873
========== ========== ========== ======== ========
PRO FORMA DATA (UNAUDITED)
Pro forma earnings before income taxes(1) $ 5,475 $ 3,127
Pro forma income tax expenses(2) ........ 2,168 1,238
---------- ----------
Pro forma net earnings .................. $ 3,307 $ 1,889
========== ==========
Net earnings per share (pro forma for 1995
and 1994) (3) .............................. $ 1.08 $ 0.89 $ 0.61
========== ========== ==========
Shares used in per share calculations
(pro forma for 1995 and 1994)(3) .......... 5,289,612 3,711,093 3,091,501
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................. $34,567 $21,920 $ 1,922 $ 1,661 $ 802
Total assets................................. 73,618 42,402 27,732 18,242 16,399
Short-term debt.............................. - - 10,040 3,006 3,077
Long-term debt, excluding current portion.... - 6,541 1,015 371 496
Stockholders' equity......................... 41,785 18,561 3,465 2,910 1,704
</TABLE>
- ----------
(1) Pro forma earnings before income taxes in 1995 and 1994 reflect the
elimination of executive compensation expense in excess of the amounts due under
employment agreements with Eric J. Crown and Timothy A. Crown, the Company's
Chief Executive Officer and President, respectively. The employment agreements
are effective as of October 1, 1994 and provide for annual compensation of
$225,000 for each stockholder. See Note 15 of Notes to Consolidated Financial
Statements.
(2) Pro forma income tax expense in 1995 and 1994 reflect the
additional income taxes that would have been recorded after adjusting for
executive compensation expense described in note (1) above. Additionally, for
fiscal 1994, pro forma income tax expense has been adjusted to reflect the
additional income taxes on S Corporation earnings for the respective period,
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. See Note 15 of Notes to Consolidated Financial Statements.
15
<PAGE> 18
(3) Shares used in pro forma net earnings per share calculation in 1995
and 1994 are calculated using the treasury stock method. Earnings per share
calculations consider the reincorporation of the Company as a Delaware
corporation and the related share exchange pursuant to which the stockholders of
the predecessor company received 2,790,698 shares for the 10,000 shares of the
Company's common stock previously outstanding. Pro forma net earnings per share
for the year ended June 30, 1994 is based on 3,091,501 shares, which includes
2,790,698 actual shares outstanding, 192,635 common stock equivalents and an
additional 108,168 shares deemed to be outstanding. The 192,635 common stock
equivalents represent the dilutive effect of stock options using the treasury
stock method. The 108,168 shares deemed to be outstanding represent the number
of shares (at an initial public offering price of $9.00 per shares, net of
underwriting discounts and expenses) sufficient to repay $874,000 of outstanding
stockholders' notes. Pro forma net earnings per share for the year ended June
30, 1995 is based on 3,711,093 shares, which includes 3,440,743 of weighted
shares outstanding and 270,350 of common stock equivalents. Net earnings per
share for the year ended June 30, 1996 is based on 5,289,612, which includes
4,987,649 of weighted shares outstanding and 301,963 of common stock
equivalents.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Insight is a direct marketer of microcomputers, hardware, software and
services. The Company markets a comprehensive line of brand name products to
price-conscious, computer literate end-users in the business, education,
government and home markets throughout the United States and Canada. The Company
uses aggressive marketing, a knowledgeable sales force and streamlined
distribution together with its advanced proprietary information system to
achieve volume sales and strong customer loyalty.
The Company commenced operations in 1988 as a direct marketer of hard
disk drives and other mass storage products under the name Hard Drives
International. In fiscal 1991, the Company began to market its own
Insight-branded microcomputers. In fiscal 1992 and 1993, the Company added
peripherals, software and other brand microcomputers to its product line.
Through fiscal 1992, the Company based its marketing approach primarily on
advertising in computer magazines and the use of inbound toll-free telephone
lines to receive customer orders. In fiscal 1993, the Company changed its
marketing mix to include the publication of catalogs and the use of outbound
telephone account executives focusing on the business, education, and government
markets. During fiscal 1995, the Company began to de-emphasize the sale of
Insight-branded computers and discontinued the sale of Insight-branded computers
in the second quarter of fiscal 1996.
In fiscal 1992, the Company began outsourcing direct marketing services
to third parties. Under this approach, catalogs and other mailings produced and
distributed by third parties feature brand name or Insight-branded products sold
under the name of such marketer. In fiscal 1993, the Company initiated its
turnkey direct marketing outsourcing program for leading manufacturers. In
fiscal 1995, the Company began its phase out of sales to third party marketers.
In fiscal 1996, the Company discontinued sales to third party marketers.
In fiscal 1995, the Company completed its initial public offering of
Common Stock, receiving net proceeds of approximately $11.9 million. In November
1995, the Company completed a second public offering of Common Stock, receiving
net proceeds of $16.6 million.
The Company's results of operations have varied from period to period
as a result of many factors, including continuing price competition, general
economic conditions, the condition of the microcomputer products retail
industry, shifts in demand for microcomputer products and industry announcements
of new products or upgrades. No assurance can be given that variations in
results of operations from period to period will not occur in the future. The
Company's planned operating expenditures are based on sales forecasts. If
revenues do not meet the Company's expectations in any given period, the
Company's operating results could be materially adversely affected.
The Company operates in an intensely competitive environment. There can
be no assurance that competition will not increase in the future, which could
require the Company to reduce prices, increase marketing expenditures or take
other actions which may have a material adverse effect on the Company's
operating results.
From inception, the Company has experienced rapid growth that has
placed, and could continue to place, a significant strain upon the Company's
financial, management and other resources. The Company's
16
<PAGE> 19
future performance will depend in part on its ability to manage change in its
operations. In addition, the Company's ability to manage its growth effectively
will require it to continue to improve its operational, financial control and
management information systems, and to attract, manage and retain key employees.
If the Company's management were to become unable to manage growth effectively,
the Company's business, financial condition and results of operations would be
adversely affected.
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements of the Company, including the related notes
thereto, appearing in Item 8 of this Report on Form 10-K.
Any statement in this document that relates to future plans,
expectations, events, or performances are deemed to be forward looking
statements. Such forward looking statements are subject to the following
important factors, among others, that could cause actual results to differ
materially from the forward looking statement: the "Risk Factors" set forth in
the Company's Prospectus dated November 3, 1995; changes in the personal
computer industry, especially competitive pressures, changing price margins, and
inventory risks due to technological developments or shifts in market demand;
the Company's possible inability to obtain new outsourcing agreements and the
effect on the Company's rate of net sales growth caused by the changing mix of
type of outsourcing agreement (as hereinafter described); and changes in costs,
especially paper prices, of Company catalogs and advertising.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0%
Costs of goods sold................................ 85.8 84.6 84.6
----- ----- -----
Gross profit....................................... 14.2 15.4 15.4
Selling, general and administrative expenses....... 11.4 13.0 13.9
----- ----- -----
Earnings from operations........................... 2.8 2.4 1.5
Non-operating expense, net......................... 0.0 0.3 0.3
----- ----- -----
Earnings before income taxes....................... 2.8 2.1 1.2
Income tax expense................................. 1.1 0.8 0.3
===== ===== =====
Net earnings....................................... 1.7% 1.3% 0.9%
===== ===== =====
</TABLE>
YEARS ENDED JUNE 30, 1996 AND 1995
Net Sales. The Company's net sales were $342.8 million in fiscal 1996
and $244.9 million in fiscal 1995. From fiscal 1995 to fiscal 1996, net sales
increased $97.9 million, or 40.0%. Direct marketing sales increased $94.3
million from $215.0 million in fiscal 1995 to $309.3 million in fiscal 1996.
Sales from outsourcing services to manufacturers and third-party marketers
increased $3.6 million from $29.9 million in fiscal 1995 to $33.5 million in
fiscal 1996.
The increase in direct marketing sales resulted primarily from added
account executives, emphasis on outbound telemarketing, increased average order
size, the continued building of the Company's customer base and the increased
catalog circulation. The number of account executives increased from 239 at June
30, 1995 to 321 at June 30, 1996. A significant factor in the average order size
increase was the demand for the high-end notebooks. The Company more than
doubled its Insight catalog circulation from 5,740,000 in fiscal 1995 to
12,880,000 in fiscal 1996. The increase in outsourcing sales resulted from
increased sales for outsourcing arrangements and the addition of new outsourcing
contracts with manufacturers and retailers. This increase resulted despite the
de-emphasis of sales to third-party marketers and the termination of outsourcing
services provided to Ambra, a subsidiary of IBM. Net sales to third-party
marketers were $13.0 million in fiscal 1995 compared to $0.4 million in fiscal
1996. In 1994, IBM announced the discontinuance of the Ambra product line,
17
<PAGE> 20
and therefore, the Company began reducing services to Ambra and subsequently the
agreement was terminated effective December 31, 1994. The Ambra contract
accounted for $2.7 million in net sales for fiscal 1995. The Company's
outsourcing arrangements generally may be canceled on relatively short notice,
and there can be no assurance that the Company will be able to replace any
arrangement that is canceled or not renewed upon expiration.
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 upon 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
The Company believes that it is not practicable to analyze changes in
net sales resulting from factors such as new product introduction, product
discontinuances, volume changes and price changes because the Company offers a
changing mix of products at prices which vary extensively over the course of any
given period.
Gross Profit. Gross profit decreased from 15.4% of net sales to 14.2%
in fiscal 1996. The gross profit on the Company's direct marketing sales
decreased due to industry pricing pressures which was partially offset by the
Company's ability, as a result of its increased volume and financial position,
to take advantage of vendor payment term discounts and increased bulk purchasing
opportunities, as well as an increase in price protection and rebates received
from vendors. Additionally, the Company's transition from Insight-branded
computers to other branded computers also had a negative impact upon gross
margins (although eliminating the sales of Insight-branded computers has
resulted in a net positive effect due to the reduction of general and
administrative expense, such as telephone and technical support costs associated
with the Insight-branded product line). Sales of Insight-branded computers
accounted for 21% and 3% of net sales for fiscal years 1995 and 1996,
respectively. The Company's shift in product mix has also had a negative impact
on gross profit as a percentage of sales. The Company experienced significant
growth in the notebooks category which carries a low gross profit percentage.
The gross profit percentage on the Company's outsourcing business also declined.
This decrease was primarily related to the loss of the gross profit margins in
the Company's outsourcing business with Ambra, which were higher than those in
its other outsourcing arrangements. Unlike its other outsourcing arrangements,
under the Ambra contract the Company provided limited services, did not maintain
inventory and did not ship products. The gross profit margins in most of the
Company's outsourcing arrangement other than Ambra approximated those in its
direct marketing sales. Gross profit may be affected in future periods by the
number and mix of outsourcing arrangements which are in place from time to time.
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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $38.9 million in fiscal 1996 and $31.8 million for
fiscal 1995. Selling, general and administrative expenses decreased to 11.4%
from 13.0% of net sales. The decline was attributable to increased economies of
scale as general and administrative expenses were allocated over a greater net
sales base, a $137,500 reduction in compensation to the major
stockholders/officers and the Company's continued shift in marketing strategy.
The Company increased 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 deferrals of advertising costs of $143,000 and $214,000 at June 30, 1996 and
1995, respectively. These decreases of general and administrative expenses as a
percentage of net sales were partially offset by the addition of account
executives in anticipation of future sales growth and the addition of new
outsourcing contracts. New outsourcing programs initiated by the Company from
time to time generally require a period of several months prior to gross profit
exceeding the selling, general and administrative costs associated with the
program. Increases in postage and paper costs may increase the cost of
preparation and mailing of the
18
<PAGE> 21
Company's marketing materials in future periods, though the Company anticipates
that it will be able to offset these increases, in part, by increases in
cooperative advertising rates, improved database management and other cost
reductions. Certain manufacturers and distributors provide the Company with
substantial incentives in the form of discounts, advertising allowances and
rebates. A reduction in or discontinuance of such incentives could have a
material adverse effect upon the Company.
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. The interest expense primarily relates to borrowings
under the Company's line of credit which have been necessary to finance the
Company's growth. The 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 current effective tax rate is 39.6%.
YEARS ENDED JUNE 30, 1995 AND 1994
Net Sales. The Company's net sales were $244.9 million in fiscal 1995
and $170.4 million in fiscal 1994. From fiscal 1994 to fiscal 1995, net sales
increased $74.5 million, or 43.8%. Direct marketing sales increased $67.5
million from $147.5 million in fiscal 1994 to $215.0 million in fiscal 1995.
Sales from outsourcing services to manufacturers and third-party marketers
increased $7.0 million from $22.9 million in fiscal 1994 to $29.9 million in
fiscal 1995.
The increase in direct marketing sales resulted primarily from
increased catalog circulation, added account executives and the continued
building of the Company's customer base. The Company more than doubled its
catalog circulation from 3,363,000 in fiscal 1994 to 7,451,000 in fiscal 1995.
The increase in outsourcing sales resulted from increased sales for existing
outsourcing arrangements and the addition of new outsourcing contracts with
manufacturers. This increase resulted despite the de-emphasis of sales to third-
party marketers and the termination of outsourcing services provided to Ambra, a
subsidiary of IBM. In July 1994, IBM announced the discontinuance of the Ambra
product line, and therefore, the Company began reducing services to Ambra, and
subsequently the agreement was terminated effective December 31, 1994. The Ambra
contract accounted for $2.7 million and $2.3 million in net sales for fiscal
1995 and 1994, respectively. The Company's outsourcing arrangements generally
may be canceled on relatively short notice, and there can be no assurance that
the Company will be able to replace any arrangement that is canceled or not
renewed upon expiration.
Under certain 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 upon 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.
The Company believes that it is not practicable to analyze changes in
net sales resulting from factors such as new product introductions, product
discontinuances, volume changes and price changes because the Company offers a
changing mix of products at prices which vary extensively over the course of any
given period.
Gross Profit. Gross profit remained constant at 15.4% of net sales for
the years ended June 30, 1995 and 1994. The gross profit on the Company's direct
marketing sales decreased due to increased industry pricing pressures, which was
partially offset by the Company's ability, as a result of its initial public
offering in the third quarter of fiscal 1995, to take advantage of vendor
payment term discounts and increased bulk purchasing opportunities, as well as
an increase in price protection received from vendors. The decline in the gross
profit
19
<PAGE> 22
percentage from direct marketing sales was offset in part by higher gross profit
margins in the Company's outsourcing business with Ambra, which were higher than
those in its other outsourcing arrangements. Unlike its other outsourcing
arrangements, under the Ambra contract the Company provided limited services,
did not maintain inventory and did not ship products. The gross profit margins
in the Company's outsourcing arrangements other than Ambra were similar to those
in its direct marketing sales. Gross profit may be affected in future periods by
the number and mix of outsourcing arrangements which are in place from time to
time. The Company anticipates continued pressure on gross margins in fiscal 1996
primarily due to industry-wide pricing pressures. The Company's transition from
the Insight-branded computers to other branded computers is also expected to
have a slight negative impact upon gross margins (though the Company anticipates
that the reduced sale of Insight-branded computers will result in a net positive
effect due to the reduction of general and administrative expense, such as
telephone and technical support costs associated with the Insight-branded
product line).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $31.8 million in fiscal 1995 and $23.7 million in
fiscal 1994. Selling, general and administrative expenses decreased to 13.0%
from 13.9% of net sales. The decline was attributable to increased economies of
scale as general and administrative expenses were allocated over a greater net
sales base, a $927,000 reduction in compensation to the major
stockholders/officers and the Company's continued shift in marketing strategy.
The Company increased 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 $214,000 deferral of advertising costs at June 30, 1995. These decreases of
general and administrative and advertising expenses as a percentage of net sales
were partially offset by an increase in selling expenses, as a percentage of net
sales, with the addition of account executives in anticipation of future sales
growth and the addition of new outsourcing contracts. New outsourcing programs
initiated by the Company from time to time generally require a period of several
months prior to gross profit exceeding the selling, general and administrative
costs associated with the program. Increases in postage and paper costs may
increase the cost of preparation and mailing of the Company's marketing
materials in future periods, though the Company anticipates that it will be able
to offset these increases, in part, by increases in cooperative advertising
rates, improved database management and other cost reductions. Certain
manufacturers and distributors provide the Company with substantial incentives
in the form of discounts, advertising allowances and rebates. A reduction in or
discontinuance of such incentives could have a material adverse effect upon the
Company.
Non-Operating Expense, Net. Non-operating expense, net, which consists
primarily of interest expense, increased to $663,000 in fiscal 1995 from
$409,000 in fiscal 1994. The increase was due to increased borrowings under the
Company's line of credit which were necessary to finance the Company's growth.
The majority of this interest expense was incurred prior to the Company's
initial public offering.
Income Tax Expense. The Company's current effective tax rate is 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.
20
<PAGE> 23
QUARTERLY RESULTS AND SEASONALITY
The Company's business in the past has been seasonal. Net sales during
the second and third fiscal quarters in fiscal 1995 were the strongest. As the
Company continues to increase its percentage of revenue 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:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
JUNE 30, MAR. 31, DEC. 31, SEPT 30, JUNE 30, MAR. 31, DEC. 31, SEPT 30,
1996 1996 1995 1995 1995 1995 1994 1994
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales .................... $100,950 $94,655 $76,431 $70,777 $60,605 $64,238 $66,384 $53,726
Costs of goods sold .......... 86,934 81,224 65,395 60,739 51,539 54,390 56,370 44,805
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit ............... 14,016 13,431 11,036 10,038 9,066 9,848 10,014 8,921
Selling, general and
administrative
expenses(1) ................ 11,078 10,758 8,942 8,139 7,359 8,331 8,399 7,759
-------- ------- ------- ------- ------- ------- ------- -------
Earnings from operations ..... 2,938 2,673 2,094 1,899 1,707 1,517 1,615 1,162
Non-operating expense, net ... (22) 24 55 79 127 136 225 175
-------- ------- ------- ------- ------- ------- ------- -------
Earnings before income taxes . 2,960 2,649 2,039 1,820 1,580 1,381 1,390 987
Income tax expense ........... 1,170 1,050 807 721 625 548 550 391
-------- ------- ------- ------- ------- ------- ------- -------
Net earnings ................. $ 1,790 $ 1,599 $ 1,232 $ 1,099 $ 955 $ 833 $ 840 $ 596
======== ======= ======= ======= ======= ======= ======= =======
Pro forma data:(2)
Earnings before income taxes $ 1,124
Net earnings ............... 679
Net earnings per share ..... $ 0.31 $ 0.29 $ 0.24 $ 0.24 $ 0.21 $ 0.20 $ 0.27 $ 0.22
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------
(1) In the fourth quarter of fiscal 1995, the Company adopted SOP 93-7,
"Reporting on Advertising Costs". In accordance with SOP 93-7, costs of direct
response advertising are capitalized and amortized over the expected revenue
stream, generally three months. Prior to the implementation of SOP 93-7, for
interim periods, advertising expense is recognized as a percentage of net sales
as opposed to expensing as incurred. This interim allocation is supported by the
Company's tracking of customer responses to unique toll-free telephone numbers
placed in specific advertisements and catalogs. As a result, in the first
quarter of fiscal 1995 advertising expense was $195,000 less than actually
incurred and in the second quarter of fiscal 1995 advertising expense was
$195,000 greater than incurred. In the third quarter the advertising expense was
equal to the amount incurred. And in the fourth quarter of fiscal 1995, with the
adoption of SOP 93-7, $214,000 of advertising costs were deferred. During the
first and second quarters of fiscal 1996, the deferral increased by $85,000 and
$366,000 respectively, while the deferral decreased by $414,000 and $108,000 in
the third and fourth quarters. At June 30, 1996 advertising costs of $143,000
was deferred and included in other assets.
(2) See Note (15) of Notes to Consolidated Financial Statements.
INFLATION
Management does not believe that inflation has had a material effect on
the Company's sales during the past three fiscal years.
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
underwriters' discounts, commission 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.
21
<PAGE> 24
In November 1995, the Company completed a second public offering of
common stock. The Company received $16.6 million, net of underwriting discounts,
commission 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 this offering has been 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.
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. 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. 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. 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 progress, of a facility on that site, which will house sales,
executive and administrative functions.
As of June 30, 1996, the Company had no outstanding balance under its
line of credit. 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, $22.5 million was available
under the line of credit. 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, and the
purchase of equipment, furniture and fixtures. The Company anticipates that cash
flow from operations together with the funds available from its initial and
second public offerings of common stock and amounts available under its existing
line of credit should be adequate to support the Company's presently anticipated
cash and working capital requirements through fiscal 1997. The Company's ability
to continue funding its planned operations beyond fiscal 1997 is dependent upon
its ability to generate sufficient cash flow to meet its obligations on a timely
basis, or to obtain additional funds through equity or debt financings, or from
other sources of financing, as may be required.
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 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.
22
<PAGE> 25
CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS
Highly Competitive Industry. The microcomputer products industry is
highly competitive. Competitive pressures have intensified as the industry's
rate of growth in the United States has slowed. Pricing is very aggressive and
the Company expects pricing pressures to continue. The Company competes with a
large number and wide variety of resellers of microcomputers and related
products, including traditional microcomputer retailers, computer superstores,
consumer electronics and office supply superstores, mass merchandisers, national
direct marketers (including value-added resellers and specialty retailers,
aggregators, distributors, franchisers, manufacturers and national computer
retailers which have commenced their own direct marketing operations). Many of
these compete principally on the basis of price and may have lower costs than
the Company. The Company may be subject to increased price competition which
could have a material adverse effect on its results of operations. Certain of
the Company's current and potential competitors are larger and have
substantially greater resources than the Company. The Company believes that
competition may increase in the future.
Industry Consolidation and Price Reductions. The microcomputer products
industry is undergoing significant change. In recent years, the number of
sophisticated, computer literate customers has greatly expanded. Computer
superstores and direct marketers have significantly increased their market share
during this period. Certain traditional microcomputer resellers are combining
operations or acquiring or merging with other resellers to increase efficiency.
This industry consolidation could result in short-term price-cutting in certain
markets. Decreasing prices of microcomputers and related products require the
Company to sell a greater number of products to achieve the same level of net
sales and gross profit. Such a trend could make it more difficult for the
Company to continue to increase its net sales and earnings.
Managing Rapid Growth; No Assurance of Additional Financing. Since
inception, the Company has experienced rapid growth. Historically, cash flow
from operations has been insufficient to finance this 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. As
part of its growth strategy, the Company intends to create new marketing
programs, hire additional personnel, enter into additional outsourcing
arrangements, increase sales to business customers and construct a new sales
administrative office building. In addition, the Company will consider, where
appropriate, the acquisition of complementary or additional businesses which
management believes meet the current objectives of the Company. 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.
Rapid Changes in Product Standards and Risk of Inventory Obsolescence.
The microcomputer products industry is characterized by rapid technological
change and the frequent introduction of new products and product enhancements.
The Company has sought to minimize its inventory exposure through a variety of
inventory control procedures and policies, including automated "just-in-time"
management and vendor price protection programs. 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. Unexpected new
product introductions could have a material adverse effect on demand for the
Company's inventory.
Fluctuating Operating Results. The Company's results of operations have
varied from quarter to quarter as a result of many factors, including general
economic conditions, the condition of the microcomputer products industry,
shifts in demand for microcomputer products and industry announcements of new
products or upgrades. No assurance can be given that these quarterly variations
will not occur in the future.
Possible Nonrenewal or Cancellation of Short-Term 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.
23
<PAGE> 26
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, could have
a material adverse effect on the Company's business.
Risk of Increasing Marketing, Postage and Shipping Costs. The Company
mails catalogs through the United States Postal Service, generates sales leads
through advertising and ships products to customers by commercial delivery
services. Increases in postage rates or paper costs could increase the cost of
the Company's marketing materials. The inability to pass on these costs could
have a material adverse effect on the Company's operating results.
Changing Methods of Distribution. The manner in which personal
computers and related software and 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 vendors have sold, and may
intensify their efforts to sell their products directly to end-users. From time
to time, certain vendors 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
vendors. Vendors also may attempt to increase the volume of software products
distributed electronically to end-users' personal computers. Any of these
competitive programs could have a material adverse effect on the Company's
business and financial results.
Reliance on Manufacturers and Distributors. 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. There are few supply agreements between the
Company and any manufacturers and distributors, While the loss of Merisel or any
other manufacturers or distributors could cause a short-term disruption in the
availability of products, the Company believes that alternative sources of
supply could be obtained for such products without materially affecting product
cost. 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. Certain manufacturers and distributors provide
the Company with substantial incentives in the form of discounts, advertising
allowances and rebates. A reduction in or discontinuance of such incentives
could have a material adverse effect on the Company.
State Sales Tax Collection. The Company presently collects sales tax
only on sales of products to residents of the State of Arizona. 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 legislation is passed to overturn the United States Supreme Court,
the imposition of a sales or use of 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 and/or
could 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.
Dependence on Key Personnel. The Company's future success will depend
to a significant extent 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. The Company maintains and is
the beneficiary of a $1, 000, 000 key-man life insurance policy on each on Eric
J. Crown and Timothy A. Crown. In addition, the Company believes
24
<PAGE> 27
that its future success will depend in large part upon its continued ability to
attract and retain highly qualified management, technical and sales personnel.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in this Report
beginning at page 29.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with accountants on accounting and
financial disclosure matters during the periods reported herein.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The biographical information relating to the Company's directors
included under the caption "Election of Directors" in the Company's definitive
Proxy Statement for its Annual Meeting of Stockholders to be held December 4,
1996 (the "Proxy Statement") is incorporated herein by reference. The Company
anticipates filing the Proxy Statement within 120 days after June 30, 1996. See
also the information concerning executive officers of the Company included in
Item 4a in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" and
"Compensation of Directors" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Voting Securities and Principal
Holders -- Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The consolidated financial statements of Insight Enterprises, Inc. and
subsidiaries and Independent Auditors' Report are filed herein beginning on page
29.
25
<PAGE> 28
2. Exhibits.
(a) Exhibits (unless otherwise noted, exhibits are filed herewith)
EXHIBIT NO. DESCRIPTION
2.1* -- Form of Articles of Merger and Certificate of Merger between
Insight Enterprises, Inc., an Arizona corporation, and Insight
Enterprises, Inc., a Delaware corporation (the "Registrant")
3.1** -- Amended and Restated Certificate of Incorporation of
Registrant
3.2** -- Bylaws of the Registrant
4.1** -- Specimen Common Stock Certificate
4.2** -- Form of Common Stock Warrant between the Registrant and each
Representative of the Underwriters
10.1** -- Employment Agreement, between Insight Enterprises, Inc. and
Eric J. Crown, dated as of October 1, 1994, as amended***
10.2** -- Employment Agreement, between Insight Enterprises, Inc. and
Timothy A. Crown, dated as of October 1, 1994, as amended***
10.3** -- Confidentiality and Non-Competition Agreement, between
Registrant and Stanley Laybourne dated as of October 1, 1994
10.4** -- Form of Indemnification Agreement*
10.5** -- 1994 Stock Option Plan of the Registrant***
10.6** -- Predecessor Stock Option Plan***
10.7**** -- 1995 Employee Stock Purchase Plan of the Registrant***
10.8 -- Amendment to 1994 Stock Option Plan of the Registrant***
10.9 -- Standard Form of Agreement Between Owner and Construction
Manager where the Construction Manager is also the
Constructor.
11.1 -- Computation of Net Earnings per Common Share
21.1**** -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG Peat Marwick LLP
----------
* The Company has entered into a separate indemnification agreement with
each of its current directors and executive officers that differ only
in party names and dates. Pursuant to the instructions accompanying
Item 601 of Regulation S-K, the Registrant is filing the form of such
indemnification agreement.
** Incorporated by reference from Company's Registration Statement on Form
S-1 (No. 33-86142) declared effective January 24, 1995.
*** Management contract or compensatory plan or arrangement
**** Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995.
(b) Reports on Form 8-K.
No current Reports on Form 8-K were filed by the Company during the
fourth quarter of the fiscal year ended June 30, 1996.
(c) The Exhibits required to be filed as part of this report are listed
in Item 14(a) above.
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<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INSIGHT ENTERPRISES, INC.
By /s/ ERIC J. CROWN
-----------------------
Eric J. Crown
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ERIC J. CROWN Chairman of the Board of September 26, 1996
- ------------------------------- Directors and Chief Executive Officer
Eric J. Crown (Principal Executive Officer)
/s/ TIMOTHY A. CROWN Director and President September 26, 1996
- -------------------------------
Timothy A. Crown
/s/ STANLEY LAYBOURNE Chief Financial Officer, September 26, 1996
- ------------------------------- Secretary, Treasurer and
Stanley Laybourne Director (Principal Financial and
Accounting Officer)
/s/ LARRY A. GUNNING Director September 26, 1996
- -------------------------------
Larry A. Gunning
/s/ ROBERTSON C. JONES Director September 26, 1996
- -------------------------------
Robertson C. Jones
</TABLE>
27
<PAGE> 30
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. 29
Consolidated Balance Sheets -- June 30, 1996 and 1995................... 30
Consolidated Statements of Earnings -- Each of the years in the
three-year period ended June 30, 1996.................................. 31
Consolidated Statements of Stockholders' Equity -- Each of the years
in the three-year period ended June 30, 1996........................... 32
Consolidated Statements of Cash Flows -- Each of the years in the
three-year period ended June 30, 1996.................................. 33
Notes to Consolidated Financial Statements............................... 34
</TABLE>
28
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Insight Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Insight
Enterprises, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Insight Enterprises,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
August 13, 1996
29
<PAGE> 32
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 5,300 $ 7,574
Accounts receivable, net (Notes 2 and 14) ................... 41,798 17,282
Inventories (Note 14) ....................................... 16,104 12,377
Prepaid expenses ............................................ 1,959 1,179
Deferred income taxes (Note 6) .............................. 1,239 808
------- -------
Total current assets ............................. 66,400 39,220
Property and equipment, net (Note 3) .............................. 6,660 2,807
Other assets ...................................................... 558 375
------- -------
$73,618 $42,402
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $29,667 $15,368
Accrued expenses ............................................ 1,290 1,246
Customer refunds payable .................................... 291 267
Deferred revenue ............................................ 585 419
------- -------
Total current liabilities ........................ 31,833 17,300
Line of credit (Notes 4 and 12) ................................... - 6,541
Commitments (Notes 3 and 5)
Stockholders' equity (Notes 7, 9, and 10):
Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued ........................................ - -
Common stock, $.01 par value, 10,000,000 shares authorized;
5,396,754 in 1996 and 4,290,948 in 1995 shares issued
and outstanding ......................................... 54 43
Additional paid-in capital .................................. 29,426 11,933
Retained earnings ........................................... 12,305 6,585
------- -------
Total stockholders' equity ....................... 41,785 18,561
------- -------
$73,618 $42,402
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 33
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales ........................................................... $ 342,813 $ 244,953 $ 170,400
Costs of goods sold ................................................. 294,292 207,104 144,186
---------- ---------- ----------
Gross profit ............................................... 48,521 37,849 26,214
Selling, general and administrative expenses ........................ 38,917 31,848 23,742
---------- ---------- ----------
Earnings from operations ................................... 9,604 6,001 2,472
Non-operating expense, net (Note 12) ................................ 136 663 409
---------- ---------- ----------
Earnings before income taxes ............................... 9,468 5,338 2,063
Income tax expense (Note 6) ......................................... 3,748 2,114 561
---------- ---------- ----------
Net earnings ............................................... $ 5,720 $ 3,224 $ 1,502
========== ========== ==========
Pro forma net earnings data (unaudited) (Note 15):
Earnings before income taxes as reported ....................... $ 5,338 $ 2,063
Adjustment for executive compensation expense .................. 137 1,064
---------- ----------
Pro forma earnings before income taxes ......................... 5,475 3,127
Pro forma income tax expense ................................... 2,168 1,238
---------- ----------
Pro forma net earnings ......................................... $ 3,307 $ 1,889
========== ==========
Net earnings per share (pro forma for 1995 and 1994) ................ $ 1.08 $ 0.89 $ 0.61
========== ========== ==========
Shares used in net earnings per share calculation (pro forma for 1995
and 1994) ...................................................... 5,289,612 3,711,093 3,091,501
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 34
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- ------------
<S> <C> <C> <C> <C>
Balances at June 30, 1993 .................. $20 $ 21 $ 2,869 $2,910
Net earnings .......................... - - 1,502 1,502
S corporation distributions (Note 11) . - - (1,010) (1,010)
Stockholders' capital contributions
(Note 11) ......................... - 63 - 63
--- ------- ------- ------
Balances at June 30, 1994 .................. 20 84 3,361 3,465
Issuance of common stock (Note 7) ..... 23 11,849 - 11,872
Net earnings .......................... - - 3,224 3,224
--- ------- ------- ------
Balances at June 30, 1995 .................. 43 11,933 6,585 18,561
Issuance of common stock (Note 7) ..... 11 16,899 - 16,910
Tax benefit recognized on
stock options exercised (Note 9) .. - 594 - 594
Net earnings .......................... - - 5,720 5,720
--- ------- ------- -------
Balances at June 30, 1996 .................. $54 $29,426 $12,305 $41,785
=== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 35
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ............................................................ $ 5,720 $ 3,224 $ 1,502
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation .......................................................... 1,066 766 492
Tax benefit from stock options exercised .............................. 594 - -
Provision for losses on accounts receivable ........................... 1,302 1,262 836
Provision for obsolete and slow moving inventories .................... 788 344 240
Deferred income taxes ................................................. (431) (69) (192)
Change in assets and liabilities:
Increase in accounts receivable ..................................... (25,818) (4,218) (7,420)
Increase in inventories ............................................. (4,515) (5,794) (253)
Decrease (increase) in prepaid expenses ............................. (780) (452) 112
Increase in other assets ............................................ (183) (209) (53)
Increase in accounts payable ........................................ 14,299 1,920 4,395
Increase in accrued expenses ........................................ 44 45 381
Increase (decrease) in customer refunds payable ..................... 24 (169) 238
Increase (decrease) in deferred revenue ............................. 166 (691) (774)
-------- -------- --------
Net cash used in operating activities ............................. (7,724) (4,041) (496)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ..................................... (4,919) (1,251) (1,199)
Proceeds from the sale of property and equipment ........................ - - 21
-------- -------- --------
Net cash used in investing activities ............................. (4,919) (1,251) (1,178)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) on lines of credit .......................... (6,541) (476) 4,071
Repayment of capital lease obligations .................................. - (164) (64)
Proceeds from notes payable to stockholders ............................. - - 600
Repayment of notes payable to stockholders .............................. - (891) (64)
S corporation distributions ............................................. - - (924)
Issuance of common stock ................................................ 16,910 11,872 -
-------- -------- --------
Net cash provided by financing activities ......................... 10,369 10,341 3,619
-------- -------- --------
Increase (decrease) in cash and cash equivalents ............................ (2,274) 5,049 1,945
Cash and cash equivalents at beginning of year .............................. 7,574 2,525 580
-------- -------- --------
Cash and cash equivalents at end of year .................................... $ 5,300 $ 7,574 $ 2,525
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest, net of amounts capitalized ...... $ 138 $ 680 $ 345
======== ======== ========
Cash paid during the year for income taxes .............................. $ 3,513 $ 1,986 $ 729
======== ======== ========
Supplemental disclosure of non-cash activities:
S corporation distribution/contribution ................................. $ - $ - $ 63
======== ======== ========
Capital lease obligations incurred ...................................... $ - $ - $ 152
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 36
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
(1) Operations and Summary of Significant Accounting Policies
Description of Business
Insight Enterprises, Inc. and subsidiaries (INSIGHT), formed June 30, 1994,
as described below, is a direct marketer of microcomputers, hardware, software
and services. INSIGHT markets a comprehensive line of brand-name products to
end-users in the business, education, government and home markets throughout the
United States and Canada primarily through outbound telemarketing, its own
distinctive catalogs and advertisements in computer industry publications.
Additionally, Insight provides direct marketing services to manufacturers
seeking to outsource their direct marketing activities. The services provided
include marketing, sales and distribution.
Business Combination
On June 30, 1994, INSIGHT adopted a plan of reorganization. Prior to June
30, 1994, INSIGHT operated through two entities owned by the same stockholders:
Insight Direct, Inc. (Insight Direct) and Intech Direct Company (Intech).
Insight Direct had four principal wholly-owned subsidiaries: ITA, Inc., IA
Direct, Inc., Insight Credit Corporation, and Insight Distribution Network
International, Inc. Intech was an S corporation and had no subsidiaries. On June
30, 1994, Insight Enterprises, Inc. was formed in Arizona to consolidate all of
the INSIGHT operations. The stockholders of Insight Direct and Intech exchanged
all of the outstanding stock of the two entities for 10,000 shares of Insight
Enterprises, Inc. As a result, Insight Direct, Intech, ITA, Inc., and IA Direct,
Inc. became direct wholly-owned subsidiaries of Insight Enterprises, Inc.
Insight Credit Corporation and Insight Distribution Network International, Inc.
remain subsidiaries of Insight Direct. Also, YMA, Inc., an S corporation, had
previously been owned by the same stockholders as Insight Direct, and was merged
into Insight Direct on June 30, 1994. The mergers were accounted for at
historical cost, similar to a pooling of interests, due to the common control
exercised over the entities by related parties. The consolidated financial
statements have been restated for all periods presented.
On June 30, 1994, Insight Direct purchased IAZ, Inc., an S corporation
which was owned by certain employees of Insight Direct, and transferred the
stock of IAZ, Inc. by dividend to the Company. The aggregate consideration for
IAZ was $25,000 and the purchase was accounted for at fair value. On June 30,
1995, IAZ, Inc. was merged into Insight Direct.
On November 7, 1994, the Company was reincorporated as a Delaware
corporation and the stockholders of the predecessor company received 2,790,698
shares of common stock for the 10,000 shares of the Company's common stock
previously outstanding.
All share data has been restated to reflect this exchange.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Insight
Enterprises, Inc. and its wholly-owned subsidiaries, as discussed above.
Intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
INSIGHT considers all highly liquid investments with original maturities at
the date of purchase of three months or less to be cash and cash equivalents.
34
<PAGE> 37
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
Inventories
Inventories, principally purchased microcomputers, hardware and software,
are stated at the lower of weighted average cost or market. Provisions are made
for obsolete, slow moving and nonsalable inventory.
Property and Equipment
Property and equipment are stated at cost. Major improvements and
betterments are capitalized; maintenance, repairs and minor replacements are
expensed as incurred. Depreciation is provided using the straight-line method
over the economic lives of the assets ranging from five to seven years.
Leasehold improvements are amortized over the shorter of the underlying lease
term or asset life.
Deferred Revenue
Deferred revenue represents cash received as advance payments for products
and deferred revenue on extended warranty and service contracts.
Revenue Recognition
Revenues from direct marketing and outsourcing product sales are recognized
upon shipment to the customer. Provisions are made for estimated product returns
expected to occur under INSIGHT's return policy. Revenue and direct costs
relating to the sales of extended warranty and service contracts are deferred
and amortized over the warranty and service period on a straight-line basis.
Warranty Expense
INSIGHT offered a one-year limited warranty on all Insight branded
microcomputer systems and a one-year replacement policy on selected other
products. INSIGHT has provided for the estimated costs which may be incurred
under these product warranties.
Advertising Expense
INSIGHT adopted SOP 93-7, "Reporting on Advertising Costs", during the
fourth quarter of fiscal 1995. In accordance with SOP 93-7, costs of
direct-response advertising are capitalized and amortized over the expected
revenue stream, generally three months, while other advertising costs are
expensed as incurred. All advertising costs are recorded net of related
cooperative marketing reimbursements. Direct response advertising consists
primarily of costs incurred to develop and distribute catalogs and magazine
advertisements. Prior to the implementation of SOP 93-7, advertising costs were
expensed as incurred, net of cooperative marketing reimbursements.
Advertising costs of $6,571,000, $6,121,000 and $4,974,000 were expensed
for the years ended June 30, 1996, 1995, and 1994, respectively. Advertising
costs of $143,000 and $214,000 were deferred and are included in other assets as
of June 30, 1996 and 1995, respectively. This policy is supported by the
Company's tracking of customer responses to specific advertisements in catalogs
and selected personal computer and trade magazines.
35
<PAGE> 38
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Certain subsidiaries of INSIGHT were S corporations for federal income tax
purposes until they terminated their S corporation elections on June 30, 1994.
While S corporations, the income or loss of these entities was included in the
individual tax returns of the stockholders. These entities would from time to
time make S corporation distributions to its stockholders to pay their income
tax liability related to the earnings of the entities.
The consolidated statements of earnings for the year ended June 30, 1994
does not include a provision for income taxes on S corporation earnings. The
unaudited pro forma income tax adjustments included in the consolidated
statements of earnings represent estimated federal and state income tax expense
that would have been recorded had the subsidiaries which were S corporations not
made the S corporation election.
Net Earnings Per Share
Net earnings per share for the year ended June 30, 1996 is calculated using
4,987,649 of weighted average shares of common stock and 301,963 of common stock
equivalents outstanding during the period. The common stock equivalent shares
relate to the Company's stock options and warrants and are calculated using the
treasury stock method.
Stock Based Compensation
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," for its stock-based
compensation programs, and does not intend to adopt the fair value accounting
rules as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company
intends to adopt the disclosure provisions of SFAS 123 beginning in fiscal 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
36
<PAGE> 39
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(2) Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Trade accounts.................................... $37,523 $16,107
Merchandise receivable from vendors............... 6,749 2,615
------- -------
44,272 18,722
Allowance for doubtful accounts................... (2,474) (1,440)
------- -------
Accounts receivable, net.......................... $41,798 $17,282
======= =======
</TABLE>
Merchandise receivable from vendors consists of inventories returned to
vendors for credit or for replacement product.
(3) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Equipment...................................... $ 2,973 $ 2,650
Furniture and fixtures......................... 2,067 1,479
Leasehold improvements......................... 1,220 798
Construction in progress....................... 3,601 -
------- -
9,861 4,927
Accumulated depreciation and amortization...... (3,201) (2,120)
------- -------
Property and equipment, net.................... $ 6,660 $ 2,807
======= =======
</TABLE>
The Company is currently constructing a new corporate facility to
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
related to the acquisition of the land and constructing and equipping the
facility.
(4) Line of Credit
INSIGHT has a $30,000,000 credit facility with a finance company. The
agreement provides for cash advances outstanding at any one time up to a maximum
of $22,500,000 on the line of credit, subject to limitations based upon the
Company's eligible accounts receivable and inventories. As of June 30, 1996
$22,500,000 was available under the line of credit. Cash advances bear interest
at the London Interbank Offered Rate (LIBOR) plus 1.90% (7.37% at June 30, 1996)
payable monthly. The additional $7,500,000 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. At June 30, 1996 and 1995, the balance
of this additional portion of the credit facility was $4,239,000 and $827,000,
respectively. The credit facility expires in June 1998. The line is secured by
substantially all of the assets of INSIGHT. The line of credit contains various
covenants including the requirement that INSIGHT maintain a specified dollar
amount of tangible net worth.
37
<PAGE> 40
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(5) Lease Commitments
The Company has several non-cancelable operating leases, primarily for
office and distribution center space and certain office equipment. Rental
expense for operating leases was $607,000, $536,000 and $478,000, for the years
ended June 30, 1996, 1995 and 1994, respectively.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) as of June 30, 1996 are
as follows:
<TABLE>
<CAPTION>
Years ending June 30 (in thousands)
<S> <C>
1997................ $ 588
1998................ 395
1999................ 365
2000................ 33
------
$1,381
======
</TABLE>
(6) Income Taxes
Certain subsidiaries of INSIGHT (Intech, IAZ, Inc. and YMA, Inc.) elected
to be treated as S corporations for federal income taxes prior to June 30, 1994.
As S corporations, these subsidiaries 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.
Pursuant to SFAS No. 109, an income tax benefit and deferred tax asset of
$106,000 was recorded at June 30, 1994 to record the effect of cumulative
temporary differences as of the date of termination.
Insight Enterprises, Inc., Insight Direct, ITA, Inc., IA Direct, Inc.,
Insight Credit Corporation, and Insight Distribution Network International, Inc.
have been subject to federal and state income taxes since incorporation.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................. $3,304 $1,714 $ 595
State.................... 875 469 158
------ ------ -----
4,179 2,183 753
------ ------ -----
Deferred:
Federal.................. (341) (53) (150)
State.................... (90) (15) (42)
------ ------ -----
(431) (69) (192)
------ ------ -----
$3,748 $2,114 $ 561
====== ====== =====
</TABLE>
38
<PAGE> 41
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
Income tax expense amounted to $3,748,000, $2,114,000 and $561,000 for the
years ended June 30, 1996, 1995 and 1994, respectively (an effective rate of
39.6%, 39.6% and 27.2% for the years ended June 30, 1996, 1995 and 1994,
respectively). The actual expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34%) as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense...................................... $3,219 $ 1,815 $ 701
Earnings during the S corporation period not subject
to income taxes.................................................. - - (130)
Deferred federal and state taxes for cumulative temporary
differences at date of termination of S corporation election - - (106)
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit 516 299 95
Other, net....................................................... 13 - 1
------ ------ -----
$3,748 $2,114 $ 561
====== ====== = ===
</TABLE>
Sources of deferred income taxes and their tax effects are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred revenue....................................... $ 44 $(269) $ 197
Prepaid expenses....................................... (72) (199) 27
Allowances for doubtful accounts and returns........... (392) 127 (220)
Inventory allowances................................... (143) 99 (108)
Accrued self-insurance................................. 77 110 (40)
Other, net............................................. 55 63 (48)
----- ----- -----
$(431) $ (69) $(192)
===== ===== =====
</TABLE>
39
<PAGE> 42
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue..................................... $ 28 $ 72
Allowance for doubtful accounts and returns.......... 934 542
Accrued warranty costs............................... 7 98
Inventory allowances................................. 383 240
Accrued self-insurance............................... 74 151
Accrued vacation and other payroll liabilities....... 253 -
Other................................................ (12) 173
------ ------
Total gross deferred tax assets................. 1,667 1,276
------ ------
Deferred tax liabilities:
Prepaid expenses..................................... (345) (417)
Other................................................ (83) (51)
------ ------
Total gross deferred tax liabilities............ (428) (468)
------ ------
Net deferred tax asset.......................... $1,239 $ 808
====== ======
</TABLE>
Due to INSIGHT's profitable operations, management believes that
realization of the deferred tax asset is more likely than not; therefore there
is no valuation allowance for deferred tax assets as of June 30, 1996 and 1995.
Reversal of INSIGHT's temporary differences is expected to occur in the near
future due to their short-term nature.
(7) Public Offerings
In January 1995, the Company completed an initial public offering of
1,500,000 shares of its common stock at $9.00 per share. Net proceeds after
underwriting discounts and other offering costs were approximately $11.9
million. Concurrent with the closing of the initial public offering, the Company
reincorporated as a Delaware corporation and the current shareholders of the
predecessor company exchanged their 10,000 shares of the then outstanding common
stock, no par value, for 2,790,698 shares of common stock, $0.1 par value. In
connection with the initial public offering the Company sold, for nominal
consideration, warrants to purchase 86,250 shares of Common Stock at a purchase
price of $10.80 per share. The warrants are exercisable for a period of two
years beginning on January 24, 1996. The warrants contain anti-dilution,
registration rights, net issuance and exercise provisions.
In November 1995, the Company completed a second public offering. The
Company sold 1,000,000 shares of its common stock at $17.75 per share. Net
proceeds, to the Company, after underwriting discounts and other offering costs
were $16.6 million.
(8) Benefit Plan
INSIGHT has adopted a defined contribution retirement plan which complies
with section 401(k) of the Internal Revenue Code. Employees who complete six
months of service are eligible to participate in the Plan (prior to January 1,
1995, it was one year of service). The Plan allows for INSIGHT to match up to
25% of the employees' contributions (prior to January 1, 1995, it was 10%).
Contribution expense was $126,000, $14,000, and $12,000 for the years ended June
30, 1996, 1995 and 1994, respectively.
40
<PAGE> 43
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(9) Stock Option Plan
In September 1992, INSIGHT adopted a Stock Option Plan (the 1992 Plan),
which provides for the issuance of both incentive and nonqualified stock options
to acquire up to 418,604 shares of INSIGHT's Common Stock. These options are
available for grant under the 1992 Plan to the officers, directors and key
employees of INSIGHT. Under the terms of the 1992 Plan, participants may be
granted options to purchase Common Stock in such amounts and for such prices as
may be established by the Board of Directors, provided, however, that in the
case of incentive stock options, the exercise price must be at least equal to
the fair market value of the Common Stock on the date of the grant. If not
exercised, the options terminate upon the earlier of August 30, 1998 or 90 days
after such employee ceases to be employed by the Company. No further options
will be granted under this plan.
In November 1994, INSIGHT established a 1994 Stock Option Plan (the 1994
Plan). Options exercisable for a total of 500,000 shares of Common Stock are
issuable under the 1994 Plan. During fiscal 1996, Insight amended the 1994 Plan,
increasing the number of issuable shares by 350,000. The total 850,000 shares of
common stock have been reserved for issuance upon the exercise of options under
the 1994 Plan. The 1994 Plan provides for the grant to employees of either
"incentive stock options" within the meaning of Section 422 of the code, or
nonqualified stock options. Under the 1994 Plan, only employees (including
officers) of the Company are eligible to receive incentive stock options. The
1994 Plan is administered by the Board of Directors of the Company (or a
committee of the Board) which determines the terms of options granted under the
1994 Plan, including the exercise price and the number of shares subject to the
option. The 1994 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder shall become exercisable. At June 30,
1996, 387,687 stock options under the 1994 Plan were available for grant.
Generally, options granted expire in ten years, are exercisable during the
optionee's lifetime only by the recipient and are non-transferable. Unexercised
options generally terminate on the date an individual ceases to be an employee
of INSIGHT.
Activity related to the stock option plans is summarized below:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS NONQUALIFIED STOCK OPTIONS
------------------------- ---------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Balance June 30, 1994............. - $ - 209,302 $ 0.7166
Granted...................... 235,500 9.00-10.75 5,000 10.25
Exercised.................... (250) 9.00 - -
Expired...................... (20,750) 9.00 - -
------- ------------ ------- -------------
Balance June 30, 1995............. 214,500 $ 9.00-10.75 214,302 $0.7166-10.25
------- ------------ ------- -------------
Granted...................... 265,250 10.25-24.25 - -
Exercised.................... (31,150) 9.00-13.00 (72,360) 0.7166
Expired...................... (22,687) 9.00-18.75 - -
------- ------------ ------- -------------
Balance June 30, 1996............. 425,913 $ 9.00-24.25 141,942 $0.7166-10.25
======= ============ ======= =============
Exercisable June 30, 1996 84,579 $ 9.00-19.25 137,942 $0.7166-10.25
======= ============ ======= =============
Exercisable June 30, 1995 53,625 $ 9.00-10.75 139,535 $ 0.7166
======= ============ ======= =============
</TABLE>
The Company received an income tax benefit of $594,000 resulting from the
exercise of 103,510 options during the year ended June 30, 1996. The benefit is
recorded as an increase to additional paid-in capital.
41
<PAGE> 44
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(10) Employee Stock Purchase Plan
Effective October 1, 1995, the Company adopted an Employee Stock Purchase
Plan (the "Purchase Plan"). The Purchase Plan allows eligible employees of the
Company to purchase shares of Common Stock through payroll deductions during
quarterly offering periods. The purchase price per share, in general, will be
85% of the average fair market value of the Common Stock for the five business
days preceding the first day of each quarter. The Company has reserved 100,000
shares for issuance under the Purchase Plan. During the year ended June 30,
1996, 4,042 shares were purchased for prices ranging from $10.63 to $13.00 per
share.
(11) S Corporation Distributions
During the year ended June 30, 1994, $1,010,000 was distributed to
individuals who at the time were INSIGHT's sole stockholders as S corporation
distributions. Of the total distribution, $600,000 was subsequently loaned by
the stockholders to INSIGHT, $347,000 was distributed to pay income taxes of the
stockholders and $63,000 was subsequently reinvested into INSIGHT by the
stockholders.
(12) Interest Expense
Total interest expense for the years ended June 30, 1996, 1995 and 1994
was $130,000, $637,000, and $403,000, respectively. Interest expense related to
notes payable to stockholders, repaid in fiscal 1995, for years ended June 30,
1995, and 1994 was $63,000 and $32,000 respectively. Interest capitalized as a
component of construction in progress was $138,000 for the year ended June 30,
1996.
(13) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair
Value of Financial Instruments" requires that the Company disclose estimated
fair values for its financial instruments. The following summary presents a
description of the methodologies and assumptions used to determine such amount.
Fair-value estimates are made at a point in time and are based on relevant
market information and information about the financial instruments; they are
subjective in nature and involve uncertainties, matters of judgment and,
therefore, can not be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at any time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.
Since the fair-value is estimated at June 30, 1996, the amounts that will
actually be realized or paid in settlement of the instrument could be
significantly different.
The carrying amount for cash and cash equivalents are assumed to be the
fair value because of the liquidity of these instruments.
The carrying amounts for accounts receivable, accounts payable, accrued
expenses and customer refunds payable approximate fair value because of the
short maturity of these instruments.
42
<PAGE> 45
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(14) Supplemental Financial Information
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended June 30, 1996, 1995 and
1994 follows:
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
------ --------- ---------- -------------
<S> <C> <C> <C>
Allowances for doubtful accounts:
Year ended June 30, 1996.................... $1,440 $1,302 $(268) $2,474
====== ====== ===== ======
Year ended June 30, 1995.................... $1,115 $1,262 $(937) $1,440
====== ====== ===== ======
Year ended June 30, 1994.................... $ 749 $ 836 $(470) $1,115
====== ====== ===== ======
Allowances for obsolescence of inventories:
Year ended June 30, 1996.................... $ 314 $ 788 $(203) $ 899
====== ====== ===== ======
Year ended June 30, 1995.................... $ 157 $ 344 $(187) $ 314
====== ====== ===== ======
Year ended June 30, 1994.................... $ 63 $ 240 $(146) $ 157
====== ====== ===== ======
</TABLE>
(15) Pro forma Information (Unaudited)
The following pro forma adjustments have been made to the historical
results of operations in fiscal 1995 and fiscal 1994 to make the presentations
more comparable in relation to a consolidated group which is comprised of only
taxable C corporations.
(a) Elimination of executive compensation expense which was paid in excess
of current employment agreements. Two officers who at the time were the sole
stockholders of INSIGHT entered into employment agreements effective October 1,
1994 which provide for annual compensation of $225,000 each. The agreement
provides for a salary of $225,000 in fiscal 1995, 1996 and 1997 and further
provides no bonus will be paid during the period through fiscal 1997.
(b) Computation of income taxes assuming an effective tax rate of 39.6%
which would have been recorded had all subsidiaries of INSIGHT been taxable C
corporations since inception and after adjusting executive compensation expense
in (a).
Shares used in pro forma net earnings 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 pursuant to which the stockholders of the predecessor company received
2,790,698 shares for the 10,000 shares of the Company's common stock previously
outstanding. Pro forma net earnings per share for the year ended June 30, 1994,
is based on 3,091,501 shares, which includes 2,790,698 actual shares
outstanding, 192,635 common stock equivalents and an additional 108,168 shares
deemed to be outstanding. The 192,635 common stock equivalents represent the
dilutive effect of stock options using the treasury stock method. The 108,168
shares deemed to be outstanding represent the number of shares (at an initial
public offering price of $9.00 per share, net of underwriting discounts and
expenses) sufficient to repay $874,000 of outstanding stockholders' notes.
Pro forma net earnings per share for the year ended June 30, 1995 is based upon
3,711,093 shares, which includes 3,440,743 of weighted shares outstanding and
270,350 of common stock equivalents.
43
<PAGE> 1
EXHIBIT 10.8
As filed with the Securities and Exchange Commission on April 4, 1996
Registration No. 33-03158
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0766246
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1912 WEST 4TH STREET, TEMPE, ARIZONA 85281
(Address of Principal Executive Offices) (Zip Code)
------------
INSIGHT ENTERPRISES, INC. 1994 STOCK OPTION PLAN
(Full title of the plan)
------------
ERIC J. CROWN Copy to:
PRESIDENT AND CHIEF EXECUTIVE OFFICER PAUL M. GALES, ESQ.
INSIGHT ENTERPRISES, INC. QUARLES & BRADY
1912 West 4th Street One East Camelback Road, Suite 400
Tempe, Arizona 85280 Phoenix, Arizona 85012-1659
(Name and address of agent for service)
------------
(602) 902-1001
(Telephone number, including area code, of agent for service)
------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
TITLE OF SECURITIES TO BE REGISTERED AMOUNT TO BE PROPOSED PROPOSED MAXIMUM AMOUNT OF
REGISTERED MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION FEE
PRICE PER SHARE PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 350,000 shares(1) (2)(3) $4,943,750 $1,704.74
======================================================================================================================
</TABLE>
(1) The Plan provides for the possible adjustment of the number, price and kind
of shares covered by options granted or to be granted in the event of certain
capital or other changes affecting Registrant Common Stock. This Registration
Statement therefore covers, in addition to the above-stated shares, an
indeterminate number of shares that may become subject to the Plan by means of
any such adjustment.
(2) Pursuant to Rule 457(h), estimated solely for the purpose of computing the
registration fee, based upon $14.125 per share, which is the average of the high
and low sales prices of the Registrant's Common Stock on the Nasdaq National
Market for March 28, 1996.
(3) The actual offering price will be determined in accordance with the terms of
the Plan but may not, in any event, be less than the fair market value of the
shares on the date the option is granted. For purposes of the Plan, "fair market
value" is defined to be: (i) the reported closing price of such stock on the New
York Stock Exchange or other established stock exchange or Nasdaq National
Market on such date, or if no sale of such stock shall have been made on such
exchange on that date, on the preceding date on which there was such a sale,
(ii) if such stock is not then listed on an exchange or the Nasdaq National
Market, the average of the closing bid and asked prices per share for such stock
in the over-the-counter market as quoted on NASDAQ or the pink sheets or
successor publication of the National Quotation Bureau on such date, or (iii) if
such stock is not then listed or quoted as referenced above, an amount
determined in good faith by the Plan administrator.
================================================================================
<PAGE> 2
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Information specified in Part I of Form S-8 (Items 1 and 2) will be
sent or given to Plan participants as specified by Rule 428(b)(1) under the
Securities Act of 1933.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
In accordance with General Instruction E to Form S-8 and because this
Registration Statement only registers additional securities of the same class as
other securities for which a Registration Statement on Form S-8 relating to the
same employee benefit plan is effective, the contents of the following document
filed by Insight Enterprises, Inc. (the "Registrant") (Commission File No.
0-25092) with the Securities and Exchange Commission are incorporated herein by
reference:
The Registrant's Registration Statement on Form S-8 filed on August 25,
1995 (Registration No. 33-96286) relating to the Registrant's Stock Option Plan.
ITEM 8. EXHIBITS.
See Exhibit Index following Signatures page in this Registration
Statement, which Exhibit Index is incorporated herein by reference.
-2-
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tempe, State of Arizona, on March 28, 1996.
INSIGHT ENTERPRISES, INC.
(Registrant)
By: /s/ Eric J. Crown
------------------------------------
Eric J. Crown
President 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 (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any other regulatory authority, 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 to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their 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 by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
PERSON TITLE DATE
- ------- ----- ----
<S> <C> <C>
/s/ Eric J. Crown Chairman of the Board, March 28, 1996
- -------------------------- President and Chief
Eric J. Crown Executive Officer and
Director (Principal Executive Officer)
/s/ Timothy A. Crown President and Director March 28, 1996
- -------------------------
Timothy A. Crown
/s/ Stanley A. Laybourne Chief Financial Officer, Secretary, Treasurer March 28, 1996
- -------------------------- and Director (Principal Financial and Accounting
Stanley A. Laybourne Officer of the Registrant)
/s/ Larry A. Gunning Director March 28, 1996
- --------------------------
Larry A. Gunning
/s/ Robertson C. Jones Director March 28, 1996
- --------------------------
Robertson C. Jones
</TABLE>
S-1
<PAGE> 4
INSIGHT ENTERPRISES, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-25092)
EXHIBIT INDEX
TO
FORM S-8 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED SEQUENTIAL
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH PAGE NO.
<S> <C> <C> <C> <C>
4.1 Amended and Restated Exhibit 3.1 to the
Certificate of Registrant's Registration
Incorporation of Statement on Form S-1
the Registrant (No. 33-86142) (the "S-1
Registration Statement")
4.2 Bylaws of the Registrant Exhibit 3.2 to the S-1
Registration Statement
5 Opinion of Counsel X
23.1 Consent of KPMG Peat Marwick LLP X
23.2 Consent of Counsel Contained in
Opinion filed
as Exhibit 5
24 Powers of Attorney Signatures Page
to this
Registration Statement
99 Insight Enterprises, Inc.
Stock Option Plan, X
as amended
</TABLE>
EX-1
<PAGE> 5
EXHIBIT 5
(Form S-8)
March 29, 1996
Insight Enterprises, Inc.
1912 West 4th Street
Tempe, AZ 85280
Gentlemen:
We are providing this opinion in connection with the Registration
Statement of Insight Enterprises, Inc. (the "Company") on Form S-8 (the
"Registration Statement") filed under the Securities Act of 1933, as amended
(the "Act"), with respect to the proposed sale of up to an additional 350,000
shares of Common Stock, $.01 par value, of the Company (the "Shares") pursuant
to the Insight Enterprises, Inc. 1994 Stock Option Plan, as amended (the
"Plan"). We have examined (i) the Registration Statement; (ii) the Company's
Amended and Restated Certificate of Incorporation and Bylaws, as amended to
date; (iii) the Plan; (iv) corporate proceedings relating to the adoption of the
Plan; and (v) such other documents and records as we have deemed necessary in
order to render this opinion. In rendering this opinion, we have relied as to
certain factual matters on certificates of officers of the Company and of state
officials.
Based upon the foregoing, it is our opinion that the Shares, when
issued and paid for as contemplated by the Registration Statement and Plan, will
be validly issued, fully paid and non-assessable by the Company.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving our consent, we do not admit that we are
"experts" within the meaning of Section 11 of the Act, or that we come within
the category of persons whose consent is required by Section 7 of the Act.
Very truly yours,
/s/ Quarles & Brady
QUARLES & BRADY
<PAGE> 6
EXHIBIT 23.1
(Form S-8)
The Board of Directors
Insight Enterprises, Inc.:
We consent to incorporation by reference in the registration statement filed on
Form S-8 of Insight Enterprises, Inc. of our report dated August 16, 1995,
relating to the consolidated balance sheets of Insight Enterprises, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1995, which report appears in the
annual report on Form 10-K of Insight Enterprises, Inc.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 21, 1996
<PAGE> 7
EXHIBIT 99
(Form S-8)
INSIGHT ENTERPRISES, INC.
1994 STOCK OPTION PLAN
AS AMENDED THROUGH DECEMBER 1995
1. Purpose
The purposes of the 1994 Stock Option Plan ("Plan") of Insight
Enterprises, Inc., a Delaware corporation, are to attract and retain the best
available employees and directors of Insight Enterprises, Inc. or any parent or
subsidiary or affiliate of Insight Enterprises, Inc. which now exists or
hereafter is organized or acquired by or acquires Insight Enterprises, Inc.
(collectively or individually as the context requires the "Company") as well as
appropriate third parties who can provide valuable services to the Company, to
provide additional incentive to such persons and to promote the success of the
business of the Company. This Plan is intended to comply with Rule 16b-3 under
Section 16 of the Securities Exchange Act of 1934, as amended or any successor
rule ("Rule 16b-3"), and the Plan shall be construed, interpreted and
administered to comply with Rule 16b-3.
2. DEFINITIONS
(a) "Affiliate" means any corporation, partnership, joint venture or
other entity, domestic or foreign, in which the Company, either directly or
through another affiliate or affiliates, has a 50% or more ownership interest.
(b) "Affiliated Group" means the group consisting of the Company and
any entity that is an "affiliate," a "parent" or a "subsidiary" of the Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Compensation or Stock Option Committee of the
Board (as designated by the Board), if such a committee has been appointed.
(e) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(f) "Incentive Stock Options" means options intended to qualify as
incentive stock options under Section 422 of the Code, or any successor
provision.
(g) "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
(h) "Nonemployee Director" shall have the meaning assigned in Section
4(a)(ii) hereof.
(i) "Nonqualified Stock Options" means options that are not intended to
qualify for favorable income tax treatment under Sections 421 through 424 of the
Code.
(j) "Parent" means a corporation that is a "parent" of the Company
within the meaning of Code Section 424(e).
<PAGE> 8
(k) "Section 16" means Section 16 of the Securities Exchange Act of
1934, as amended.
(l) "Subsidiary" means a corporation that is a "subsidiary" of the
Company within the meaning of Code Section 424(f).
3. INCENTIVE AND NONQUALIFIED STOCK OPTIONS
Two types of options (referred to herein as "options," without
distinction between such two types) may be granted under the Plan: Incentive
Stock Options and Nonqualified Stock Options.
4. ELIGIBILITY AND ADMINISTRATION
(a) Eligibility. The following individuals shall be eligible to receive
grants pursuant to the Plan as follows:
(i) Any employee (including any officer or director who is an
employee) of the Company or any ISO Group member shall be eligible to receive
either Incentive Stock Options or Nonqualified Stock Options under the Plan. An
employee may receive more than one option under the Plan.
(ii) Any director who is not an employee of the Company or any
Affiliated Group member (a "Nonemployee Director") shall be eligible to receive
only Nonqualified Stock Options in the manner provided in paragraph 12 hereof.
(iii) Any other individual whose participation the Board or
the Committee determines is in the best interests of the Company shall be
eligible to receive Nonqualified Stock Options.
(b) Administration. The Plan may be administered by the Board or by a
Committee appointed by the Board which is constituted so to permit the Plan to
comply under Rule 16b-3. The Company shall indemnify and hold harmless each
director and Committee member for any action or determination made in good faith
with respect to the Plan or any option. Determinations by the Committee or the
Board shall be final and conclusive upon all parties.
5. SHARES SUBJECT TO OPTIONS
The stock available for grant of options under the Plan shall be shares
of the Company's authorized but unissued or reacquired voting common stock. The
aggregate number of shares that may be issued pursuant to exercise of options
granted under the Plan shall be 850,000 shares. If any outstanding option grant
under the Plan for any reason expires or is terminated, the shares of common
stock allocable to the unexercised portion of the option grant shall again be
available for options under the Plan as if no options had been granted with
respect to such shares.
-2-
<PAGE> 9
6. TERMS AND CONDITION OF OPTIONS
Option grants under the Plan shall be evidenced by agreements in such
form and containing such provisions as are consistent with the Plan as the Board
or the Committee shall from time to time approve. Each agreement shall specify
whether the option(s) granted thereby are Incentive Stock Options or
Nonqualified Stock Options. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the following
terms and conditions:
(a) Shares Granted. Each option grant agreement shall specify the
number of Incentive Stock Options and/or Nonqualified Stock Options being
granted; one option shall be deemed granted for each share of stock. In
addition, each option grant agreement shall specify the exercisability and/or
vesting schedule of such options, if any.
(b) Purchase Price. The purchase price for a share subject to any
option granted under the Plan shall not be less than 100% of the fair market
value of the share on the date the option is granted, provided, however, the
option price of an Incentive Stock Option shall not be less than 110% of the
fair market value of such share on the date the option is granted to an
individual then owning (after the application of the family and other
attribution rules of Section 424(d) or any successor rule of the Code) more than
10% of the total combined voting power of all classes of stock of the Company or
any ISO Group member. For purposes of the Plan, "fair market value" at any date
shall be (i) the reported closing price of such stock on the New York Stock
Exchange or other established stock exchange or National Market System on such
date, or if no sale of such stock shall have been made on such exchange on that
date, on the preceding date on which there was such a sale, (ii) if such stock
is not then listed on an exchange or the National Market System, the average of
the closing bid and asked prices per share for such stock in the
over-the-counter market as quoted on NASDAQ or the pink sheets or successor
publication of the National Quotation Bureau on such date, or (iii) if such
stock is not then listed or quoted as referenced above, an amount determined in
good faith by the Board or the Committee.
(c) Termination. Unless otherwise provided herein or in a specific
option grant agreement which may provide for accelerated vesting and/or longer
or shorter periods of exercisability, no option shall be exercisable after the
expiration of the earliest of
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or
five years from the date the option is granted to an
individual owning (after the application of the family and
other attribution rules of Section 424(d) of the Code) at the
time such option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company
or any ISO Group member,
(2) three months after the date the optionee ceases
to perform services for the Company or any ISO Group member,
if such cessation is for any reason other than death,
disability (within the meaning of Code Section
-3-
<PAGE> 10
22(e)(3)), or cause,
(3) one year after the date the optionee ceases to
perform services for the Company or any ISO Group member, if
such cessation is by reason of death or disability (within the
meaning of Code Section 22(e)(3)), or
(4) the date the optionee ceases to perform services
for the Company or any ISO Group member, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
(ii) in the case of a Nonqualified Stock Option;
(1) 10 years from the date the option is granted,
(2) two years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is for any reason other than death,
permanent disability, retirement or cause,
(3) three years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is by reason of death, permanent
disability or retirement, or
(4) the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such
cessation is for cause, as determined by the Board or the
Committee in its sole discretion;
provided, that, unless otherwise provided in a specific option grant agreement,
an option shall only be exercisable for the periods above following the date an
optionee ceases to perform services to the extent the option was exercisable on
the date of such cessation.
(d) Method of Payment. The purchase price for any share purchased
pursuant to the exercise of an option granted under the Plan shall be paid in
full upon exercise of the option by any of the following methods, (i) by cash,
(ii) by check, or (iii) to the extent permitted under the particular grant
agreement, by transferring to the Company shares of stock of the Company at
their fair market value as of the date of exercise of the option as determined
in accordance with paragraph 6(b). Notwithstanding the foregoing, the Company
may arrange for or cooperate in permitting cashless exercise procedures and may
extend and maintain, or arrange for the extension and maintenance of, credit to
an optionee to finance the optionee's purchase of shares pursuant to the
exercise of options, on such terms as may be approved by the Board or the
Committee, subject to applicable regulations of the Federal Reserve Board and
any other applicable laws or regulations in effect at the time such credit is
extended.
(e) Exercise. No option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his or her guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise. To the extent that an optionee has the right to
exercise one or more options and purchase shares pursuant thereto, the
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<PAGE> 11
option(s) may be exercised from time to time by written notice to the Company
stating the number of shares being purchased and accompanied by payment in full
of the purchase price for such shares. Any certificate for shares of outstanding
stock used to pay the purchase price shall be accompanied by a stock power duly
endorsed in blank by the registered owner of the certificate (with the signature
thereon guaranteed). If the certificate tendered by the optionee in such payment
covers more shares than are required for such payment, the certificate shall
also be accompanied by instructions from the optionee to the Company's transfer
agent with respect to the disposition of the balance of the shares covered
thereby.
(f) Nontransferability. No option shall be transferable by an optionee
otherwise than by will or the laws of descent and distribution.
(g) ISO $100,000 Limit. If required by applicable tax rules regarding a
particular grant, to the extent that the aggregate fair market value (determined
as of the date an Incentive Stock Option is granted) of the shares with respect
to which an Incentive Stock Option grant under this Plan (when aggregated, if
appropriate, with shares subject to other Incentive Stock Option grants made
before said grant under this Plan or another plan maintained by the Company or
any ISO Group member) is exercisable for the first time by an optionee during
any calendar year exceeds $100,000 (or such other limit as is prescribed by the
Code), such option grant shall be treated as a grant of Nonqualified Stock
Options pursuant to Code Section 422(d).
(h) Investment Representation. Unless the shares of stock covered by
the Plan have been registered with the Securities and Exchange Commission
pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee
by accepting an option grant represents and agrees, for himself or herself and
his or her transferees by will or the laws of descent and distribution, that all
shares of stock purchased upon the exercise of the option grant will be acquired
for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon
request of the Company furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares of stock are
being acquired in good faith for investment and not for resale or distribution.
Furthermore, the Company may if it deems appropriate affix a legend to
certificates representing shares of stock purchased upon exercise of options
indicating that such shares have not been registered with the Securities and
Exchange Commission and may so notify its transfer agent.
(i) Rights of Optionee. An optionee or transferee holding an option
grant shall have no rights as a shareholder of the Company with respect to any
shares covered by any option grant until the date one or more of the options
granted thereunder have been properly exercised and the purchase price for such
shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided for in paragraph 6(k).
Nothing in the Plan or in any option grant agreement shall confer upon any
optionee any right to continue performing services for the Company or any
Affiliated Group member, or interfere in any way with any right of the Company
or any Affiliated Group member to terminate the optionee's services at
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<PAGE> 12
any time.
(j) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an option. The value of any fractional
share subject to an option grant shall be paid in cash in connection with an
exercise that results in all full shares subject to the grant having been
exercised.
(k) Reorganizations, Etc. Subject to paragraph 9 hereof, if the
outstanding shares of stock of the class then subject to this Plan are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, stock splits,
reverse stock splits, stock dividends, spin-offs, other distributions of assets
to shareholders, appropriate adjustments shall be made in the number and/or type
of shares or securities for which options may thereafter be granted under this
Plan and for which options then outstanding under this Plan may thereafter be
exercised. Any such adjustments in outstanding options shall be made without
changing the aggregate exercise price applicable to the unexercised portions of
such options.
(l) Option Modification. Subject to the terms and conditions and within
the limitations of the Plan, the Board or the Committee may modify, extend or
renew outstanding options granted under the Plan, accept the surrender of
outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options, or authorize the granting of new options
in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option (either directly or
through modification of the Plan) shall, without the consent of the optionee,
alter or impair any rights of the optionee under the option.
(m) Grants to Foreign Optionees. The Board or the Committee in order to
fulfill the Plan purposes and without amending the Plan may modify grants to
participants who are foreign nationals or performing services for the Company or
an Affiliated Group member outside the United States to recognize differences in
local law, tax policy or custom.
(n) Other Terms. Each option grant agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, such as without limitation
discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.
7. TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time terminate or amend the Plan; provided, that
shareholder approval shall be obtained of any action for which shareholder
approval is required in order to comply with Rule 16b-3, the Code or other
applicable laws or regulatory requirements within such time periods prescribed.
8. SHAREHOLDER APPROVAL AND TERM OF THE PLAN
The Plan shall be effective as of November 9, 1994 the date as of which
it was adopted
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<PAGE> 13
by the Board, subject to ratification by the shareholders of the Company within
(each of) the time period(s) prescribed under Rule 16b-3, the Code, and any
other applicable laws or regulatory requirements, and shall continue thereafter
until terminated by the Board. Unless sooner terminated by the Board, in its
sole discretion, the Plan will expire on November 9, 2004 solely with respect to
the granting of Incentive Stock Options or such later date as may be permitted
by the Code for Incentive Stock Options, provided that options outstanding upon
termination or expiration of the Plan shall remain in effect until they have
been exercised or have expired or been forfeited.
9. MERGER, CONSOLIDATION OR REORGANIZATION
In the event of a merger, consolidation or reorganization with another
corporation in which the Company is not the surviving corporation, the Board,
the Committee (subject to the approval of the Board) or the board of directors
of any corporation assuming the obligations of the Company hereunder shall take
action regarding each outstanding and unexercised option pursuant to either
clause (a) or (b) below:
(a) Appropriate provision may be made for the protection of such
option by the substitution on an equitable basis of
appropriate shares of the surviving corporation, provided that
the excess of the aggregate fair market value (as defined in
paragraph 6(b)) of the shares subject to such option
immediately before such substitution over the exercise price
thereof is not more than the excess of the aggregate fair
market value of the substituted shares made subject to option
immediately after such substitution over the exercise price
thereof; or
(b) Appropriate provision may be made for the cancellation of such
option. In such event, the Company, or the corporation
assuming the obligations of the Company hereunder, shall pay
the employee an amount of cash (less normal withholding taxes)
equal to the excess of the highest fair market value (as
defined in paragraph 6(b)) per share of the Common Stock
during the 60-day period immediately preceding the merger,
consolidation or reorganization over the option exercise
price, multiplied by the number of shares subject to such
options which are exercisable as of the effective date of the
applicable transaction.
10. DISSOLUTION OR LIQUIDATION
Anything contained herein to the contrary notwithstanding, on the
effective date of any dissolution or liquidation of the Company, the holder of
each then outstanding and unexercised option shall receive the cash amount
described in paragraph 9(b) hereof and such option shall be cancelled.
11. WITHHOLDING TAXES
(a) General Rule. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise of
an option. The Company may require, as a condition to the exercise of an option
or the issuance of a stock certificate,
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<PAGE> 14
that the optionee concurrently pay to the Company (either in cash or, at the
request of optionee but in the discretion of the Board or the Committee and
subject to such rules and regulations as the Board or the Committee may adopt
from time to time, in shares of Common Stock of the Company) the entire amount
or a portion of any taxes which the Company is required to withhold by reason of
such exercise or lapse of restrictions, in such amount as the Committee or the
Board in its discretion may determine.
(b) Withholding from Shares to be Issued. In lieu of part or all of any
such payment, the optionee may elect, subject to such rules and regulations as
the Board or the Committee may adopt from time to time, or the Company may
require that the Company withhold from the shares to be issued that number of
shares having a fair market value (as defined in paragraph 6(b)) equal to the
amount which the Company is required to withhold.
(c) Special Rule for Insiders. Any such request or election (to satisfy
a withholding obligation using shares) by an individual who is subject to the
provisions of Section 16 shall be made in accordance with the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
12. AUTOMATIC GRANTS TO CERTAIN DIRECTORS
(a) Initial Grant. Effective upon the closing date of the Company's
initial public offering, each Nonemployee Director automatically shall be
granted options to acquire 2,500 shares of the Company's Common Stock (the
"Initial Grant").
(b) Grants Upon Election to Board at Annual Meeting. Commencing with
the Annual Meeting of the Company's stockholders held in 1997, each Nonemployee
Director automatically shall be granted options to acquire 1,500 shares of the
Company's Common Stock on each date upon which such person is elected to a
three-year term as a member of the Board.
(c) Grants Upon Election to Board between Annual Meetings. Any person
who initially becomes a Nonemployee Director at any time other than at an Annual
Meeting of the Company's shareholders shall, effective upon the initial date of
such person's membership on the Board of Directors, automatically be granted
options for a number of shares determined by multiplying 500 by the number of
full and partial years remaining prior to the scheduled expiration of the term
of such person as a member of the Board.
(d) Terms of Options. Notwithstanding anything in paragraph 6(c) to the
contrary, options granted pursuant to this paragraph 12 shall have a 10-year
term, provided that any option held by a director who is removed from the board
for cause shall expire on the date of such removal. Options granted pursuant to
this paragraph 12 shall vest at the rate of 500 shares on each anniversary date
of the effective date of grant, provided that options can vest only while the
optionee remains a member of the Company's Board of Directors. The exercise
price of the Initial Grant shall be the higher of the Company's initial public
offering price or the fair market value of the Company's Common Stock on the
date of grant. The exercise price of all subsequent options granted pursuant to
this paragraph 12 shall be the fair market value of the Company's Common Stock
on the date of grant.
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<PAGE> 15
(e) Limitation on Amendment. This paragraph 12 shall not be amended
more than once every six months other than to comport with changes in the Code,
the Employee Retirement Income Security Act, or the rules thereunder.
-9-
<PAGE> 1
EXHIBIT 10.9
STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER WHERE THE
CONSTRUCTION MANAGER IS ALSO THE CONSTRUCTOR
AIA DOCUMENT A121/CMC AND AGC DOCUMENT 565 - ELECTRONIC FORMAT
AGREEMENT
made as of the twelfth day of March in the year of Nineteen hundred ninety six .
(In words, indicate day, month and year)
BETWEEN
the Owner:
(Name and address)
Insight Enterprises, Inc.
1912 West 4th Street
Tempe, AZ 85281
and the Construction Manager:
(Name and address)
Johnson Carlier Inc.
2310 East Magnolia Street
Phoenix, AZ 85034-6828
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
The 1987 Edition of AIA Document A201, General Conditions of the Contract for
Construction, is referred to herein. This Agreement requires modification if
other general conditions are utilized.
Portions of this document are derived from AIA Document A111, Standard Form of
Agreement Between the Owner and Contractor where the Basis of Payment is the
Cost of the Work Plus a Fee, copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967,
1974, 1978, copyright 1987 by The American Institute of Architects; other
portions are derived from AGC Document Document 500. Copyright 1980 by The
Associated General Contractors of American. Material in this document differing
from that found in AIA Document A111 and AGC Document 500 is copyrighted 1991 by
The American Institute of Architects and The Associated General Contractors of
America. Reproduction of the material herein or substantial quotation of its
provisions without written permission of AIA and AGC violates the copyright laws
of the United States and will subject the violator to legal prosecution.
**********
*****FOOTER FOR THE BOTTOM OF EVERY PAGE*****
AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION -
FOURTEENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF
ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON D.C. 20006-5292. WARNING
Unlicensed photocopying violates U.S copyright laws and is subject to legal
prosecution. This document was electronically produced under license number
596000968 and can be reproduced without violation until 5/15/96.
Electronic Document Service A201-1987
**********
1
<PAGE> 2
The Project is:
(Name, address and brief description)
Insight Enterprises Operations Building
6820 South Harl Avenue
Tempe, AZ 85283
The Architect is:
(Name and address)
DMJM Arizona
300 West Clarendon Avenue
Phoenix, AZ 85013
The Owner and Construction Manager agree as set forth below and as amended by
Exhibit H.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 GENERAL PROVISIONS ARTICLE 6 COST OF THE WORK FOR
CONSTRUCTION PHASE
1.1 Relationship of Parties 6.1 Costs To Be Reimbursed
1.2 General Conditions 6.2 Costs Not To Be Reimbursed
6.3 Discounts, Rebates and Refunds
ARTICLE 2 CONSTRUCTION MANAGER'S 6.4 Accounting Records
RESPONSIBILITIES
2.1 Preconstruction Phase ARTICLE 7 CONSTRUCTION PHASE
2.2 Guaranteed Maximum Price Proposal and Contract 7.1 Progress Payments
Time
2.3 Construction Phase 7.2 Final Payment
2.4 Professional Services
2.5 Unsafe Materials ARTICLE 8 INSURANCE AND BONDS
8.1 Insurance Required of the Construction Manager
ARTICLE 3 OWNER'S RESPONSIBILITIES 8.2 Insurance Required of the Owner
3.1 Information and Services 8.3 Performance Bond and Payment Bond
3.2 Owner's Designated Representative
3.3 Architect ARTICLE 9 MISCELLANEOUS PROVISIONS 3.4
Legal Requirements 9.1 Dispute Resolution for the Preconstruction Phase
9.2 Dispute Resolution for the Construction Phase
ARTICLE 4 COMPENSATION AND PAYMENTS FOR 9.3 Other Provisions
PRECONSTRUCTION PHASE SERVICES
4.1 Compensation
4.2 Payments ARTICLE 10 TERMINATION OR SUSPENSION
10.1 Termination Prior to Establishing Guaranteed Maximum Price
ARTICLE 5 COMPENSATION FOR CONSTRUCTION 10.2 Termination Subsequent to Establishing Guaranteed
PHASE SERVICES Maximum Price
5.1 Compensation 10.3 Suspension
5.2 Guaranteed Maximum Price
5.3 Changes in the Work
</TABLE>
<PAGE> 4
ARTICLE 11 OTHER CONDITIONS AND SERVICES
ATTACHMENTS: AMENDMENT NO. 1 TO AGREEMENT
BETWEEN OWNER AND CONSTRUCTION MANAGER
Exhibit H - Modifications to Agreement Between Owner and Construction Manager
Exhibit I - Modifications to General Conditions
Exhibit J - List of Contract Documents
<PAGE> 5
STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONSTRUCTION
MANAGER WHERE THE CONSTRUCTION MANAGER IS ALSO THE CONSTRUCTOR
ARTICLE 1
GENERAL PROVISIONS
1.1 RELATIONSHIP OF PARTIES
The Construction Manager accepts the relationship of trust and confidence
established with the Owner by this Agreement, and covenants with the Owner to
furnish the Construction Manager's reasonable skill and judgment and to
cooperate with the Architect in furthering the interests of the Owner. The
Construction Manager shall furnish construction administration and management
services and use the Construction Manager's best efforts to perform the Project
in an expeditious and economical manner consistent with the interests of the
Owner. The Owner shall endeavor to promote harmony and cooperation among the
Owner, Architect, Construction Manager and other persons or entities employed by
the Owner for the Project.
1.2 GENERAL CONDITIONS
For the Construction Phase, the General Conditions of the Contract shall be the
1987 Edition of AIA Document A201, General Conditions of the Contract for
Construction, which is incorporated herein by reference. For the Preconstruction
Phase, or in the event that the Preconstruction and Construction Phases proceed
concurrently, AIA Document A201 shall apply to the Preconstruction Phase only as
specifically provided in this Agreement. The term "Contractor" as used in AIA
Document A201 shall mean the Construction Manager.
ARTICLE 2
CONSTRUCTION MANAGER'S RESPONSIBILITIES
The Construction Manager shall perform the services described in this Article.
The services to be provided under Paragraphs 2.1 and 2.2 constitute the
Preconstruction Phase services. If the Owner and Construction Manager agree,
after consultation with the Architect, the Construction Phase may commence
before the Preconstruction Phase is completed, in which case both phases shall
proceed concurrently.
2.1 PRECONSTRUCTION PHASE
2.1.1 PRELIMINARY EVALUATION
The Construction Manager shall provide a preliminary evaluation of the Owner's
program and Project budget requirements, each in terms of the other.
2.1.2 CONSULTATION
The Construction Manager with the Architect shall jointly schedule and attend
regular meetings with the Owner and Architect. The Construction Manager shall
consult with the Owner and Architect regarding site use and improvements, and
the selection of materials, building systems and equipment. The Construction
Manager shall provide recommendations on construction feasibility; actions
designed to minimize adverse effects of labor or material shortages; time
requirements for procurement, installation and construction completion; and
factors related to construction cost including estimates of alternative designs
or materials, preliminary budgets and possible economies.
<PAGE> 6
2.1.3 PRELIMINARY PROJECT SCHEDULE
When Project requirements described in Subparagraph 3.1.1 have been sufficiently
identified, the Construction Manager shall prepare, and periodically update, a
preliminary Project schedule for the Architect's review and the Owner's
approval. The Construction Manager shall obtain the Architect's approval of the
portion of the preliminary Project schedule relating to the performance of the
Architect's services. The Constructlon Manager shall coordinate and integrate
the preliminary Project schedule with the services and activities of the Owner,
Architect and Construction Manager. As design proceeds, the preliminary Project
schedule shall be updated to indicate proposed activity sequences and durations,
milestone dates for receipt and approval of pertinent information, submittal of
a Guaranteed Maximum Price proposal, preparation and processing of shop drawings
and samples, delivery of materials or equipment requiring long-lead time
procurement, Owner's occupancy requirements showing portions of the Project
having occupancy priority, and proposed date of Substantial Completion. If
preliminary Project schedule updates indicate that previously approved schedules
may not be met, the Construction Manager shall make appropriate recommendations
to the Owner and Architect.
2.1.4 PHASED CONSTRUCTION
The Construction Manager shall make recommendations to the Owner and Architect
regarding the phased issuance of Drawings and Specifications to facilitate
phased construction of the Work, if such phased construction is appropriate for
the Project, taking into consideration such factors as economies, time of
performance, availability of labor and materials, and provisions for temporary
facilities.
2.1.5 PRELIMINARY COST ESTIMATES
2.1.5.1 When the Owner has sufficiently identified the Project requirements and
the Architect has prepared other basic design criteria, the Construction Manager
shall prepare, for the review of the Architect and approval of the Owner, a
preliminary cost estimate utilizing area, volume or similar conceptual
estimating techniques.
2.1.5.2 When Schematic Design Documents have been prepared by the Architect and
approved by the Owner, the Construction Manager shall prepare for the review of
the Architect and approval of the Owner, a more detailed estimate with
supporting data. During the preparation of the Design Development Documents, the
Construction Manager shall undate and refine this estimate at appropriate
intervals agreed to by the Owner, Architect and Construction Manager.
2.1.5.3 When Design Development Documents have been prepared by the Architect
and approved by the Owner, the Construction Manager shall prepare a detailed
estimate with supporting data for review by the Architect and approval by the
Owner. During the preparation of the Construction Documents, the Construction
Manager shall update and refine this estimate at appropriate intervals agreed to
by the Owner, Architect and Construction Manager.
2.1.5.4 If any estimate submitted to the Owner exceeds previously approved
estimates or the Owner's budget, the Construction Manager shall make appropriate
recommendations to the Owner and Architect.
2.1.6 SUBCONTRACTORS AND SUPPLIERS
The Construction Manager shall seek to develop subcontractor interest in the
Project and shall furnish to the Owner and Architect for their information a
list of possible subcontractors, including suppliers who are to furnish
materials or equipment fabricated to a special design, from whom proposals will
be requested for each principal portion of the Work. The Architect will promptly
reply in writing to the Construction Manager if the Architect or Owner know of
any objection to such subcontractor or supplier. The receipt of such list shall
not require the Owner or Architect to investigate the qualifications of proposed
subcontractors or suppliers, nor shall it waive the right of the Owner or
Architect later to object to or reject any proposed subcontractor or supplier.
<PAGE> 7
2.1.7 LONG-LEAD TIME ITEMS
The Construction Manager shall recommend to the Owner and Architect a schedule
for procurement of long-lead time items which will constitute part of the Work
as required to meet the Project schedule. If such long-lead time items are
procured by the Owner, they shall be procured on terms and conditions acceptable
to the Construction Manager. Upon the Owner's acceptance of the Construction
Manager's Guaranteed Maximum Price proposal, all contracts for such items shall
be assigned by the Owner to the Construction Manager, who shall accept
responsibility for such items as if procured by the Construction Manager. The
Construction Manager shall expedite the delivery of long-lead time items.
2.1.8 EXTENT OF RESPONSIBILITY
The Construction Manager does not warrant or guarantee estimates and schedules
except as may be included as part of the Guaranteed Maximum Price. The
recommendations and advice of the Construction Manager concerning design
alternatives shall be subject to the review and approval of the Owner and the
Owner's professional consultants. It is not the Construction Manager's
responsibility to ascertain that the Drawings and Specifications are in
accordance with applicable laws, statutes, ordinances, building codes, rules and
regulations. However, if the Construction Manager recognizes that portions of
the Drawings and Specifications are at variance therewith, the Construction
Manager shall promptly notify the Architect and Owner in writing.
2.1.9 EQUAL EMPLOYMENT OPPORTUNITY AND AFFIRMATIVE ACTION
The Construction Manager shall comply with applicable laws, regulations and
special requirements of the Contract Documents regarding equal employment
opportunity and affirmative action programs.
2.2 GUARANTEED MAXIMUM PRICE PROPOSAL AND CONTRACT TIME
2.2.1 When the Drawings-and Specifications are sufficiently complete, the
Construction Manager shall propose a Guaranteed Maximum Price, which shall be
the sum of the estimated Cost of the Work and the Construction Manager's Fee.
2.2.2 As the Drawings and Specifications may not be finished at the time the
Guaranteed Maximum Price proposal is prepared, the Construction Manager shall
provide in the Guaranteed Maximum Price for further development of the Drawings
and Specifications by the Architect that is consistent with the Contract
Documents and reasonably inferable therefrom. Such further development does not
include such things as changes in scope, systems, kinds and quality of
materials, finishes or equipment, all of which, if required, shall be
incorporated by Change Order.
2.2.3 The estimated Cost of the Work shall include the Construction Manager's
contingency, a sum established by the Construction Manager for the Construction
Manager's exclusive use to cover costs arising under Subparagraph 2.2.2 and
other costs which are properly reimbursable as Cost of the Work but not the
basis for a Change Order.
2.2.4 BASIS OF GUARANTEED MAXIMUM PRICE
The Construction Manager shall include with the Guaranteed Maximum Price
proposal a written statement of its basis, which shall include:
.1 A list of the Drawings and Specifications, including all addenda
thereto and the Conditions of the Contract, which were used in preparation of
the Guaranteed Maximum Price proposal.
.2 A list of allowances and a statement of their basis.
.3 A list of the clarifications and assumptions made by the
Construction Manager in the preparation of the Guaranteed Maximum Price proposal
to supplement the information contained in the Drawings and Specifications.
<PAGE> 8
.4 The proposed Guaranteed Maximum Price, including a statement of the
estimated cost organized by trade categories, allowances, contingency, and other
items and the fee that comprise the Guaranteed Maximum Price.
.5 The Date of Substantial Completion upon which the proposed
Guaranteed Maximum Price is based, and a schedule of the Construction Documents
issuance dates upon which the date of Substantial Completion is based.
2.2.5 The Construction Manager shall meet with the Owner and Architect to review
the Guaranteed Maximum Price proposal and the written statement of its basis. In
the event that the Owner or Architect discovers any inconsistencies or
inaccuracies in the information presented, they shall promptly notify the
Construction Manager, who shall make appropriate adjustments to the Guaranteed
Maximum Price proposal, its basis or both.
2.2.6 Unless the Owner accepts the Guaranteed Maximum Price proposal in writing
on or before the date specified in the proposal for such acceptance and so
notifies the Construction Manager, the Guaranteed Maximum Price proposal shall
not be effective without written acceptance by the Construction Manager.
2.2.7 Prior to the Owner's acceptance of the Construction Manager's Guaranteed
Maximum Price proposal and issuance of a Notice to Proceed, the Construction
Manager shall not incur any cost to be reimbursed as part of the Cost of the
Work, except as the Owner may specifically authorize in writing.
2.2.8 Upon acceptance by the Owner of the Guaranteed Maximum Price proposal, the
Guaranteed Maximum Price and its basis shall be set forth in Amendment No. 1.
The Guaranteed Maximum price shall be subject to additions and deductions by a
change in the Work as provided in the Contract Documents and the date of
Substantial Completion shall be subject to adjustment as provided in the
Contract Documents.
2.2.9 The Owner shall authorize and cause the Architect to revise the Drawings
and Specifications to the extent necessary to reflect the agreed-upon
assumptions and clarifications contained in Amendment No. 1. Such revised
Drawings and Specifications shall be furnished to the Construction Manager in
accordance with schedules agreed to by the Owner, Architect and Construction
Manager. The Construction Manager shall promptly notify the Architect and Owner
if such revised Drawings and Specifications are inconsistent with the
agreed-upon assumptions and clarifications.
2.2.10 The Guaranteed Maximum Price shall include in the Cost of the Work only
those taxes which are enacted at the time the Guaranteed Maximum Price is
established.
2.3 CONSTRUCTION PHASE
2.3.1 GENERAL
2.3.1.1 The Construction Phase shall commence on the earlier of:
(1) the Owner's acceptance of the Construction Manager's Guaranteed
Maximum Price proposal and issuance of a Notice to Proceed, or
(2) the Owner's first authorization to the Construction Manager to:
(a) award a subcontract, or
(b) undertake construction Work with the Construction Manager's own
forces, or
(c) issue a purchase order for materials or equipment required for the
Work.
2.3.2 ADMINISTRATION
2.3.2.1 Those portions of the Work that the Construction Manager does not
customarily perform with the Construction Manager's own personnel shall be
performed under subcontracts or by other appropriate agreements with the
<PAGE> 9
Construction Manager. The Construction Manager shall obtain bids from
Subcontractors and from suppliers of materials or equipment fabricated to a
special design for the Work from the list previously reviewed and, after
analyzing such bids, shall deliver such bids to the Owner and Architect. The
Owner shall then determine, with the advice of the Construction Manager and
subject to the reasonable objection of the Architect, which bids will be
accepted. The Owner may designate specific persons or entities from whom the
Construction Manager shall obtain bids; however, if the Guaranteed Maximum Price
has been established, the Owner may not prohibit the Construction Manager from
obtaining bids from other qualified bidders. The Construction Manager shall not
be required to contract with anyone to whom the Construction Manager has
reasonable objection.
2.3.2.2 If the Guaranteed Maximum Price has been established and a specific
bidder among those whose bids are delivered by the Construction Manager to the
Owner and Architect (1) is recommended to the Owner by the Construction Manager;
(2) is qualified to perform that portion of the Work; (3) has submitted a bid
which conforms to the requirements of the Contract Documents without
reservations or exceptions, but the Owner requires that another bid be accepted,
then the Construction Manager may require that a change in the Work be issued to
adjust the Contract Time and the Guaranteed Maximum Price by the difference
between the bid of the person or entity recommended to the Owner by the
Construction Manager and the amount of the subcontract or other agreement
actually signed with the person or entity designated by the Owner.
2.3.2.3 Subcontracts and agreements with suppliers furnishing materials or
equipment fabricated to a special design shall conform to the payment povisions
of Subparagraphs 7.1.8 and 7.1.9 and shall not be awarded on the basis of cost
plus a fee without the prior consent of the Owner.
2.3.2.4 The Construction Manager shall schedule and conduct meetings at which
the Owner, Architect, Construction Manager and appropriate Subcontractors can
discuss the status of the Work. The Construction Manager shall prepare and
promptly distribute meeting minutes.
2.3.2.5 Promptly after the Owner's acceptance of the Guaranteed Maximum Price
proposal, the Construction Manager shall prepare a schedule in accordance with
Paragraph 3.10 of AIA Document A201, incIuding the Owner's occupancy
requirements.
2.3.2.6 The Construction Manager shall provide monthly written reports to the
Owner and Architect on the progress of the entire Work. The Construction Manager
shall maintain a daily log containing a record of weather, Subcontractors
working on the site, number of workers, Work accomplished, problems encountered
and other similar relevant data as the Owner may reasonably require. The log
shall be available to the Owner and Architect.
2.3.2.7 The Construction Manager shall develop a system of cost control for the
Work, including regular monitoring of actual costs for activities in progress
and estimates for uncompleted tasks and proposed changes. The Construction
Manager shall identify variances between actual and estimated costs and report
the variances to the Owner and Architect at regular intervals.
2.4 PROFESSIONAL SERVICES
The Construction Manager shall not be required to provide professional services
which constitute the practice of architecture or engineering, unless such
services are specifically required by the Contract Documents for a portion of
the Work or unless the Construction Manager has specifically agreed in writing
to provide such services. In such event, the Construction Manager shall cause
such services to be performed by appropriately licensed professionals.
2.5 UNSAFE MATERIALS
In addition to the provisions of Paragraph 10.1 in AIA Document A201, if
reasonable precautions will be inadequate to prevent foreseeable bodily injury
or death to persons resulting from a material or substance encountered but not
created on the site by the Construction Manager, the Construction Manager shall,
upon recognizing the condition, immediately stop Work in the affected area and
report the condition to the Owner and Architect in writing. The Owner,
Construction Manager and Architect shall then proceed in the same manner
described in Subparagraph 10.1.2 of AIA Document A201.
<PAGE> 10
The Owner shall be responsible for obtaining the services of a licensed
laboratory to verify the presence or absence of the material or substance
reported by the Construction Manager and, in the event such material or
substance is found to be present, to verify that it has been rendered harmless.
Unless otherwise required by the Contract Documents, the Owner shall furnish in
writing to the Construction Manager and Architect the names and qualifications
of persons or entities who are to perform tests verifying the presence or
absence of such material or substance or who are to perform the task of removal
or safe containment of such material or substance. The Construction Manager and
Architect will promptly reply to the Owner in writing stating whether or not
either has reasonable objection to the persons or entities proposed by the
Owner. If either the Construction Manager or Architect has an objection to a
person or entity proposed by the Owner, the Owner shall propose another to whom
the Construction Manager and Architect have no reasonable objection.
ARTICLE 3
OWNER'S RESPONSIBILITIES
3.1 INFORMATION AND SERVICES
3.1.1 The Owner shall provide full information in a timely manner regarding the
requirements of the Project, including a program which sets forth the Owner's
objectives, constraints and criteria, including space requirements and
relationships, flexibility and expandability requirements, special equipment and
systems, and site requirements.
3.1.2 The Owner, upon written request from the Construction Manager, shall
furnish evidence of Project financing prior to the start of the Construction
Phase and from time to time thereafter as the Construction Manager may request.
Furnishing of such evidence shall be a condition precedent to commencement or
continuation of the Work.
3.1.3 The Owner shall establish and update an overall budget for the Project,
based on consultation with the Construction Manager and Architect, which shall
include contingencies for changes in the Work and other costs which are the
responsibility of the Owner.
3.1.4 STRUCTURAL AND ENVIRONMENTAL TESTS, SURVEYS AND REPORTS
In the Preconstruction Phase, the Owner shall furnish the following with
reasonable promptness and at the Owner's expense, and the Construction Manager
shall be entitled to rely upon the accuracy of any such information, reports,
surveys, drawings and tests described in Clauses 3.1.4.1 through 3.1.4.4, except
to the extent that the Construction Manager knows of any inaccuracy:
3.1.4.1 Reports, surveys, drawings and tests concerning the conditions of the
site which are required by law.
3.1.4.2 Surveys describing physical characteristics, legal limitations and
utility locations for the site of the Project, and a written legal description
of the site. The surveys and legal information shall include, as applicable,
grades and lines of streets, alleys, pavements and adjoining property and
structures; adjacent drainage; rights-of-way, restrictions, easements,
encroachments, zoning, deed restrictions, boundaries and contours of the site;
locations, dimensions and necessary data pertaining to existing buildings, other
improvements and trees; and information concerning available utility services
and lines, both public and private, above and below grade, including inverts and
depths. All information on the survey shall be referenced to a project
benchmark.
3.1.4.3 The services of geotechnical engineers when such services are requested
by the Construction Manager. Such services may include but are not limited to
test borings, test pits, determinations of soil bearing values, percolation
tests, evaluations of hazardous materials, ground corrosion and resistivity
tests, including necessary operations for anticipating subsoil conditions, with
reports and appropriate professional recommendations.
3.1.4.4 Structural, mechanical, chemical, air and water pollution tests, tests
for hazardous materials, and other laboratory and environmental tests,
inspections and reports which are required by law.
<PAGE> 11
3.1.4.5 The services of other consultants when such services are reasonably
required by the scope of the Project and are requested by the Construction
Manager.
3.2 OWNER'S DESIGNATED REPRESENTATIVE
The Owner shall designate in writing a representative who shall have express
authority to bind the Owner with respect to all matters requiring the Owner's
approval or authorization. This representative shall have the authority to make
decisions on behalf of the Owner concerning estimates and schedules,
construction budgets, and changes in the Work, and shall render such decisions
promptly and furnish information expeditiously, so as to avoid unreasonable
delay in the services or Work of the Construction Manager.
3.3 ARCHITECT
The Owner shall retain an Architect to provide the Basic Services, including
normal structural, mechanical and electrical engineering services, other than
cost estimating services, described in the edition of AIA Document B141 current
as of the date of this Agreement. The Owner shall authorize and cause the
Architect to provide those Additional Services described in AIA Document B141
requested by the Construction Manager which must necessarily be provided by the
Architect for the Preconstruction and Construction Phases of the Work. Such
services shall be provided in accordance with time schedules agreed to by the
Owner, Architect and Construction Manager. Upon request of the Construction
Manager, the Owner shall furnish to the Construction Manager a copy of the
Owner's Agreement with the Architect, from which compensation provisions may be
deleted.
3.4 LEGAL REQUIREMENTS
The Owner shall determine and advise the Architect and Construction Manager of
any special legal requirements relating specifically to the Project which differ
from those generally applicable to construction in the jurisdiction of the
Project. The Owner shall furnish such legal services as are necessary to provide
the information and services required under Paragraph 3.1.
ARTICLE 4
COMPENSATION AND PAYMENTS FOR PRECONSTRUCTION PHASE SERVICES
The Owner shall compensate and make payments to the Construction Manager for
Preconstruction Phase services as follows:
4.1 COMPENSATION
4.1.1 For the services described in Paragraphs 2.1 and 2.2 the Construction
Manager's compensation shall be calculated as follows:
(State basis of compensation, whether a stipulated sum, multiple of Direct
Personnel Expense, actual cost, etc. Include a statement of reimbursable cost
items as applicable.)
Contractor's fee will be calculated as five percent (5%) of the cost of Work
(see related paragraph 5.1.1.)
4.1.2 Compensation for Preconstruction Phase services shall be equitably
adjusted if such services extend beyond 0 days from the date of this Agreement
or if the originally contemplated scope of services is significantly modified.
4.1.3 If compensation is based on a multiple of Direct Personnel Expense, Direct
Personnel Expense is defined as the direct salaries of the Construction
Manager's personnel engaged in the Project and the portion of the cost of their
mandatory and customary contributions and benefits related thereto, such as
employment taxes and other statutory employee benefits, insurance, sick leave,
holidays, vacations, pensions and similar contributions and benefits.
<PAGE> 12
4.2 PAYMENTS
4.2.1 Payments shall be made monthly following presentation of the Construction
Manager's invoice and, where applicable, shall be in proportion to services
performed.
4.2.2 Payments are due and payable twenty (20) days from the date the
Construction Manager's invoice is received by the Owner. Amounts unpaid after
the date on which payment is due shall bear interest at the rate entered below,
or in the absence thereof, at the legal rate prevailing from time to time at the
place where the Project is located.
(Insert rate of interest agreed upon.)
Bank One prime plus one percent (1%)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Construction Manager's principal places of business, the location of the Project
and elsewhere may abject the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
ARTICLE 5
COMPENSATION FOR CONSTRUCTION PHASE SERVICES
The Owner shall compensate the Construction Manager for Construction Phase
services as follows:
5.1 COMPENSATION
5.1.1 For the Construction Manager's performance of the Work as described in
Paragraph 2.3, the Owner shall pay the Construction Manager in current funds the
Contract Sum consisting of the Cost of the Work as defined in Article 7 and the
Construction Manager's Fee determined as follows:
(State a lump sum, percentage of actual Cost of the Work or other provision for
determining the Construction Manager's Fee, and explain how the Construction
Manager's Fee is to be adjusted for changes in the Work)
Notwithstanding what is provided elsewhere in this Agreement, or the General
Conditions. the five percent (5%) fee to be paid to Construction Manager will be
calculated after netting all additive and deductive change orders.
5.2 GUARANTEED MAXIMUM PRICE
5.2.1 The sum of the Cost of the Work and the Construction Manager's Fee are
guaranteed by the Construction Manager not to exceed the amount provided in
Amendment No. 1, subject to additions and deductions by changes in the Work as
provided in the Contract Documents. Such maximum sum as adjusted by approved
changes in the Work is referred to in the Contract Documents as the Guaranteed
Maximum Price. Costs which would cause the Guaranteed Maximum Price to be
exceeded shall be paid by the Construction Manager without reimbursement by the
Owner.
(Insert specific provisions if the Construction Manager is to participate in any
savings.)
Intentionally left blank
5.3 CHANGES IN THE WORK
5.3.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work subsequent to the execution of Amendment No. 1 may be determined by any of
the methods listed in Subparagraph 7.3.3 of AIA Document A201.
5.3.2 In calculating adjustments to subcontracts (except those awarded with the
Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of AIA Document A201 and the terms "costs"and "a
reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of
AIA Document A201 shall have the meanings assigned to them in that document and
shall not be modified by this Article 5. Adjustments to subcontracts awarded
with the Owner's prior consent on the basis of cost plus a fee shall be
calculated in accordance with the terms of those subcontracts.
<PAGE> 13
5.3.3 In calculating adjustments to the Contract, the terms "cost" and "costs"
as used in the above-referenced provisions of AIA Document A201 shall mean the
Cost of the Work as defined in Article 6 of this Agreement and the terms "and a
reasonable allowance for overhead and profit" shall mean the Construction
Manager's Fee as defined in Subparagraph 5.1.1 of this Agreement.
5.3.4 If no specific provision is made in Subparagraph 5.1.1 for adjustment of
the Construction Manager's Fee in the case of changes in the Work, or if the
extent of such changes is such, in the aggregate, that application of the
adjustment provisions of Subparagraph 5.1.1 will cause substantial inequity to
the Owner or Construction Manager, the Construction Manager's Fee shall be
equitably adjusted on the basis of the fee established for the original Work.
ARTICLE 6
COST OF THE WORK FOR CONSTRUCTION PHASE
6.1 COSTS TO BE REIMBURSED
6.1.1 The term "Cost of the Work" shall mean costs necessarily incurred by the
Construction Manager in the proper performance of the Work. Such costs shall be
at rates not higher than those customarily paid at the place of the Project
except with prior consent of the Owner. The Cost of the Work shall include only
the items set forth in this Article 6.
6.1.2 LABOR COSTS
.1 Wages of construction workers directly employed by the Construction
Manager to perform the construction of the Work at the site or, with the Owner's
agreement, at off-site workshops.
.2 Wages or salaries of the Construction Manager's supervisory and
administrative personnel when stationed at the site with the Owner's agreement.
(If it is intended that the wages or salaries of certain personnel
stationed at the Construction Manager's principal office or offices other than
the site office shall be included in the Cost of the Work, such personnel shall
be identified below.)
Intentionally left blank
.3 Wages and salaries of the Construction Manager's supervisory or
administrative personnel engaged, at factories, workshops or on the
road, in expediting the production or transportation of materials or
equipment required for the Work, but only for that portion of their
time required for the Work.
.4 Costs paid or incurred by the Construction Manager for taxes,
insurance, contributions, assessments and benefits required by law or
collective bargaining agreements, and, for personnel not covered by
such agreements, customary benefits such as sick leave, medical and
health benefits, holidays, vacations and pensions, provided that such
costs are based on wages and salaries included in the Cost of the Work
under Clauses 6.1.2.1 through 6.1.2.3.
6.1.3 SUBCONTRACT COSTS
Payments made by the Construction Manager to Subcontractors in accordance with
the requirements of the subcontracts.
6.1.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
.1 Costs, including transportation, of materials and equipment
incorporated or to be incorporated in the completed construction.
<PAGE> 14
.2 Costs of materials described in the preceding Clause 6.1.4.1 in
excess of those actually installed but required to provide reasonable
allowance for waste and for spoilage. Unused excess materials, if any,
shall be handed over to the Owner at the completion of the Work or, at
the Owner's option, shall be sold by the Construction Manager; amounts
realized, if any, from such sales shall be credited to the Owner as a
deduction from the Cost of the Work.
6.1.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
.1 Costs, including transportation, installation, maintenance,
dismantling and removal of materials, supplies, temporary facilities,
machinery, equipment, and hand tools not customarily owned by the
construction workers, which are provided by the Construction Manager at
the site and fully consumed in the performance of the Work; and cost
less salvage value on such items if not fully consumed, whether sold to
others or retained by the Construction Manager. Cost for items
previously used by the Construction Manager shall mean fair market
value.
.2 Rental charges for temporary facilities, machinery, equipment, and
hand tools not customarily owned by the construction workers, which are
provided by the Construction Manager at the site, whether rented from
the Construction Manager or others, and costs of transportation,
installation, minor repairs and replacements, dismantling and removal
thereof. Rates and quantities of equipment rented shall be subject to
the Owner's prior approval.
.3 Costs of removal of debris from the site.
.4 Reproduction costs, costs of telegrams, facsimile transmissions and
long-distance telephone calls, postage and express delivery charges,
telephone service at the site and reasonable petty cash expenses of the
site office.
.5 That portion of the reasonable travel and subsistence expenses of
the Construction Manager's personnel incurred while traveling in
discharge of duties connected with the Work.
6.1.6 MISCELLANEOUS COSTS
.1 That portion directly attributable to this Contract of premiums for
insurance and bonds.
(If charges for self insurance are to be included, specify the basis of
reimbursement.)
Intentionally left blank
.2 Sales, use or similar taxes imposed by a governmental authority
which are related to the Work and for which the Construction Manager is
liable.
.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Construction Manager is required
by the Contract Documents to pay.
.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to nonconforming Work other than that
for which payment is permitted by Clause 6.1.8.2.
.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of
defending suits or claims for infringement of patent or other
intellectual property rights arising from such requirement by the
Contract Documents; payments made in accordance with legal judgments
against the Construction Manager resulting from such suits or claims
and payments of settlements made with the Owner's consent; provided,
however, that such costs of legal defenses, judgments and settlements
shall not be included in the calculation of the Construction Manager's
Fee or the Guaranteed Maximum Price and provided that such royalties,
fees and costs are not excluded by the last sentence of Subparagraph
3.17.1 of AIA Document A201 or other provisions of the Contract
Documents.
<PAGE> 15
.6 Data processing costs related to the Work.
.7 Deposits lost for causes other than the Construction Manager's
negligence or failure to fulfill a specific responsibility to the Owner
set forth in this Agreement.
.8 Legal, mediation and arbitration costs, other than those arising
from disputes between the Owner and Construction Manager, reasonably
incurred by the Construction Manager in the performance of the Work and
with the Owner's written permission, which permission shall not be
unreasonably withheld.
.9 Expenses incurred in accordance with the Construction Manager's
standard personnel policy for relocation and temporary living
allowances of personnel required for the Work, in case it is necessary
to relocate such personnel from distant locations.
6.1.7 OTHER COSTS
.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
6.1.8 EMERGENCIES AND REPAIRS TO DAMAGED OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Subparagraph 6.1.1
which are incurred by the Construction Manager:
.1 In taking action to prevent threatened damage, injury or loss in
case of an emergency affecting the safety of persons and property, as
provided in Paragraph 10.3 of AIA Document A201.
.2 In repairing or correcting damaged or nonconforming Work executed by
the Construction Manager or the Construction Manager's Subcontractors
or suppliers, provided that such damaged or nonconforming Work was not
caused by the negligence or failure to fulfill a specific
responsibility to the Owner set forth in this Agreement of the
Construction Manager or the Construction Manager's foremen, engineers
or superintendents, or other supervisory, administrative or managerial
personnel of the Construction Manager, or the failure of the
Construction Manager's personnel to supervise adequately the Work of
the Subcontractors or suppliers, and only to the extent that the cost
of repair or correction is not recoverable by the Construction Manager
from insurance, Subcontractors or suppliers.
6.1.9 The costs described in Subparagraphs 6.1.1 through 6.1.8 shall be included
in the Cost of the Work notwithstanding any provision of AIA Document A201 or
other Conditions of the Contract which may require the Construction Manager to
pay such costs, unless such costs are excluded by the provisions of Paragraph
6.2.
6.2 COSTS NOT TO BE REIMBURSED
6.2.1 The Cost of the Work shall not include:
.1 Salaries and other compensation of the Construction Manager's
personnel stationed at the Construction Manager's principal office or
offices other than the site office, except as specifically provided in
Clauses 6.1.2.2 and 6.1.2.3.
.2 Expenses of the Construction Manager's principal office and offices
other than the site office except as specifically provided in Paragraph
6.1.
.3 Overhead and general expenses, except as may be expressly included
in Paragraph 6.1.
<PAGE> 16
.4 The Construction Manager's capital expenses, including interest on
the Construction Manager's capital employed for the Work.
.5 Rental costs of machinery and equipment, except as specifically
provided in Subparagraph 6.1.5.2.
.6 Except as provided in Clause 6.1.8.2, costs due to the negligence of
the Construction Manager or to the failure of the Construction Manager
to fulfill a specific responsibility to the Owner set forth in this
Agreement.
.7 Costs incurred in the performance of Preconstruction Phase Services.
.8 Except as provided in Clause 6.1.7.1, any cost not specifically and
expressly described in Paragraph 6.1.
.9 Costs which would cause the Guaranteed Maximum Price to be exceeded.
6.3 DISCOUNTS, REBATES AND REFUNDS
6.3.1 Cash discounts obtained on payments made by the Construction Manager shall
accrue to the Owner if (1) before making the payment, the Construction Manager
included them in an Application for Payment and received payment therefor from
the Owner, or (2) the Owner has deposited funds with the Construction Manager
with which to make payments; otherwise, cash discounts shall accrue to the
Construction Manager. Trade discounts, rebates, refunds and amounts received
from sales of surplus materials and equipment shall accrue to the Owner, and the
Construction Manager shall make provisions so that they can be secured.
6.3.2 Amounts which accrue to the Owner in accordance with the provisions of
Subparagraph 6.3.1 shall be credited to the Owner as a deduction from the Cost
of the Work.
6.4 ACCOUNTING RECORDS
6.4.1 The Construction Manager shall keep full and detailed accounts and
exercise such controls as may be necessary for proper financial management under
this Contract; the accounting and control systems shall be satisfactory to the
Owner. The Owner and the Owner's accountants shall be afforded access to the
Construction Manager's records, books, correspondence, instructions, drawings,
receipts, subcontracts, purchase orders, vouchers, memoranda and other data
relating to this Project, and the Construction Manager shall preserve these for
a period of three years after final payment, or for such longer period as may be
required by law.
ARTICLE 7
CONSTRUCTION PHASE
7.1 PROGRESS PAYMENTS
7.1.1 Based upon Applications for Payment submitted to the Architect by the
Construction Manager and Certificates for Payment issued by the Architect, the
Owner shall make progress payments on account of the Contract Sum to the
Construction Manager as provided below and elsewhere in the Contract Documents.
7.1.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
Intentionally left blank
7.1.3 Provided an Application for Payment is received by the Architect not later
than the 25th day of a month, the Owner shall make payment to the Construction
Manager not later than the 10th day of the following month. If an Application
for Payment is received by the Architect after the application date fixed above,
payment shall be made by the Owner not later than twenty days after the
Architect receives the Application for Payment.
<PAGE> 17
7.1.4 With each Application for Payment, the Construction Manager shall submit
payrolls, petty cash accounts, receipted invoices or invoices with check
vouchers attached, and any other evidence required by the Owner or Architect to
demonstrate that cash disbursements already made by the Construction Manager on
account of the Cost of the Work equal or exceed (1) progress payments already
received by the Construction Manager; less (2) that portion of those payments
attributable to the Construction Manager's Fee; plus (3) payrolls for the period
covered by the present Application for Payment.
7.1.5 Each Application for Payment shall be based upon the most recent schedule
of values submitted by the Construction Manager in accordance with the Contract
Documents. The schedule of values shall allocate the entire Guaranteed Maximum
Price among the various portions of the Work, except that the Construction
Manager's Fee shall be shown as a single separate item. The schedule of values
shall be prepared in such form and supported by such data to substantiate its
accuracy as the Architect may require. This schedule, unless objected to by the
Architect, shall be used as a basis for reviewing the Construction Manager's
Applications for Payment.
7.1.6 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Construction Manager on account of that portion of the Work for which the
Construction Manager has made or intends to make actual payment prior to the
next Application for Payment by (b) the share of the Guaranteed Maximum Price
allocated to that portion of the Work in the schedule of values.
7.1.7 Subject to other provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
.1 Take that portion of the Guaranteed Maximum Price properly allocable
to completed Work as determined by multiplying the percentage
completion of each portion of the Work by the share of the Guaranteed
Maximum Price allocated to that portion of the Work in the schedule of
values. Pending final determination of cost to the Owner of changes in
the Work, amounts not in dispute may be included as provided in
Subparagraph 7.3.7 of AIA Document A201, even though the Guaranteed
Maximum Price has not yet been adjusted by Change Order.
.2 Add that portion of the Guaranteed Maximum Price properly allocable
to materials and equipment delivered and suitably stored at the site
for subsequent incorporation in the Work or, if approved in advance by
the Owner, suitably stored off the site at a location agreed upon in
writing.
.3 Add the Construction Manager's Fee, less retainage of ten percent
(10 %). The Construction Manager's Fee shall be computed upon the Cost
of the Work described in the two preceding Clauses at the rate stated
in Subparagraph 5.1.1 or, if the Construction Manager's Fee is stated
as a fixed sum in that Subparagraph, shall be an amount which bears the
same ratio to that fixed-sum Fee as the Cost of the Work in the two
preceding Clauses bears to a reasonable estimate of the probable Cost
of the Work upon its completion.
.4 Subtract the aggregate of previous payments made by the Owner.
.5 Subtract the shortfall, if any, indicated by the Construction
Manager in the documentation required by Subparagraph 7.1.4 to
substantiate prior Applications for Payment, or resulting from errors
subsequently discovered by the Owner's accountants in such
documentation.
.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA
Document A201.
7.1.8 Except with the Owner's prior approval, payments to Subcontractors shall
be subject to retention of not less than ten percent (10%). The Owner and the
Construction Manager shall agree upon a mutually acceptable procedure for review
and approval of payments and retention for subcontracts.
<PAGE> 18
7.1.9 Except with the Owner's prior approval the Construction Manager shall not
make advance payments to suppliers for materials or equipment which have not
been delivered and stored at the site.
7.1.10 In taking action on the Construction Manager's Applications for Payment,
the Architect shall be entitled to rely on the accuracy and completeness of the
information furnished by the Construction Manager and shall not be deemed to
represent that the Architect has made a detailed examination, audit or
arithmetic verification of the documentation submitted in accordance with
Subparagraph 7.1.4 or other supporting data; that the Architect has made
exhaustive or continuous on-site inspections or that the Architect has made
examinations to ascertain how or for what purposes the Construction Manager has
used amounts previously paid on account of the Contract. Such examinations,
audits and verifications, if required by the Owner, will be performed by the
Owner's accountants acting in the sole interest of the Owner.
7.2 FINAL PAYMENT
7.2.1 Final payment shall be made by the Owner to the Construction Manager when
(1) the Contract has been fully performed by the Construction Manager except for
the Construction Manager's responsibility to correct nonconforming Work, as
provided in Subparagraph 12.2.2 of AIA Document A201, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Construction Manager and reviewed by the Owner's
accountants; and (3) a final Certificate for Payment has then been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment, or as
follows:
Intentionally left blank
7.2.2 The amount of the final payment shall be calculated as follows:
.1 Take the sum of the Cost of the Work substantiated by the
Construction Manager's final accounting and the Construction Manager's
Fee; but not more than the Guaranteed Maximum Price.
.2 Subtract amounts, if any, for which the Architect withholds, in
whole or in part, a final Certificate for Payment as provided in
Subparagraph 9.5.1 of AIA Document A201 or other provisions of the
Contract Documents.
.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Construction Manager, the Construction Manager shall reimburse the
difference to the Owner.
7.2.3 The Owner's accountants will review and report in writing on the
Construction Manager's final accounting within 30 days after delivery of the
final accounting to the Architect by the Construction Manager. Based upon such
Cost of the Work as the Owner's accountants report to be substantiated by the
Construction Manager's final accounting, and provided the other conditions of
Subparagraph 7.2.1 have been met, the Architect will, within seven days after
receipt of the written report of the Owner's accountants, either issue to the
Owner a final Certificate for Payment with a copy to the Construction Manager,
or notify the Construction Manager and Owner in writing of the Architect's
reasons for withholding a certificate as provided in Subparagraph 9.5.1 of AIA
Document A201. The time periods stated in this Paragraph 7.2 supersede those
stated in Subparagraph 9.4.1 of AIA Document A201.
7.2.4 If the Owner's accountants report the Cost of the Work as substantiated by
the Construction Manager's final accounting to be less than claimed by the
Construction Manager, the Construction Manager shall be entitled to proceed in
accordance with Article 9 without a further decision of the Architect. Unless
agreed to otherwise, a demand for mediation or arbitration of the disputed
amount shall be made by the Construction Manager within 60 days after the
Construction Manager's receipt of a copy of the Architect's final Certificate
for Payment. Failure to make such demand within this 60-day period shall result
in the substantiated amount reported by the Owner's accountants becoming binding
on the Construction Manager. Pending a final resolution of the disputed amount,
the Owner shall pay the Construction Manager the amount certified in the
Architect's final Certificate for Payment.
<PAGE> 19
7.2.5 If, subsequent to final payment and at the Owner's request, the
Construction Manager incurs costs described in Paragraph 6.1 and not excluded by
Paragraph 6.2 (1) to correct nonconforming Work, or (2) arising from the
resolution of disputes, the Owner shall reimburse the Construction Manager such
costs and the Construction Manager's Fee, if any, related thereto on the same
basis as if such costs had been incurred prior to final payment, but not in
excess of the Guaranteed Maximum Price. If the Construction Manager has
participated in savings, the amount of such savings shall be recalculated and
appropriate credit given to the Owner in determining the net amount to be paid
by the Owner to the Construction Manager.
ARTICLE 8
INSURANCE AND BONDS
8.1 INSURANCE REQUIRED OF THE CONSTRUCTION MANAGER
During both phases of the Project, the Construction Manager shall purchase and
maintain insurance as set forth in Paragraph 11.1 of AIA Document A201. Such
insurance shall be written for not less than the following limits, or greater if
required by law:
8.1.1 Workers' Compensation and Employers' Liability meeting statutory limits
mandated by State and Federal laws. If (1) limits in excess of those required by
statute are to be provided or (2) the employer is not statutorily bound to
obtain such insurance coverage or (3) additional coverages are required,
additional coverages and limits for such insurance shall be as follows:
Intentionally left blank
8.1.2 Commercial General Liability including coverage for Premises- Operations,
Independent Contractors' Protective, Products-Completed Operations, Contractual
Liability, Personal Injury, and Broad Form Property Damage (including coverage
for Explosion, Collapse and Underground hazards):
$1 million Each Occurrence
$1 million General Aggregate
$1 million Personal and Advertising Injury
$1 million Products-Completed Operations Aggregate
.1 The policy shall be endorsed to have the General Aggregate apply to
this Project only.
.2 Products and Completed Operations insurance shall be maintained for
a minimum period of at least two year(s) after either 90 days following
Substantial Completion or final payment, whichever is earlier.
.3 The Contractual Liability insurance shall include coverage
sufficient to meet the obligations in AIA Document A201 under Paragraph
3.18.
8.1.3 Automobile Liability (owned, non-owned and hired vehicles) for bodily
injury and property damage:
$1 million Each Accident
8.1.4 Other coverage:
(If Umbrella Excess Liability coverage is required over the primary insurance or
retention, insert the coverage limits. Commercial General Liability and
Automobile Liability limits may be attained by individual policies or by a
combination of primary policies and Umbrella and/or Excess Liability policies.)
Umbrella Excess Liability: $10 million
<PAGE> 20
8.2 INSURANCE REQUIRED OF THE OWNER
During both phases of the Project, the Owner shall purchase and maintain
liability and property insurance, including waivers of subrogation, as set forth
in Paragraphs 1 1.2 and 1 1.3 of AIA Document A201. Such insurance shall be
written for not less than the following limits, or greater if required by law:
8.2.1 Property Insurance:
$ 2,500 Deductible Per Occurrence
$ 2,500 Aggregate Deductible
8.2.2 Boiler and Machinery insurance with a limit of: $ N/A
(If not a blanket policy, list the objects to be insured.)
Intentionally left blank
8.3 PERFORMANCE BOND AND PAYMENT BOND
8.3.1 The Construction Manager shall not (Insert "shall" or "shall not") furnish
bonds covering faithful performance of the Contract and payment of obligations
arising thereunder. Bonds may be obtained through the Construction Manager's
usual source and the cost thereof shall be included in the Cost of the Work. The
amount of each bond shall be equal to percent ( %) of the Contract Sum.
8.3.2 The Construction Manager shall deliver the required bonds to the Owner at
least three days before the commencement of any Work at the Project site.
<PAGE> 21
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 DISPUTE RESOLUTION FOR THE PRECONSTRUCTION PHASE
9.1.1 Claims, disputes or other matters in question between the parties to this
Agreement which arise prior to the commencement of the Construction Phase or
which relate solely to the Preconstruction Phase services of the Construction
Manager or to the Owner's obligations to the Construction Manager during the
Preconstruction Phase, shall be resolved by mediation or by arbitration.
9.1.2 Any mediation conducted pursuant to this Paragraph 9.1 shall be held in
accordance with the Construction Industry Mediation Rules of the American
Arbitration Association currently in effect, unless the parties mutually agree
otherwise. Demand for mediation shall be filed in writing with the other party
to this Agreement and with the American Arbitration Association. Any demand for
mediation shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for mediation
be made after the date when institution of legal or equitable proceedings based
upon such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.
9.1.3 Any claim, dispute or other matter in question not resolved by mediation
shall be decided by arbitration in accordance with the Construction Industry
Arbitration Rules of the American Arbitration Association currently in effect
unless the parties mutually agree otherwise.
9.1.4 Demand for arbitration shall be filed in writing with the other party to
this Agreement and with the American Arbitration Association. A demand for
arbitration may be made concurrently with a demand for mediation and shall be
made within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event shall the demand for arbitration be made after
the date when institution of legal or equitable proceedings based upon such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations.
9.1.5 No arbitration arising out of or relating to the Contract Documents shall
include, by consolidation or joinder or in any other manner, the Architect, the
Architect's employees or consultants, except by written consent containing
specific reference to the Agreement and signed by the Architect, Owner,
Construction Manager and any other person or entity sought to be joined. No
arbitration shall include, by consolidation or joinder or in any other manner,
parties other than the Owner, Construction Manager, a separate contractor as
described in Article 6 of AIA Document A201 and other persons substantially
involved in a common question of fact or law whose presence is required if
complete relief is to be accorded in arbitration. No person or entity other than
the Owner or Construction Manager or a separate contractor as described in
Article 6 of AIA Document A201 shall be included as an original third party or
additional third party to an arbitration whose interest or responsibility is
insubstantial. Consent to arbitration involving an additional person or entity
shall not constitute agreement to arbitration of a dispute not described in such
consent or with a person or entity not named or described therein. The foregoing
agreement to arbitrate and other agreements to arbitrate with an additional
person or entity duly consented to by parties to this Agreement shall be
specifically enforceable under applicable law in any court having jurisdiction
thereof.
9.1.6 The award rendered by the arbitrator or arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
9.2 DISPUTE RESOLUTION FOR THE CONSTRUCTION PHASE
9.2.1 Any other claim, dispute or other matter in question arising out of or
related to this Agreement or breach thereof shall be settled in accordance with
Article 4 of AIA Document A201, except that in addition to and prior to
arbitration, the parties shall endeavor to settle disputes by mediation in
accordance with the Construction Industry Mediation Rules of the American
Arbitration Association currently in effect unless the parties mutually agree
otherwise. Any mediation arising under this Paragraph shall be conducted in
accordance with the provisions of Subparagraphs 9.1.2 and 9.1.3.
<PAGE> 22
9.3 OTHER PROVISIONS
9.3.1 Unless otherwise noted, the terms used in this Agreement shall have the
same meaning as those in the 1987 Edition of AIA Document A201, General
Conditions of the Contract for Construction.
9.3.2 EXTENT OF CONTRACT
This Contract, which includes this Agreement and the other documents
incorporated herein by reference, represents the entire and integrated agreement
between the Owner and Construction Manager and supersedes all prior
negotiations, representations or agreements, either written or oral. This
Agreement may be amended only by written instrument signed by both the Owner and
Construction Manager. If anything in any document incorporated into this
Agreement is inconsistent with this Agreement, this Agreement shall govern.
9.3.3 OWNERSHIP AND USE OF DOCUMENTS
The Drawings, Specifications and other documents prepared by the Architect, and
copies thereof furnished to the Construction Manager, are for use solely with
respect to this Project. They are not to be used by the Construction Manager,
Subcontractors, Sub-subcontractors or suppliers on other projects, or for
additions to this Project outside the scope of the Work, without the specific
written consent of the Owner and Architect. The Construction Manager,
Subcontractors, Sub-subcontractors and suppliers are granted a limited license
to use and reproduce applicable portions of the Drawings, Specifications and
other documents prepared by the Architect appropriate to and for use in the
execution of their Work under the Contract Documents.
9.3.4 GOVERNING LAW
The Contract shall be governed by the law of the place where the Project is
located.
9.3.5 ASSIGNMENT
The Owner and Construction Manager respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto and to
partners, successors, assigns and legal representatives of such other party in
respect to covenants, agreements and obligations contained in the Contract
Documents. Neither party to the Contract shall assign the Contract as a whole
without written consent of the other. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under the Contract.
ARTICLE 10
TERMINATION OR SUSPENSION
10.1 TERMINATION PRIOR TO ESTABLISHING GUARANTEED MAXIMUM PRICE
10.1.1 Prior to execution by both parties of Amendment No. 1 establishing the
Guaranteed Maximum Price, the Owner may terminate this Contract at any time
without cause, and the Construction Manager may terminate this Contract for any
of the reasons described in Subparagraph 14.1.1 of AIA Document A201.
10.1.2 If the Owner or Construction Manager terminates this Contract pursuant to
this Paragraph 10.1 prior to commencement of the Construction Phase, the
Construction Manager shall be equitably compensated for Preconstruction Phase
services performed prior to receipt of notice of termination; provided, however,
that the compensation for such services shall not exceed the compensation set
forth in Subparagraph 4.1.1.
<PAGE> 23
10.1.3 If the Owner or Construction Manager terminates this Contract pursuant to
this Paragraph 10.1 after commencement of the Construction Phase, the
Construction Manager shall, in addition to the compensation provided in
Subparagraph 10.1.2, be paid an amount calculated as follows:
.1 Take the Cost of the Work incurred by the Construction Manager.
.2 Add the Construction Manager's Fee computed upon the Cost of the
Work to the date of termination at the rate stated in Paragraph 5.1 or,
if the Construction Manager's Fee is stated as a fixed sum in that
Paragraph, an amount which bears the same ratio to that fixed-sum Fee
as the Cost of Work at the time of termination bears to a reasonable
estimate of the probable Cost of the Work upon its completion.
.3 Subtract the aggregate of previous payments made by the Owner on
account of the Construction Phase.
The Owner shall also pay the Construction Manager fair compensation, either by
purchase or rental at the election of the Owner, for any equipment owned by the
Construction Manager which the Owner elects to retain and which is not otherwise
included in the Cost of the Work under Clause 10.1.3.1. To the extent that the
Owner elects to take legal assignment of subcontracts and purchase orders
(including rental agreements), the Construction Manager shall, as a condition of
receiving the payments referred to in this Article 10, execute and deliver all
such papers and take all such steps, including the legal assignment of such
subcontracts and other contractual rights of the Construction Manager, as the
Owner may require for the purpose of fully vesting in the Owner the rights and
benefits of the Construction Manager under such subcontracts or purchase orders.
Subcontracts, purchase orders and rental agreements entered into by the
Construction Manager with the Owner's written approval prior to the execution of
Amendment No. 1 shall contain provisions permitting assignment to the Owner as
described above. If the Owner accepts such assignment, the Owner shall reimburse
or indemnify the Construction Manager with respect to all costs arising under
the subcontract, purchase order or rental agreement except those which would not
have been reimbursable as Cost of the Work if the contract had not been
terminated. If the Owner elects not to accept the assignment of any subcontract,
purchase order or rental agreement which would have constituted a Cost of the
Work had this agreement not been terminated, the Construction Manager shall
terminate such subcontract, purchase order or rental agreement and the Owner
shall pay the Construction Manager the costs necessarily incurred by the
Construction Manager by reason of such termination.
10.2 TERMINATION SUBSEQUENT TO ESTABLISHING GUARANTEED MAXIMUM PRICE
Subsequent to execution by both parties of Amendment No. 1, the Contract may be
terminated as provided in Article 14 of AIA Document A201.
10.2.1 In the event of such termination by the Owner, the amount payable to the
Construction Manager pursuant to Subparagraph 14.1.2 of AIA Document A201 shall
not exceed the amount the Construction Manager would have been entitled to
receive pursuant to Subparagraphs 10.1.2 and 10.1.3 of this Agreement.
10.2.2 In the event of such termination by the Construction Manager, the amount
to be paid to the Construction Manager under Subparagraph 14.1.2 of AIA Document
A201 shall not exceed the amount the Construction Manager would be entitled to
receive under Subparagraphs 10.1.2 or 10.1.3 above, except that the Construction
Manager's Fee shall be calculated as if the Work had been fully completed by the
Construction Manager, including a reasonable estimate of the Cost of the Work
for Work not actually completed.
10.3 SUSPENSION
The Work may be suspended by the Owner as provided in Article 14 of AIA Document
A201; in such case, the Guaranteed Maximum Price, if established, shall be
increased as provided in Subparagraph 14.3.2 of AIA Document A201 except that
the term "cost of performance of the Contract"in that Subparagraph shall be
understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Construction Manager's Fee as described in Subparagraphs
5.1.1 and 5.3.4 of this Agreement.
<PAGE> 24
ARTICLE 11
OTHER CONDITIONS AND SERVICES
This Agreement entered into as of the day and year first written above.
OWNER: CONSTRUCTION MANAGER:
By: /s/ Eric J. Crown By: /s/ Carol Warner
-------------------------- ------------------------------
Date 3-15-96 Date: 3-14-96
-------------------------- ------------------------------
ATTEST: /s/ Jennifer L. Molinaro ATTEST: /s/ Joan Bittel
-------------------------- ------------------------------
<PAGE> 25
AMENDMENT NO. 1 TO AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER
Pursuant to Paragraph 2.2 of the Agreement, dated 12 March 1996 between Insight
Enterprises, Inc. (Owner) and Johnson Carlier Inc. (Construction Manager), for
Insight Enterprises Operations Building (the Project), the Owner and
Construction Manager establish a Guaranteed Maximum Price and Contract Time for
the Work as set forth below.
ARTICLE I
GUARANTEED MAXIMUM PRICE
The Construction Manager's Guaranteed Maximum Price for the Work, including the
estimated Cost of the Work as defined in Article 6 and the Construction
Manager's Fee as defined in Article 5, is Six million, two hundred forty two
thousand, nine hundred fifty-eight and no/100 Dollars ($ 6,242,958.00 ). This
Price is for the performance of the Work in accordance with the Contract
Documents listed and attached to this Amendment and marked Exhibits A through F,
as follows:
Exhibit A
Drawings, Specifications, addenda and General, Supplementary and other
Conditions of the Contract on which the Guaranteed Maximum Price is based, pages
1 through 3, dated March 12, 1996.
Exhibit B
Allowance items, pages through , dated Not
applicable .
Exhibit C
Assumptions and clarifications made in preparing the Guaranteed Maximum
Price, pages through , dated Not applicable.
Exhibit D
Completion schedule, pages through , dated Not attached.
Exhibit E
Alternate prices, pages through , dated Not applicable.
Exhibit F
Unit prices, pages through , dated Not applicable.
ARTICLE II
CONTRACT TIME
The date of Substantial Completion established by this Amendment is: November
12, 1996 .
<PAGE> 26
OWNER: CONSTRUCTION MANAGER:
By: /s/ Eric J. Crown By: /s/ Carol Warner
---------------------------- ---------------------------
Date 3-15-96 Date: 3-14-96
---------------------------- ---------------------------
ATTEST: /s/ Jennifer L. Molinaro ATTEST: /s/ Joan Bittel
---------------------------- ---------------------------
<PAGE> 27
GENERAL CONDITIONS OF THE CONTRACT
FOR CONSTRUCTION
AIA DOCUMENT A201 - ELECTRONIC FORMAT
1987 EDITION
TABLE OF ARTICLES
<TABLE>
<CAPTION>
<S> <C>
1. GENERAL PROVISIONS 8. TIME
2. OWNER 9. PAYMENTS AND COMPLETION
3. CONTRACTOR 10. PROTECTION OF PERSONS AND PROPERTY
4. ADMINISTRATION OF THE CONTRACT 11. INSURANCE AND BONDS
5. SUBCONTRACTORS 12. UNCOVERING AND CORRECTION OF WORK
6. CONSTRUCTION BY OWNER OR BY SEPARATE
CONTRACTORS 13. MISCELLANEOUS PROVISIONS
7. CHANGES IN THE WORK 14. TERMINATION OR SUSPENSION OF THE CONTRACT
</TABLE>
These General Conditions have been amended by Exhibit "I".
- --------------------------------------------------------------------------------
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY
IS ENCOURAGED WITH RESPECT TO ITS MODIFICATION. AUTHENTICATION OF THIS
ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
This document has been approved and endorsed by the Associated General
Contractors of America.
Copyright 1911, 1915, 1918, 1925, 1927, 1951, 1958, 1961, 1963, 1967, 1970,
1976, 1987 by The American Institute of Architects, 1735 New York Avenue N.W.,
Washington D.C. 20006-5292. Reproduction of the material herein or substantial
quotation of its provisions without written permission of AIA violates the
copyright laws of the United States and will be subject to legal prosecutions.
**********
*****FOOTER FOR THE BOTTOM OF EVERY PAGE*****
AIA DOCUMENT A201 - GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION -
FOURTEENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF
ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON D.C. 20006-5292. WARNING
Unlicensed photocopying violates U.S copyright laws and is subject to legal
prosecution. This document was electronically produced under license number
596000968 and can be reproduced without violation until 5/15/96.
Electronic Document Service A201-1987
**********
1
<PAGE> 28
INDEX
-----
Acceptance of Nonconforming Work 9.6.6, 9.9.3, 12.3
Acceptance of Work 9.6.6, 9.8.2, 9.9.3, 9.10.1, 9.10.3
Access to Work 3.16, 6.2.1, 12.1
Accident Prevention 4.2.3, 10
Acts and Omissions 3.2.1, 3.2.2, 3.3.2, 3.12.8, 3.18, 4.2.3,
4.3.2, 4.3.9, 8.3.1,10.1.4, 10.2.5, 13.4.2, 13.7, 14.1
Addenda 1.1.1, 3.11
Additional Costs, Claims for 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3
Additional Inspections and Testing 4.2.6, 9.8.2, 12.2.1, 13.5
Additional Time, Claims for 4.3.6, 4.3.8, 4.3.9, 8.3.2
ADMINISTRATION OF THE CONTRACT 3.3.3, 4, 9.4, 9.5
Advertisement or Invitation to Bid 1.1.1
Aesthetic Effect 4.2.13,4.5.1
Allowances 3.8
All-risk Insurance 11.3.1.1
Applications for Payment 4.2.5, 7.3.7, 9.2, 9.3, 9.4, 9.5.1,
9.6.3, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 11.1.3, 14.2.4
Approvals 2.4, 3.3.3, 3.5, 3.10.2, 3.12.4 through 3.12.8,
3.18.3, 4.2.7, 9.3.2, 11.3.1.4, 13.4.2, 13.3
Arbitration 4.1.4, 4.3.2, 4.3.4, 4.4.4, 4.5, 8.3.1,
10.1.2, 11.3.9,11.3.10
Architect 4.1
Architect, Definition of 4.1.1
Architect, Extent of Authority 2.4, 3.12.6, 4.2, 4.3.2, 4.3.6,
4.4,
5.2, 6.3, 7.1.2, 7.2.1, 7.3.6, 7.4, 9.2, 9.3.1, 9.4, 9.5,
9.6.3, 9.8.2, 9.8.3, 9.10.1, 9.10.3, 12.1,
12.2.1,13.5.1, 13.5.2, 14.2.2, 14.2.4
Architect, Limitations of Authority and Responsibility 3.3.3,
3.12.8, 3.12.11, 4.1.2, 4.2.1, 4.2.2, 4.2.3, 4.2.6,
4.2.7, 4.2.10, 4.2.12, 4.2.13, 4.3.2, 5.2.1, 7.4, 9.4.2, 9.6.4,
9.6.6
Architect's Additional Services and Expenses 2.4, 9.8.2,
12.2.1, 12.2.4, 13.5.2, 13.5.3, 14.2.4
Architect's Administration of the Contract 4.2, 4.3.6,
4.3.7, 4.4, 9.4, 9.5
Architect's Approvals 2.4, 3.5.1, 3.10.2, 3.12.6,
3.12.8, 3.18.3, 4.2.7
Architect's Authority to Reject Work 3.5.1, 4.2.6, 12.1.2,
12.2.1
Architect's Copyright 1 3
Architect's Decisions4.2.6, 4.2.7, 4.2.11, 4.2.12, 4.2.13. 4.3.2,
4.3.6, 4.4.1. 4.4.4, 4.5, 6.3, 7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2,
9.4, 9.5.1, 9.8.2, 9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4
Architect's Inspections 4.2.2, 4.2.9, 4.3.6, 9.4.2, 9.8.2,
9.9.2, 9.10.1. 13.5
Architect's Instructions 4.2.6, 4.2.7, 4.2.8, 4.3.7,
7.4.1, 12.1, 13.5.2
Architect's Interpretations 4.2.11, 4.2.12, 4.3.7
Architect's On-Site Observations 4.2.2, 4.2.5, 4.3.6, 9.4.2,
9.S.1, 9.10.1, 13.5
Architect's Project Representative 4.2.10
Architect's Relationship with Contractor 1.1.2, 3.2.1, 3.2.2,
3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.12.11, 3.16, 3.18, 4.2.3,
4.2.4, 4.2.6, 4.2.12, S.2, 6.2.2, 7.3.4,
9.8.2, 11.3.7, 12.1, 13.5
Architect's Relationship with Subcontractors 1.1.2, 4.2.3,
4.2.4,
4.2.6,9.6.3,9.6.4, 11.3.7
Architect's Representations 9.4.2, 9.5.1, 9.10.1
Architect's Site Visits 4.2.2, 4.2.5, 4.2.9, 4.3.6, 9.4.2,
9.5.1, 9.8.2, 9.9.2, 9.10.1, 13.5
Asbestos 10.1
Attorneys' Fees 3.18.1, 9.10.2, 10.1.4
Award of Separate Contracts 6.1.1
Award of Subcontracts and Other Contracts
for Portions of the Work 5.2
Basic Definitions 1.1
Bidding Requirements 1.1.1, 1.1.7, 5.2.1, 11.4.1
Boiler and Machinery Insurance 11.3.2
Bonds, Lien 9.10.2
Bonds, Performance and Payment 7.3.6.4, 9.10.3, 11.3.9, 11.4
Building Permit 3.7.1
Capitalization 1.4
Certificate of Substantial Completion 9.8.2
Certificates for Payment 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5, 9.6.1,
9.6.6, 9.7.1, 9.8.3, 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4
Certificates of Inspection, Testing or Approval 3.12.11, 13.5.4
Change Orders 1.1.1, 2.4.1, 3.8.2.4, 3.11; 4 2.8; 4 3 3, 5 2.3,
7.1, 7.2, 7.3.2, 8.3.1, 9.3.1.1, 9.10.3, 11.3.1.2,
11.3.4, 11.3.9, 12.1.2
Change Orders. Definition of 7.2.1
Changes 7.1
CHANGES IN THE WORK 3.11, 4.2.8, 7, 8.3.1, 9.3.1.1,
10.1.3
Claim, Definition of 4.3.1
Claims and Disputes 4.3, 4.4, 4.5, 6.2.5, 8.3.2, 9.3.1.2,
9.3.3, 9.10.4, 10.1.4
Claims and Timely Assertion of Claims 4.5.6
Claims for Additional Cost 4.3.6, 4.3.7, 4.3.9, 6.1.1, 10.3
Claims for Additional Time 4.3.6, 4.3.8, 4.3.9, 8.3.2
2
<PAGE> 29
Claims for Concealed or Unknown Conditions 4.3.6
Claims for Damages 3.18, 4.3.9, 6.1. 1, 6.2.5, 8.3.2,
9.5.1.2, 10.1.4
Claims Subject to Arbitration 4.3.2, 4.4.4, 4.5.1
Cleaning Up 3.15, 6.3
Commencement of Statutory Limitation Period 13.7
Commencement of the Work, Conditions Relating to 2.1.2,
2.2.1,
3.2.1, 3.2.2, 3.7.1, 3.10.1, 3.12.6, 4.3.7, 5.2.1, 6.2.2,
Commencement of the Work, Definition of 8.1.2
Communications Facilitating Contract Administration 3.9.1,
4.2.4, 5.2.1
Completion, Conditions Relating to 3.11, 3.15, 4.2.2, 4.2.9,
4.3.2 9.4 2, 9.8, 9.9.1, 9.10, 11.3.5, 12.2.2, 13.7.1
COMPLETION, PAYMENTS AND 9
Completion, Substantial 4.2.9, 4.3.5.2, 8.1.1, 8.1.3, 8.2.3, 9.8,
9.9.1, 12.2.2, 13.7
Compliance with Laws 1.3, 3.6, 3.7, 3.13, 4.1.1, 10.2.2,
11.1, 11.3, 13.1, 13.5.1, 13.5.2, 13.6, 14.1.1, 14.2.1.3
Concealed or Unknown Conditions 4.3.6
Conditions of the Contract 1.1.1, 1.1.7, 6.1.1
Consent, Written 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4. 4.5.5,
9.3.2,
9.8.2,9.9.1,9.10.2,9.10.3, 10.1.2, 10.1.3, 11.3.1,
11.3.1.4, 11.3.11, 13.2, 13.4.2
CONSTRUCTION BY OWNER OR BY
SEPARATE CONTRACTORS 1.1.4, 6
Construction Change Directive, Definition of 7.3.1
Construction Change Directives 1.1.1, 4.2.8, 7.1, 7.3,
9.3.1.1
Construction Schedules, Contractor's 3.10, 6.1.3
Contingent Assignment of Subcontracts 5.4
Continuing Contract Performance 4.3.4
Contract, Definition of 1 .1.2
CONTRACT, TERMINATION OR SUSPENSION
OF THE 4.3.7, 5.4.1.1, 14
Contract Administration 3.3.3, 4, 9.4, 9.5
Contract Award and Execution, Conditions Relating to 3.7.1,
3.10,5.2,9.2, 11.1.3, 11.3.6, 11.4.1
Contract Documents, The 1.1, 1.2, 7
Contract Documents, Copies Furnished and Use of 1.3, 2.2.5,
5.3
Contract Documents. Definition of 1.1.1
Contract Performance During Arbitration 4.3.4, 4.5.3
Contract Sum 3.8, 4.3.6, 4.3.7. 4.4.4, 5.2.3, 6.1.3,
7.2, 7.3, 9.1, 9.7, 11.3.1, 12.2.4, 12.3, 14.2.4
Contract Sum, Definition of 9.1
Contract Time 4.3.6, 4.3.8, 4.4.4, 7.2.1.3, 7.3, 8.2.1,
8.3.1, 9.7, 12.1.1
Contract Time. Definition of 8.1.1
CONTRACTOR 3
Contractor, Definition of 3.1, 6.1.2
Contractor's Bid 1.1.1
Contractor's Construction Schedules 3.10, 6.1.3
Contractor's Employees 3.3.2, 3.4.2, 3.8.1, 3.9, 3.18, 4.2.3,
4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1
Contractor's Liability Insurance 11.1
Contractor's Relationship with Separate Contractors
and Owner's Forces 2.2.6, 3.12.5, 3.14.2, 4.2.4, 6, 12.2.5
Contractor's Relationship with Subcontractors 1.2.4, 3.3.2,
Contractor's Relationship with the Architect 1.1.2, 3.2.1, 3.2.2,
3.3.3, 3.5.1, 3.7.3, 3.11, 3.12.8, 3.16, 3.18, 4.2.3, 4.2.4, 4.2.6,
4.2.12, 5.2, 6.2.2, 7.3.4, 9.8.2, 11.3.7, 12.1, 13.5
Contractor's Representations 1.2.2, 3.5.1, 3.12.7, 6.2.2,
8.2.1, 9.3.3
Contractor's Responsibility for Those Performing the
3.18, 4.2.3, 10
Contractor's Review of Contract Documents 1.2.2, 3.2, 3.7.3
Contractor's Right to Stop the Work 9.7
Contractor's Submittals 3.10, 3.11, 3.12, 4.2.7, 5.2.1, 5.2.3,
7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2, 9.10.3,
10.1.2, 11.4.2, 11.4.3
Contractor's Superintendent 3.9, 10.2.6
Contractor's Supervision and Construction Procedures 1.2.4,
3.4, 4.2.3, 8.2.2, 8.2.3, 10
Contractual Liability Insurance 11.1.1.7, 11.2.1
Coordination and Correlation 1.2.2, 1.2.4, 3.3.1, 3.10, 3.12.7,
6.1.3, 6.2.1
Copies Furnished of Drawings and Specifications 1.3, 2.2.5,
3.11
Correction of Work 2.3, 2.4, 4.2.1, 9.8.2, 9.9.1,
12.1.2, 12.2, 13.7.1.3
Cost, Definition of 7.3.6, 14.3.5
Costs 2.4, 3.2.1, 3.7.4, 3.8.2, 3.15.2., 4.3.6, 4.3.7, 4.3.8.1,
5.2.3, 6.1.1, 6.2.3, 6.3, 7.3.3.3, 7.3.6, 7.3.7, 9.7, 9.8.2, 9.10.2,
11.3.1.2, 11.3.1.3, 11.3.4, 11.3.9, 12.1, 12.2.1, 12.2.4,
12.2.5, 13.5, 14
Cutting and Patching 3.14, 6.2.6
Damage to Construction of Owner or Separate
Contractors 3.14.2,
6.2.4, 9.5.1.5, 10.2.1.2, 10.2.5, 10.3, 11. I, 11.3, 12.2.5
Damage to the Work 3.14.2, 9.9.1, 10.2.1.2, 10.2.5, 10.3, 11.3
Damages, Claims for 3.18, 4.3.9, 6.1.1, 6.2.5.
8.3.2, 9.5.1.2, 10.1.4
Damages for Delay 6.1. I, 8.3.3, 9.5.1.6, 9.7
Date of Commencement of the Work, Definition of 8.1.2
Date of Substantial Completion, Definition of 8.1.3
Day, Definition of 8.1.4
Decisions of the Architect 4.2.6, 4.2.7, 4.2.11.
3
<PAGE> 30
4.2. 1 2, 4.2.13, 4.3.2, 4.3.6, 4.4.1, 4.4.4, 4.5, 6.3,
7.3.6, 7.3.8, 8.1.3, 8.3.1, 9.2, 9.4, 9.5.1, 9.8.2,
9.9.1, 10.1.2, 13.5.2, 14.2.2, 14.2.4
Decisions to Withhold Certification 9.5, 9.7, 14.1.1.3
Defective or Nonconforming Work, Acceptance,
Rejection and Correction of 2.3, 2.4, 3.5.1, 4.2.1,
4.2.6, 4.3.5, 9.5.2, 9.8.2, 9.9.1,10.2.5, 12, 13.7.1.3
Defective Work, Definition of 3.5.1
Definitions 1.1, 2.1.1, 3.1, 3.5.1, 3.12.1, 3.12.2, 3.12.3,
4.1-1, 4-3 1, 5.1, 6-1.2, 7.2.1, 7.3.1, 7.3.6, 8.1, 9.1, 9.8.1
Delays and Extensions of Time 4.3.1, 4.3.8.1, 4.3.8.2,
6.1.1, 6.2.3, 7.2.1, 7.3.1, 7.3.4, 7.3.5, 7 3 8
Disputes 4.1.4, 4.3, 4.4, 4.5, 6.2.5, 6.3, 7.3.8, 9.3.1.2
Documents and Samples at the site 3.11
Drawings, Definition of 1.1.5
Drawings and Specifications, Use and Ownership of 1.1.1; 1.3;
Duty to Review Contract Documents and Field Conditions 3.2
Effective Date of Insurance 8.2.2 11.1.2
Emergencies 4.3.7, 10.3
Employees, Contractor's 3.3.2., 3.4.2, 3.8.1, 3.9, 3.18.1,
3.18.2, 4.2.3, 4.2.6, 8.1.2, 10.2, 10.3, 11.1.1, 14.2.1.1
Equipment, Labor, Materials and 1.1.3, 1.1.6, 3.4, 3.5.1,
3.8.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1, 4.2.7,
6.2.1, 7.3.6, 9.3.2, 9.3.3, 11.3, 12.2.4, 14
Execution and Progress of the Work 1.1.3, 1.2.3, 3.2, 3.4.1,
3.5.1, 4.2.2, 4.2.3, 4.3.4, 4.3.8, 6.2.2, 7.1.3,
7.3.9, 8.2, 8.3, 9.5, 9.9.1, 10.2, 14.2, 14.3
Execution, Correlation and Intent of the
Contract Documents 1.2,3.7.1
Extensions of Time 4.3.1, 4.3.8, 7.2.1.3, 8.3, 10.3.1
Failure of Payment by Contractor 9.5.1.3, 14.2.1.2
Failure of Payment by Owner 4.3.7, 9.7, 14.1.3
Faulty Work (See Defective or Nonconforming Work)
Final Completion and Final Payment 4.2.1, 4.2.9, 4.3.2,
4.3.5, 9.10, 11.1.2, 11.1.3, 11.3.5, 12.3.1, 13.7
Financial Arrangements, Owner's 2.2.1
Fire and Extended Coverage Insurance 11.3
GENERAL PROVISIONS 1
Governing Law 13.1
Guarantees (See Warranty and Warranties)
Hazardous Materials 10.1, 10.2.4
Identification of Contract Documents 1.2.1
Identification of Subcontractors and Suppliers 5.2.1
Indemnification 3.17,3.18, 9.10.2, 10.1.4, 11.3.1.2, 11.3.7
Information and Services Required of the Owner 2.1.2,
2.2, 4.3.4, 6.1.3. 6.1.4, 6.2.6, 9.3.2, 9.6.1, 9.6.4, 9.8.3, 9.92,
9.10.3, 10.1.4, 11.2, 11.3, 13.5.1, 13.5.2
Injury or Damage to Person or Property 4.3.9
Inspections 3.3.3, 3.3.4, 3.7.1, 4.2..2,
4.2.6. 4.2.9, 4.3.6, 9.4.2, 9.8.2, 9.9.2, 9.10.1, 13.5
Instructions to Bidders 1.1. 1
Instructions to the Contractor 3.8.:1, 4.2.8, 5.2.1, 7, 12.1, 13.5.2
Insurance 4.3.9, 6.1.1, 7.3.6.4, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 11
Insurance, Boiler and Machinery 11.3.2
Insurance, Contractor's Liability 11.1
Insurance, Effective Date of 8.2.2, 11.1.2
Insurance, Loss of Use 11.3.3
Insurance, Owner's Liability 11.2
Insurance, Property 10.2.5, 11.3
Insurance, Stored Materials 9.3.2, 11.3.1.4
INSURANCE AND BONDS 11
Insurance Companies, Consent to Partial
Insurance Companies, Settlement with 11.3.10
Intent of the Contract Documents 1.2.3,3.12.4,
4.2.6, 4.2.7, 4.2.12, 4.2.13, 7.4
Interest 13.6
Interpretation 1.2.5, 1.4, 1.5, 4.1.1, 4.3.1, 5.1, 6.1.2, 8.1 4
Interpretations, Written 4.2.11, 4.2.12, 4.3.7
Joinder and Consolidation of Claims Required 4.5.6
Judgment on Final Award 4.5.1, 4.5.4.1, 4.5.7
Labor and Materials, Equipment 1.1.3, 1.1.6, 3.4, 3.5.1,
3.8.2,
3.12.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1,
4.2.7, 6.2.1, 7.3.6, 9.3.2, 9.3.3, 12.2.4, 14
Labor Disputes 8.3.1
Laws and Regulations 1.3, 3.6, 3.7, 3.13, 4.1.1, 4.5.5
4.5.7, 9.9.1, 10.2.2, 11.1, 11.3, 13.1, 13.4, 13.5.1, 13.5.2, 13.6
Liens 2.1.2, 4.3.2, 4.3.5.1, 8.2.2, 9.3.3, 9.10.2
Limitation on Consolidation or Joinder 4.5.5
Limitations, Statutes of 4.5.4.2, 12.2.6, 13.7
Limitations of Authority 3.3.1, 4.1.2, 4.2.1,
Limitations of Liability 2 3, 3.2 1; 3.5 1; 3.7 3 3 i2 8,
3.12.11
3.17, 3.18, 4.2.6, 4.2.7, 4.2.12 6.2.2, 9.4.2, 9.6 4, 9.10.4
10.1.4, 10.2.5, 1 i l.2, 1 i.2 1, 11.3.7, 13.i.2 13.5.2
Limitations of Time, General 1.2.1, 2.2.4, 3.2.i,3.7.3,
3.8.2 3.10, 3.12.5, 3.15.1, 4.2.1 4.2.7, 4.2.11, 4.3.2,
4.3.3, 4.3.i, 4.3.6, 4.3.9, 4.5.4.2, 5.2. i, 5.2.3, 6.2.4, 7.3.4,
7.4,
8.2, 9.5, 9.6.2, 9.8, 9.9, 9.10, 11.1.3, 11.3.1, 11.3.2, 11.3.5,
11.3.6, 12.2.1, 12.2.2, 13.5, 13.7
Limitations of Time, Specific 2.1.2, 2.2.1, 2.4, 3.10, 3.11,
3.15.1, 4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9,
8.2, 9.2, 9.3. I, 9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3,
11.3.6, 11.3.10, 11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14
Loss of Use Insurance 11.3.3
Material Suppliers 1.3.1, 3.12.1, 4.2.4, 4.2.6, 5.2.1,
9.3.1, 9.3.1.2, 9.3 3, 9 4.2, 9.6.5 9.10.4
Materials, Hazardous 10.1, 10.2.4
Materials, Labor, Equipment and 1.1.3, 1.1.6, 3.4, 3.5.1, 3.8.2,
3.12.2, 3.12.3, 3.12.7, 3.12.11, 3.13, 3.15.1, 4.2.7, 6.2.1.
7.3.6, 9.3.2, 9.3.3, 12.2.4, 14
4
<PAGE> 31
Means, Methods, Techniques, Sequences and
Procedures of Construction 3.3.1, 4.2.3, 4.2.7, 9.4.2
Minor Changes in the Work 1.1.1, 4.2.8, 4.3.7, 7.1, 7.4
MISCELLANEOUS PROVISIONS 13
Modifications, Definition of 1.1.1
Modifications to the Contract 1.1.1, 1.1.2, 3.7.3, 3.11,
4.1.2, 4.2.1, 5.2.3, 7, 8.3.1, 9.7
Mutual Responsibility 6.2
Nonconforming Work, Acceptance of 12.3
Nonconforming Work, Rejection and Correction of 2.3.1,
Notice 2.3, 2.4, 3.2.1, 3.2.2, 3.3, 3.7.1, 3.9, 3.12.8,
9.5.1, 9.6.1, 9.7, 9.10, 10.1.2, 10.2 6, 11.1.3, 11.3, 12 2 2,
12.2.4, 13.3, 13.5.1, 13.5.2, 14
Notice, Written 2.3; 2.4, 3.9, 3.12 8,;3.12.9, 4.3,
4.4.4, 4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10,
10.1..2,10.2.6,1 1.1 .3,1 1 .3,1 2.2.2,1 2.2.4,1 3.3,1 3.5.2,14
Notice of Testing and Inspections 13.5.1, 13.5.2
Notice to Proceed 8.2.2
Notices, Permits, Fees and 2.2.3, 3.7, 3.13, 7.3.6.4, 10.2.2
Observations, Architect s On-Site 4.2.2, 4.2.5, 4.3.6,
9.4.2, 9.5.1, 9.10.1, 13.5
Observations, Contractor's 1.2.2, 3.2.2
On-Site Inspections by the Architect 4 2.2, 4 2.9, 4 3.6,
9.4.2, 9.8.2, 9.9.2, 9.10.1
On-Site Observations by the Architect 4.2.2, 4.2.5, I.3;6,
Orders, Written 2.3, 3.9, 4.3.7, 7, 8.2.2, 11.3.9, 12.1,
12.2, 13.5.2, 14.3.1
OWNER 2
Owner, Definition of 2.1
Owner, Information and Services Required of the 2.1.2,
2.2, 4.3.4, 6, 9, 10.1.4, 11.2, 11.3, 13.5.1, 14.1.1.5, 14.1.3
Owner's Authority 3.8.1, 4.1.3, 4.2.9, 5.2.1, 5.2.4, 5.4.1,
7.3.1, 8.2.2, 9.3.1, 9.3.2,1 1.4.1,12.2.4,13.5.2,14.2,14.3.1
Owner's Financial Capability 2.2.1, 14.1.1.5
Owner's Liability Insurance 11.2
Owner' Loss of Use Insurance 11.3.3
Owner' Relationship with Subcontractors 1.2, 5.2.1, 5.4.1,
9.6.4
Owner's Right to Carry Out the Work 2.4, 12.2.4, 14.2.2.2
Owner's Right to Clean Up 6.3
Owner's Right to Perform Construction and to Award
Separate Contracts 6.1
Owner's Right to Stop the Work 2.3, 4.3.7
Owner's Right to Suspend the Work 14.3
Owner's Right to Terminate the Contract 14.2
Ownership and Use of Architect's Drawings,
Specifications and Other Documents 1.1.1, 1.3, 2.2.5,
5.3
Partial Occupancy or Use 9.6.6, 9.9, 11.3.11
Patching, Cutting and 3.14, 6.2.6
Patents, Royalties and 3.17
Payment, Applications for 4.2.5, 9.2, 9.3, 9.4,
9.5.1, 9.8.3, 9.10.1, 9.10.3, 9.10.4, 14.2.4
Payment, Certificates for 4.2.5, 4.2.9, 9.3.3, 9.4, 9.5,
9.6.1, 9.6.6, 9.7.1, 9.8.3, 9.10.1, 9.10.3, 13.7, 14.1.1.3, 14.2.4
Payment, Failure of 4.3.7, 9.S. 1.3, 9.7,
Payment, Final 4.2.1, 4.2.9, 4.3.1, 4.3.5, 9.10, 11.1.2,
11.1.3, 11.3.5, 12.3 1
Payment Bond, Performance Bond and 7.3.6.4, 9.10.3,
PAYMENTS AND COMPLETION 9, 14
Payments to Subcontractors 5.4.2, 9.5.1.3,
9.6.2, 9.6.3, 9.6.4, 11.3.8, 14.2.1.2
Performance Bond and Payment Bond 7.3.6.4,
9.10.3, 11.3.9, 11.4
Permits, Fees and Notices 2.2.3 3.7, 3.13, 7.3.6.4, 10.2.2
PERSONS AND PROPERTY, PROTECTION OF 10
Polychlorinated Biphenyl 10.1
Product Data, Definition of 3.12.2
Product Data and Samples, Shop Drawings 3.11, 3.12,
4.2.7
Progress and Completion 4.2.2, 4.3.4, 8.2
Progress Payments 4.3.4, 9.3,
9.6, 9.8.3, 9.10.3, 13.6, 14 2.3
Project, Definition of the 1.1.4
Project Manual, Definition of the 1.1.7
Project Manuals 2 2 5
Project Representatives 4.2.10
Property Insurance 10.2.5,11.3
PROTECTION OF PERSONS AND PROPERTY 10
Regulations and Laws 1.3, 3.6, 3.7, 3.13, 4.1.1, 4.5.5,
4.5.7, 10.2.2, 1 1.1, 1 1.3, 13.1, 13.4,
13.5.1, 13.5.2, 13.6, 14
Rejection of Work 3.5.1, 4.2.6, 12.2
Releases of Waivers and Liens 9.10.2
Representations 1.2.2, 3.5.1, 3.12.7, 6.2.2, 8.2.1, 9.3.3,
9.4.2, 9.5.1, 9.8.2, 9.10.1
Representative 2.1.1, 3.1.1, 3.9, 4.1.1,
.2.1, 4.2.10, 5.1 .1, 5. 1.2, 13.2.1
Resolution of Claims and Disputes 4, 4.5
Responsibility for Those Performing the Work 3.3.2, 4.2.3,
6.1.3, 6.2, 10
Retainage 9.3.1, 9.6.2, 9.8.3, 9.9.1, 9.10.2, 9. 10.3
Review of Contract Documents and Field Conditions
by Contractor 1.2.2, 3.2, 3.7.3, 3.12.7
Review of Contractor's Submittals by Owner and
Architect 3.10.1, 3.10.2, 3.11, 3.12.
4.2.7, 4.2.9, 5.2.1, 5.2.3, 9.2, 9.8.2
Review of Shop Drawings, Product Data and Samples by
Contractor 3.12.5
Rights and Remedies 1.1.2, 2.3, 2.4, 3.5.1, 3.15.2.
5
<PAGE> 32
4.2.6, 4.3.6, 4.5, 5.3, 6.1, 6.3, 7.3.1, 8.3.1, 9.5.1, 9.7, 10.2.5,
10.3, 12.2.2, 12.2.4, 13.4, 14
Royalties and Patents 3.17
Rules and Notices for Arbitration 4.5.2
Safety of Persons and Property 10.2
Safety Precautions and Programs 4.2.3, 4.2.7, 10.1
Samples, Definition of 3.12.3
Samples, Shop Drawings, Product Data and 3.11, 3.12,
4.2.7
Samples at the Site, Documents and 3.11
Schedule of Values 9.2, 9.3.1
Schedules, Construction 3.10
Separate Contracts and Contractors 1.1.4, 3.14.2, 4.2.4,
4.5.5,6, 11.3.7, 12.1.2, 12.2.5
Shop Drawings, Definition of 3.12.1
Shop Drawings, Product Data and Samples 3.11, 3.12,
4.2.7
Site, Use of 3.13, 6.1.1, 6.2.1
Site Inspections 1.2.2, 3.3.4, 4.2.2, 4.2.9,
4.3.6, 9.8.2, 9.10.1, 13.5
Site Visits, Architects 4.2.2, 4.2.5, 4.2.9;4.3.6,
Special Inspections and Testing 4.2.6, 12.2.1, 13.5
Specifications, Definition of the 1.1.6
Specifications, The 1.1.1, 1.1.6, 1.1.7, 1.2.4, 1.3,3.11
Statute of Limitations 4.5.4.2, 12.2.6, 13.7
Stopping the Work 2.3, 4.3.7, 9.7, 10.1.2, 10.3, 14.1
Stored Materials 6.2.1, 9.3.2,10.2.1.2,11.3.1.4,12.2.4
Subcontractor, Definition of 5.1.1
SUBCONTRACTORS 5
Subcontractors, Work by 1.2.4, 3.3.2, 3.12.1, 4.2.3, 5.3, 5.4
Subcontractual Relations 5.3, 5.4, 9.3.1.2, 9.6.2,
9.6.3, 9.6.4, 10.2.1, 11.3.7, 11.3.8, 14.1.1, 14.2.1.2 14.3.2
Submittals 1.3, 3.2.3, 3.10, 3.11, 3.12, 4.2.7, 5.2.i, 5.2.3,
7.3.6, 9.2, 9.3.1, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 11.1.3
Subrogation, Waivers of 6.1.1, 11.3.5, 11.3.7
Substantial Completion 4.2.9, 4.3.5.2, 8.1.1, 8.1.3,
8.2.3, 9.8, 9.9.1, 12.2.1, 12.2.2, 13.7
Substantial Completion, Definition of 9.8.1
Substitution of Subcontractors 5.2.3, 5.2.4
Substitution of the Architect 4.1.3
Substitutions of Materials 3.5.1
Sub-subcontractor, Definition of 5.1.2
Subsurface Conditions 4.3.6
Successors and Assigns 13.2
Superintendent 3.9, 10.2.6
Supervision and Construction Procedures 1.2.4, 3.3,
3.4,
4.2.3, 4.3.4. 6.1.3, 6.2.4, 7.1.3, 7.3.4, 8.2, 8.3.1, 10, 12, 14
Surety 4.4.1, 4.4.4, 5.4.1.2, 9.10.2, 9.10.3, 14.2.2
Surety, Consent of 9.9.1, 9.10.2, 9.10.3
Surveys 2.2.2, 3.18.3
Suspension by the Owner for Convenience 14.3
Suspension of the Work 4.3.7, 5.4.2, 14.1.1.4, 14.3
Suspension or Termination of the Contract 4.3.7, 5.4.1.1, 14
Taxes 3.6, 7.3.6.4
Termination by the Contractor 14.1
Termination by the Owner for Cause 5.4.1.1, 14.2
Termination of the Architect 4.1.3
Termination of the Contractor 14.2.2
TERMINATION OR SUSPENSION OF THE
CONTRACT 14
Tests and Inspections 3.3.3, 4.2.6, 4.2.9, 9.4.2, 12.2.1, 13.5
TIME 8
Time, Delays and Extensions of 4.3.8, 7.2.1, 8.3
Time Limits, Specific 2.1.2, 2.2.1, 2.4, 3.10, 3.11, 3.15.1,
4.2.1, 4.2.11, 4.3, 4.4, 4.5, 5.3, 5.4, 7.3.5, 7.3.9, 8.2, 9.2,
9.3.1,
9.3.3, 9.4.1, 9.6.1, 9.7, 9.8.2, 9.10.2, 11.1.3, 11.3.6, 11.3.10,
11.3.11, 12.2.2, 12.2.4, 12.2.6, 13.7, 14
Time Limits on Claims 4.3.2, 4.3.3, 4.3.6, 4.3.9, 4.4, 4.5
Title to Work 9.3.2, 9.3.3
UNCOVERING AND CORRECTION OF WORK 12
Uncovering of Work 12.1
Unforeseen Conditions 4.3.6, 8.3.1, 10.1
Unit Prices 7.1.4, 7.3.3.2
Use of Documents 1.1.1, 1.3, 2.2.5, 3.12.7, 5.3
Use of Site 3.13, 6.1.1, 6.2.1
Values, Schedule of 9.2,9.3.1
Waiver of Claims: Final Payment 4.3.5, 4.5.1, 9.10.3
Waiver of Claims by the Architect 13.4.2
Waiver of Claims by the Contractor 9.10.4, 11.3.7, 13.4.2
Waiver of Claims by the Owner 4.3.5, 4.5.1, 9.9.3,
9.10.3, 11.3.3, 11.3.5, 11.3.7, 13.4.2
Waiver of Liens 9.10.2
Waivers of Subrogation 6.1.1, 11.3.5, 11.3.7
Warranty and Warranties 3.5, 4.2.9,
4.3.5.3, 9.3.3, 9.8.2, 9.9.1, 12.2.2, 13.7.1.3
Weather Delays 4.3.8.2
When Arbitration May Be Demanded 4.5.4
Work, Definition of 1.1.3
Written Consent 1.3.1, 3.12.8, 3.14.2, 4.1.2, 4.3.4,
4.5.5, 9.3.2, 9.8.2, 9.9.1, 9.10.2, 9.10.3, 10.1.2, 10.1.3,
11.3.1, 11.3.1.4, 11.3.11, 13.2, 13.4.2
Written Interpretations 4.2.11, 4.2.12, 4.3.7
Written Notice 2.3, 2.4, 3.9, 3.12.8, 3.12.9, 4.3, 4.4.4,
4.5, 5.2.1, 5.3, 5.4.1.1, 8.2.2, 9.4.1, 9.5.1, 9.7, 9.10, 10.1.2,
10.2.6. 11.1.3, 11.3, 12.2.2, 12.2.4, 13.3, 13.5.2, 14
Written Orders 2.3, 3.9, 4.3,
7, 8.2.2, 11.3.9, 12.1, 12.2, 13.5.2, 14.3.1
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GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
ARTICLE 1
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement between Owner and Contractor
(hereinafter the Agreement), Conditions of the Contract (General, Supplementary
and other Conditions), Drawings, Specifications, addenda issued prior to
execution of the Contract, other documents listed in the Agreement and
Modifications issued after execution of the Contract. A Modification is (1) a
written amendment to the Contract signed by both parties, (2) a Change Order,
(3) a Construction Change Directive or (4) a written order for a minor change in
the Work issued by the Architect. Unless specifically enumerated in the
Agreement, the Contract Documents do not include other documents such as bidding
requirements (advertisement or invitation to bid, Instructions to Bidders,
sample forms, the Contractor's bid or portions of addenda relating to bidding
requirements).
1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. The Contract may be amended or modified only by a Modification. The
Contract Documents shall not be construed to create a contractual relationship
of any kind (1) between the Architect and Contractor, (2) between the Owner and
a Subcontractor or Sub-subcontractor or (3) between any persons or entities
other than the Owner and Contractor. The Architect shall, however, be entitled
to performance and enforcement of obligations under the Contract intended to
facilitate performance of the Architect's duties.
1.1.3 THE WORK
The term "Work" means the construction and services required by the Contract
Documents, whether completed or partially completed, and includes all other
labor, materials, equipment and services provided or to be provided by the
Contractor to fulfill the Contractor's obligations. The Work may constitute the
whole or a part of the Project.
1.1.4 THE PROJECT
The Project is the total construction of which the Work performed under the
Contract Documents may be the whole or a part and which may include construction
by the Owner or by separate contractors.
1.1.5 THE DRAWINGS
The Drawings are the graphic and pictorial portions of the Contract Documents,
wherever located and whenever issued, showing the design, location and
dimensions of the Work, generally including plans, elevations, sections,
details, schedules and diagrams.
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1.1.6 THE SPECIFICATIONS
The Specifications are that portion of the Contract Documents consisting of the
written requirements for materials, equipment, construction systems, standards
and workmanship for the Work, and performance of related services.
1.1.7 THE PROJECT MANUAL
The Project Manual is the volume usually assembled for the Work which may
include the bidding requirements, sample forms, Conditions of the Contract and
Specifications.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall be signed by the Owner and Contractor as
provided in the Agreement. If either the Owner or Contractor or both do not sign
all the Contract Documents, the Architect shall identify such unsigned Documents
upon request.
1.2.2 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site, become familiar with local conditions under
which the Work is to be performed and correlated personal observations with
requirements of the Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary for
the proper execution and completion of the Work by the Contractor. The Contract
Documents are complementary, and what is required by one shall be as binding as
if required by all; performance by the Contractor shall be required only to the
extent consistent with the Contract Documents and reasonably inferable from them
as being necessary to produce the intended results.
1.2.4 Organization of the Specifications into divisions, sections and articles,
and arrangement of Drawings shall not control the Contractor in dividing the
Work among Subcontractors or in establishing the extent of Work to be performed
by any trade.
1.2.5 Unless otherwise stated in the Contract Documents, words which have
well-known technical or construction industry meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER
DOCUMENTS
1.3.1 The Drawings, Specifications and other documents prepared by the Architect
are instruments of the Architect's service through which the Work to be executed
by the Contractor is described. The Contractor may retain one contract record
set. Neither the Contractor nor any Subcontractor, Sub-subcontractor or material
or equipment supplier shall own or claim a copyright in the Drawings,
Specifications and other documents prepared by the Architect, and unless
otherwise indicated the Architect shall be deemed the author of them and will
retain all common law, statutory and other reserved rights, in addition to the
copyright. All copies of them, except the Contractor's record set, shall be
returned or suitably accounted for to the Architect, on request, upon completion
of the Work. The Drawings, Specifications and other documents prepared by the
Architect, and copies thereof furnished to the Contractor, are for use solely
with respect to this Project. They are not to be used by the Contractor or any
Subcontractor, Sub-subcontractor or material or equipment supplier on other
projects or for additions to this Project outside the scope of the Work without
the specific written consent of the Owner and Architect. The Contractor,
Subcontractors, Sub-subcontractors and material or equipment suppliers are
granted a limited license to use and reproduce applicable portions of the
Drawings, Specifications and other documents prepared by the Architect
appropriate to and for use in the execution of their Work under the Contract
Documents. All copies made under this license shall bear the statutory copyright
notice, if any, shown on the Drawings, Specifications and other documents
prepared by the Architect. Submittal or distribution to meet official regulatory
requirements or for other purposes in connection with this Project is not to be
construed as publication in derogation of the Architect's copyright or other
reserved rights.
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1.4 CAPITALIZATION
1.4.1 Terms capitalized in these General Conditions include those which are (1)
specifically defined, (2) the titles of numbered articles and identified
references to Paragraphs, Subparagraphs and Clauses in the document or (3) the
titles of other documents published by the American Institute of Architects.
1.5 INTERPRETATION
1.5.1 In the interest of brevity the Contract Documents frequently omit
modifying words such as "all" and "any" and articles such as "the" and "an," but
the fact that a modifier or an article is absent from one statement and appears
in another is not intended to affect the interpretation of either statement.
ARTICLE 2
OWNER
2.1 DEFINITION
2.1.1 The Owner is the person or entity identified as such in the Agreement and
is referred to throughout the Contract Documents as if singular in number. The
term "Owner" means the Owner or the Owner's authorized representative.
2.1.2 The Owner upon reasonable written request shall furnish to the Contractor
in writing information which is necessary and relevant for the Contractor to
evaluate, give notice of or enforce mechanic's lien rights. Such information
shall include a correct statement of the record legal title to the property on
which the Project is located, usually referred to as the site, and the Owner's
interest therein at the time of execution of the Agreement and, within five days
after any change, information of such change in title, recorded or unrecorded.
2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 The Owner shall, at the request of the Contractor, prior to execution of
the Agreement and promptly from time to time thereafter, furnish to the
Contractor reasonable evidence that financial arrangements have been made to
fulfill the Owner's obligations under the Contract. [Note: Unless such
reasonable evidence were furnished on request prior to the execution of the
Agreement, the prospective contractor would not be required to execute the
Agreement or to commence the Work.]
2.2.2 The Owner shall furnish surveys describing physical characteristics, legal
limitations and utility locations for the site of the Project, and a legal
description of the site.
2.2.3 Except for permits and fees which are the responsibility of the Contractor
under the Contract Documents, the Owner shall secure and pay for necessary
approvals, easements, assessments and charges required for construction, use or
occupancy of permanent structures or for permanent changes in existing
facilities.
2.2.4 Information or services under the Owner's control shall be furnished by
the Owner with reasonable promptness to avoid delay in orderly progress of the
Work.
2.2.5 Unless otherwise provided in the Contract Documents, the Contractor will
be furnished, free of charge, such copies of Drawings and Project Manuals as are
reasonably necessary for execution of the Work.
2.2.6 The foregoing are in addition to other duties and responsibilities of the
Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or By Separate Contractors), Article 9 (Payments and
Completion) and Article 11 (Insurance and Bonds).
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2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If the Contractor fails to correct Work which is not in accordance with
the requirements of the Contract Documents as required by Paragraph 12.2 or
persistently fails to carry out Work in accordance with the Contract Documents,
the Owner, by written order signed personally or by an agent specifically so
empowered by the Owner in writing, may order the Contractor to stop the Work, or
any portion thereof, until the cause for such order has been eliminated;
however, the right of the Owner to stop the Work shall not give rise to a duty
on the part of the Owner to exercise this right for the benefit of the
Contractor or any other person or entity, except to the extent required by
Subparagraph 6.1.3.
2.4 OWNER'S RIGHT TO CARRY OUT THE WORK
2.4.1 If the Contractor defaults or neglects to carry out the Work in accordance
with the Contract Documents and fails within a seven-day period after receipt of
written notice from the Owner to commence and continue correction of such
default or neglect with diligence and promptness, the Owner may after such
seven-day period give the Contractor a second written notice to correct such
deficiencies within a second seven-day period. If the Contractor within such
second seven-day period after receipt of such second notice fails to commence
and continue to correct any deficiencies, the Owner may, without prejudice to
other remedies the Owner may have, correct such deficiencies. In such case an
appropriate Change Order shall be issued deducting from payments then or
thereafter due the Contractor the cost of correcting such deficiencies,
including compensation for the Architect's additional services and expenses made
necessary by such default, neglect or failure. Such action by the Owner and
amounts charged to the Contractor are both subject to prior approval of the
Architect. If payments then or thereafter due the Contractor are not sufficient
to cover such amounts, the Contractor shall pay the difference to the Owner.
ARTICLE 3
CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Contractor" means the Contractor or the Contractor's authorized
representative.
3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR
3.2.1 The Contractor shall carefully study and compare the Contract Documents
with each other and with information furnished by the Owner pursuant to
Subparagraph 2.2.2 and shall at once report to the Architect errors,
inconsistencies or omissions discovered. The Contractor shall not be liable to
the Owner or Architect for damage resulting from errors, inconsistencies or
omissions in the Contract Documents unless the Contractor recognized such error,
inconsistency or omission and knowingly failed to report it to the Architect. If
the Contractor performs any construction activity knowing it involves a
recognized error, inconsistency or omission in the Contract Documents without
such notice to the Architect, the Contractor shall assume appropriate
responsibility for such performance and shall bear an appropriate amount of the
attributable costs for correction.
3.2.2 The Contractor shall take field measurements and verify field conditions
and shall carefully compare such field measurements and conditions and other
information known to the Contractor with the Contract Documents before
commencing activities. Errors, inconsistencies or omissions discovered shall be
reported to the Architect at once.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals approved pursuant to Paragraph 3.12.
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
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3.3.1 The Contractor shall supervise and direct the Work, using the Contractor's
best skill and attention. The Contractor shall be solely responsible for and
have control over construction means, methods, techniques, sequences and
procedures and for coordinating all portions of the Work under the Contract,
unless Contract Documents give other specific instructions concerning these
matters.
3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of
the Contractor's employees, Subcontractors and their agents and employees, and
other persons performing portions of the Work under a contract with the
Contractor.
3.3.3 The Contractor shall not be relieved of obligations to performing the Work
in accordance with the Contract Documents either by activities or duties of the
Architect in the Architect's administration of the Contract, or by tests,
inspections or approvals required or performed by persons other than the
Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of Work
already performed under this Contract to determine that such portions are in
proper condition to receive subsequent Work.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents the Contractor shall
provide and pay for labor, materials, equipment, tools, construction equipment
and machinery, water, heat, utilities, transportation, and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be incorporated in
the Work.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Contract. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
3.5 WARRANTY
3.5.1 The Contractor warrants to the Owner and Architect that materials and
equipment furnished under the Contract will be of good quality and new unless
otherwise required or permitted by the Contract Documents, that the Work will be
free from defects not inherent in the quality required or permitted, and that
the Work will conform with the requirements of the Contract Documents. Work not
conforming to these requirements, including substitutions not properly approved
and authorized, may be considered defective. The Contractor's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by the
Contractor, improper or insufficient maintenance, improper operation, or normal
wear and tear under normal usage. If required by the Architect, the Contractor
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment.
3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
Work or portions thereof provided by the Contractor which are legally enacted
when bids are received or negotiations concluded, whether or not yet effective
or merely scheduled to go into effect.
3.7 PERMITS, FEES AND NOTICES
3.7.1 Unless otherwise provided in the Contract Documents, the Contractor shall
secure and pay for the building permit and other permits and governmental fees,
licenses and inspections necessary for proper execution and completion of the
Work which are customarily secured after execution of the Contract and which are
legally required when bids are received or negotiations concluded.
3.7.2 The Contractor shall comply with and give notices required by laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on performance of the Work.
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3.7.3 It is not the Contractor's responsibility to ascertain that the Contract
Documents are in accordance with applicable laws, statutes, ordinances, building
codes, and rules and regulations. However, if the Contractor observes that
portions of the Contract Documents are at variance therewith, the Contractor
shall promptly notify the Architect and Owner in writing, and necessary changes
shall be accomplished by appropriate Modification.
3.7.4 If the Contractor performs Work knowing it to be contrary to laws,
statutes, ordinances, building codes, and rules and regulations without such
notice to the Architect and Owner, the Contractor shall assume full
responsibility for such Work and shall bear the attributable costs.
3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Contract Sum all allowances stated in
the Contract Documents. Items covered by allowances shall be supplied for such
amounts and by such persons or entities as the Owner may direct, but the
Contractor shall not be required to employ persons or entities against which the
Contractor makes reasonable objection.
3.8.2 Unless otherwise provided in the Contract Documents:
.1 materials and equipment under an allowance shall be selected
promptly by the Owner to avoid delay in the Work;
.2 shall cover the cost to the Contractor of materials and equipment
delivered at the site and all required taxes, less applicable trade
discounts;
.3 Contractor's costs for unloading and handling at the site, labor,
installation costs, overhead, profit and other expenses contemplated
for stated allowance amounts statutory employee benefits, insurance,
sick leave, holidays, vacations, pensions and similar contributions
and benefits.
4.2 PAYMENTS
4.2.1 Payments shall be made monthly following presentation of the Construction
Manager's invoice and, where applicable, shall be in proportion to services
performed.
4.2.2 Payments are due and payable twenty (20) days from the date the
Construction Manager's invoice is received by the Owner. Amounts unpaid after
the date on which payment is due shall bear interest at the rate entered below,
or in the absence thereof, at the legal rate prevailing from time to time at the
place where the Project is located.
(Insert rate of interest agreed upon.)
Bank One prime plus one percent (1%)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Construction Manager's principal places of business, the location of the Project
and elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
ARTICLE 5
COMPENSATION FOR CONSTRUCTION PHASE SERVICES
The Owner shall compensate the Construction Manager for Construction Phase
services as follows:
5.1 COMPENSATION
5.1.1 For the Construction Manager's performance of the Work as described in
Paragraph 2.3, the Owner shall pay the Construction Manager in current funds the
Contract Sum consisting of the Cost of the Work as defined in Article 7 and the
Construction Manager's Fee determined as follows:
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(State a lump sum, percentage of actual Cost of the Work or other provision for
determining the Construction Manager's Fee, and explain how the Construction
Manager's Fee is to be adjusted for changes in the Work.) Notwithstanding what
is provided elsewhere in this Agreement, or the General Conditions. the five
percent (5%) fee to be paid to Construction Manager will be calculated after
netting all additive and deductive change orders.
5.2 GUARANTEED MAXIMUM PRICE
5.2.1 The sum of the Cost of the Work and the Construction Manager's Fee are
guaranteed by the Construction Manager not to exceed the amount provided in
Amendment No. 1, subject to additions and deductions by changes in the Work as
provided in the Contract Documents. Such maximum sum as adjusted by approved
changes in the Work as referred to in the Contract Documents as the Guaranteed
Maximum Price. Costs which would cause the Guaranteed Maximum Price to be
exceeded shall be paid by the Construction Manager without reimbursement by the
Owner. (Insert specific provisions if the Construction Manager is to participate
in any savings.) The Guaranteed Maximum Price of the Project is Six million two
hundred forty two thousand nine hundred fifty eight and no/ 100 dollars ($6,
242, 958.00), supported by the Estimate - Exhibit C, and List of Contract
Documents Exhibit D.
which are not required by the Contract Documents may be returned without action.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of Shop Drawings, Product Data, Samples or similar submittals until
the respective submittal has been approved by the Architect. Such Work shall be
in accordance with approved submittals.
3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and
similar submittals, the Contractor represents that the Contractor has determined
and verified materials, field measurements and field construction criteria
related thereto, or will do so, and has checked and coordinated the information
contained within such submittals with the requirements of the Work and of the
Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Architect's approval of Shop
Drawings, Product Data, Samples or similar submittals unless the Contractor has
specifically informed the Architect in writing of such deviation at the time of
submittal and the Architect has given written approval to the specific
deviation. The Contractor shall not be relieved of responsibility for errors or
omissions in Shop Drawings, Product Data, Samples or similar submittals by the
Architect's approval thereof.
3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted Shop Drawings, Product Data, Samples or similar submittals, to
revisions other than those requested by the Architect on previous
submittals.
3.12.10 Informational submittals upon which the Architect is not expected to
take responsive action may be so identified in the Contract Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Architect shall
be entitled to rely upon the accuracy and completeness of such calculations and
certifications.
3.13 USE OF SITE
3.13.1 The Contractor shall confine operations at the site to areas permitted by
law, ordinances, permits and the Contract Documents and shall not unreasonably
encumber the site with materials or equipment.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together properly.
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3.14.2 The Contractor shall not damage or endanger a portion of the Work or
fully or partially completed construction of the Owner or separate contractors
by cutting, patching or otherwise altering such construction, or by excavation.
The Contractor shall not cut or otherwise alter such construction by the Owner
or a separate contractor except with written consent of the Owner and of such
separate contractor; such consent shall not be unreasonably withheld. The
Contractor shall not unreasonably withhold from the Owner or a separate
contractor the Contractor's consent to cutting or otherwise altering the Work.
315 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under the
Contract. At completion of the Work the Contractor shall remove from and about
the Project waste materials, rubbish, the Contractor's tools, construction
equipment, machinery and surplus materials.
3.15.2 If the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to the
Contractor.
3.16 ACCESS TO WORK
3.16.1 The Contractor shall provide the Owner and Architect access to the Work
in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and shall hold
the Owner and Architect harmless from loss on account thereof, but shall not be
responsible for such defense or loss when a particular design, process or
product of a particular manufacturer or manufacturers is required by the
Contract Documents. However, if the Contractor has reason to believe that the
required design, process or product is an infringement of a patent, the
Contractor shall be responsible for such loss unless such information is
promptly furnished to the Architect.
3.18 INDEMNIFICATION
3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify
and hold harmless the Owner, Architect, Architect's consultants, and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work, provided that such claim, damage, loss or expense is
attributable to bodily injury, sickness, disease or death, or to injury to or
destruction of tangible property (other than the Work itself) including loss of
use resulting therefrom, but only to the extent caused in whole or in part by
negligent acts or omissions of the Contractor, a Subcontractor, anyone directly
or indirectly employed by them, or anyone for whose acts they may be liable,
regardless of whether or not such claim, damage, loss or expense is caused in
part by a party indemnified hereunder. Such obligation shall not be construed to
negate, abridge, or reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this Paragraph 3.18.
3.18.2 In claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, the
indemnification obligation under this Paragraph 3.18 shall not be limited by a
limitation on amount or type of damages, compensation or benefits payable by or
for the Contractor or a Subcontractor under workers' or workmen's compensation
acts, disability benefit acts or other employee benefit acts.
3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not
extend to the liability of the Architect, the Architect's consultants, and
agents and employees of any of them arising out of (1) the preparation or
approval of maps, drawings, opinions, reports, surveys, Change Orders, designs
or specifications, or (2) the giving of or the failure to give directions or
instructions by the Architect, the
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Architect's consultants, and agents and employees of any of them provided such
giving or failure to give is the primary cause of the injury or damage.
ARTICLE 4
ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is the person lawfully licensed to practice architecture or
an entity lawfully practicing architecture identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Architect" means the Architect or the Architect's authorized
representative.
4.1.2 Duties, responsibilities and limitations of authority of the Architect as
set forth in the Contract Documents shall not be restricted, modified or
extended without written consent of the Owner, Contractor and Architect.
Consent shall not be unreasonably withheld.
4 1.3 In case of termination of employment of the Architect, the Owner shall
appoint an architect against whom the Contractor makes no reasonable objection
and whose status under the Contract Documents shall be that of the former
architect.
4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to
arbitration.
4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT
4.2.1 The Architect will provide administration of the Contract as described in
the Contract Documents, and will be the Owner's representative (1) during
construction, (2) until final payment is due and (3) with the Owner's
concurrence, from time to time during the correction period described in
Paragraph 12.2. The Architect will advise and consult with the Owner. The
Architect will have authority to act on behalf of the Owner only to the extent
provided in the Contract Documents, unless otherwise modified by written
instrument in accordance with other provisions of the Contract.
4.2.2 The Architect will visit the site at intervals appropriate to the stage of
construction to become generally familiar with the progress and quality of the
completed Work and to determine in general if the Work is being performed in a
manner indicating that the Work, when completed, will be in accordance with the
Contract Documents. However, the Architect will not be required to make
exhaustive or continuous on-site inspections to check quality or quantity of the
Work. On the basis of on-site observations as an architect, the Architect will
keep the Owner informed of progress of the Work, and will endeavor to guard the
Owner against defects and deficiencies in the Work.
4.2.3 The Architect will not have control over or charge of and will not be
responsible for construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with the Work,
since these are solely the Contractor's responsibility as provided in Paragraph
3.3. The Architect will not be responsible for the Contractor's failure to carry
out the Work in accordance with the Contract Documents. The Architect will not
have control over or charge of and will not be responsible for acts or omissions
of the Contractor, Subcontractors, or their agents or employees, or of any other
persons performing portions of the Work.
4.2.4 COMMUNICATIONS FACILITATING CONTRACT ADMINISTRATION. Except as otherwise
provided in the Contract Documents or when direct communications have been
specially authorized, the Owner and Contractor shall endeavor to communicate
through the Architect. Communications by and with the Architect's consultants
shall be through the Architect. Communications by and with Subcontractors and
material suppliers shall be through the Contractor. Communications by and with
separate contractors shall be through the Owner.
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4.2.5 Based on the Architect's observations and evaluations of the Contractor's
Applications for Payment, the Architect will review and certify the amounts due
the Contractor and will issue Certificates for Payment in such amounts.
4.2.6 The Architect will have authority to reject Work which does not conform to
the Contract Documents. Whenever the Architect considers it necessary or
advisable for implementation of the intent of the Contract Documents, the
Architect will have authority to require additional inspection or testing of the
Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such
Work is fabricated, installed or completed. However, neither this authority of
the Architect nor a decision made in good faith either to exercise or not to
exercise such authority shall give rise to a duty or responsibility of the
Architect to the Contractor, Subcontractors, material and equipment suppliers,
their agents or employees, or other persons performing portions of the Work.
4.2.7 The Architect will review and approve or take other appropriate action
upon the Contractor's submittals such as Shop Drawings, Product Data and Samples
but only for the limited purpose of checking for conformance with information
given and the design concept expressed in the Contract Documents. The
Architect's action will be taken with such reasonable promptness as to cause no
delay in the Work or in the activities of the Owner, Contractor or separate
contractors, while allowing sufficient time in the Architect's professional
judgement to permit adequate review. Review of such submittals is not conducted
for the purpose of determining the accuracy and completeness of other details
such as dimensions and quantities, or for substantiating instructions for
installation or performance of equipment or systems, all of which remain the
responsibility of the Contractor as required by the Contract Documents. The
Architect's review of the Contractor's submittals shall not relieve the
Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The
Architect's review shall not constitute approval of safety precautions or,
unless otherwise specifically stated by the Architect, of any construction
means, methods, techniques, sequences or procedures. The Architect's approval of
a specific item shall not indicate approval of an assembly of which the item is
a component.
4.2.8 The Architect will prepare Change Orders and Construction Change
Directives, and may authorize minor changes in the Work as provided in Paragraph
7.4.
4.2.9 The Architect will conduct inspections to determine the date or dates of
Substantial Completion and the date of final completion, will receive and
forward to the Owner for the Owner's review and records written Warranties and
related documents required by the Contract and assembled by the Contractor, and
will issue a final Certificate for Payment upon compliance with the requirements
of the Contract Documents.
4.2.10 If the Owner and Architect agree, the Architect will provide one or more
project representatives to assist in carrying out the Architect's
responsibilities at the site. The duties, responsibilities and limitations of
authority of such project representatives shall be as set forth in an exhibit to
be incorporated in the Contract Documents.
4.2.11 The Architect will interpret and decide matters concerning performance
under and requirements of the Contract Documents on written request of either
the Owner or Contractor. The Architect's response to such requests will be made
with reasonable promptness and within any time limits agreed upon. If no
agreement is made concerning the time within which interpretations required of
the Architect shall be furnished in compliance with this Paragraph 4.2, then
delay shall not be recognized on account of failure by the Architect to furnish
such interpretations until 15 days after written request is made for them.
4.2.12 Interpretations and decisions of the Architect will be consistent with
the intent of and reasonably inferable from the Contract Documents and will be
in writing or in the form of drawings. When making such interpretations and
decisions, the Architect will endeavor to secure faithful performance by both
Owner and Contractor, will not show partiality to either and will not be liable
for results of interpretations or decisions so rendered in good faith.
4.2.13 The Architect's decisions on matters relating to aesthetic effect will be
final if consistent with the intent expressed in the Contract Documents.
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4.3 CLAIMS AND DISPUTES
4.3.1 DEFINITION. A Claim is a demand or assertion by one of the parties
seeking, as a matter of right, adjustment or interpretation of Contract terms,
payment of money, extension of time or other relief with respect to the terms of
the Contract. The term "Claim" also includes other disputes and matters in
question between the Owner and Contractor arising out of or relating to the
Contract. Claims must be made by written notice. The responsibility to
substantiate Claims shall rest with the party making the Claim.
4.3.2 DECISION OF ARCHITECT. Claims, including those alleging an error or
omission by the Architect, shall be referred initially to the Architect for
action as provided in Paragraph 4.4. A decision by the Architect, as provided in
Subparagraph 4.4.4, shall be required as a condition precedent to arbitration or
litigation of a Claim between the Contractor and Owner as to all such matters
arising prior to the date final payment is due, regardless of (1) whether such
matters relate to execution and progress of the Work or (2) the extent to which
the Work has been completed. The decision by the Architect in response to a
Claim shall not be a condition precedent to arbitration or litigation in the
event (1) the position of Architect is vacant, (2) the Architect has not
received evidence or has failed to render a decision within agreed time limits,
(3) the Architect has failed to take action required under Subparagraph 4.4.4
within 30 days after the Claim is made, (4) 45 days have passed after the Claim
has been referred to the Architect or (5) the Claim relates to a mechanic's
lien.
4.3.3 TIME LIMITS ON CLAIMS. Claims by either party must be made within 21 days
after occurrence of the event giving rise to such Claim or within 21 days after
the claimant first recognizes the condition giving rise to the Claim, whichever
is later. Claims must be made by written notice. An additional Claim made after
the initial Claim has been implemented by Change Order will not be considered
unless submitted in a timely manner.
4.3.4 CONTINUING CONTRACT PERFORMANCE. Pending final resolution of a Claim
including arbitration, unless otherwise agreed in writing the Contractor shall
proceed diligently with performance of the Contract and the Owner shall continue
to make payments in accordance with the Contract Documents.
4.3.5 WAIVER OF CLAIMS: FINAL PAYMENT. The making of final payment shall
constitute a waiver of Claims by the Owner except those arising from:
.1 liens, Claims, security interests or encumbrances arising out of
the Contract and unsettled;
.2 failure of the Work to comply with the requirements of the Contract
Documents; or
.3 terms of special warranties required by the Contract Documents.
4.3.6 CLAIMS FOR CONCEALED OR UNKNOWN CONDITIONS. If conditions are encountered
at the site which are (1) subsurface or otherwise concealed physical conditions
which differ materially from those indicated in the Contract Documents or (2)
unknown physical conditions of an unusual nature, which differ materially from
those ordinarily found to exist and generally recognized as inherent in
construction activities of the character provided for in the Contract Documents,
then notice by the observing party shall be given to the other party promptly
before conditions are disturbed and in no event later than 21 days after first
observance of the conditions. The Architect will promptly investigate such
conditions and, if they differ materially and cause an increase or decrease in
the Contractor's cost of, or time required for, performance of any part of the
Work, will recommend an equitable adjustment in the Contract Sum or Contract
Time, or both. If the Architect determines that the conditions at the site are
not materially different from those indicated in the Contract Documents and that
no change in the terms of the Contract is justified, the Architect shall so
notify the Owner and Contractor in writing stating the reasons. Claims by either
party in opposition to such determination must be made within 21 days after the
Architect has given notice of the decision. If the Owner and Contractor cannot
agree on an adjustment in the Contract Sum or Contract Time, the adjustment
shall be referred to the Architect for initial determination, subject to further
proceedings pursuant to Paragraph 4.4.
4.3.7 CLAIMS FOR ADDITIONAL COST. If the Contractor wishes to make Claim for an
increase in the Contract Sum, written notice as provided herein shall be given
before proceeding to execute the Work. Prior notice is
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not required for Claims relating to an emergency endangering life or property
arising under Paragraph 10.3. If the Contractor believes additional cost is
involved for reasons including but not limited to (1) a written interpretation
from the Architect, (2) an order by the Owner to stop the Work where the
Contractor was not at fault, (3) a written order for a minor change in the Work
issued by the Architect, (4) failure of payment by the Owner, (5) termination of
the Contract by the Owner, (6) Owner's suspension or (7) other reasonable
grounds, Claim shall be filed in accordance with the procedure established
herein.
4.3.8 CLAIMS FOR ADDITIONAL TIME
4.3.8.1 If the Contractor wishes to make Claim for all increase in the Contract
Time, written notice as provided herein shall be given. The Contractor's Claim
shall include an estimate of cost and of probable effect of delay on progress of
the Work. In the case of a continuing delay only one Claim is necessary.
4.3.8.2 If adverse weather conditions are the basis for a Claim for additional
time, such Claim shall be documented by data substantiating that weather
conditions were abnormal for the period of time and could not have been
reasonably anticipated, and that weather conditions had an adverse effect on the
scheduled construction.
4.3.9 INJURY OR DAMAGE TO PERSON OR PROPERTY. If either Party to the Contract
suffers injury or damage to person or property because of an act or omission of
the other party, of any of the other party's employees or agents, or of others
for whose acts such party is legally liable, written notice of such injury or
damage, whether or not insured, shall be given to the other party within a
reasonable time not exceeding 21 days after first observance. The notice shall
provide sufficient detail to enable the other party to investigate the matter.
If a Claim for additional cost or time related to this Claim is to be asserted,
it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or more of the following
preliminary actions within ten days of receipt of a Claim: (1) request
additional supporting data from the claimant, (2) submit a schedule to the
parties indicating when the Architect expects to take action, (3) reject the
Claim in whole or in part, stating reasons for rejection, (4) recommend approval
of the Claim by the other party or (5) suggest a compromise. The Architect may
also, but is not obligated to, notify the surety, if any, of the nature and
amount of the Claim.
4.4.2 If a Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall, within
ten days after the Architect's preliminary response, take one or more of the
following actions: (1) submit additional supporting data requested by the
Architect, (2) modify the initial Claim or (3) notify the Architect that the
initial Claim stands.
4.4.4 If a Claim has not been resolved after consideration of the foregoing and
of further evidence presented by the parties or requested by the Architect, the
Architect will notify the parties in writing that the Architect's decision will
be made within seven days, which decision shall be final and binding on the
parties but subject to arbitration. Upon expiration of such time period, the
Architect will render to the parties the Architect's written decision relative
to the Claim, including any change in the Contract Sum or Contract Time or both.
If there is a surety and there appears to be a possibility of a Contractor's
default, the Architect may, but is not obligated to, notify the surety and
request the surety's assistance in resolving the controversy.
4.5 ARBITRATION
4.5.1 CONTROVERSIES AND CLAIMS SUBJECT TO ARBITRATION. Any controversy or Claim
arising out of or related to the Contract, or the breach thereof, shall be
settled by arbitration in accordance with the Construction Industry Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof, except controversies or Claims relating to aesthetic
effect and except those waived as provided for in Subparagraph 4.3.5. Such
controversies or Claims upon which the Architect has given notice and rendered a
decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon
written demand of either party. Arbitration may be
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commenced when 45 days have passed after a Claim has been referred to the
Architect as provided in Paragraph 4.3 and no decision has been rendered
4.5.2 RULES AND NOTICES FOR ARBITRATION. Claims between the Owner and Contractor
not resolved under Paragraph 4.4 shall, if subject to arbitration under
Subparagraph 4.5.1, be decided by arbitration in accordance with the
Construction Industry Arbitration Rules of the American Arbitration Association
currently in effect, unless the parties mutually agree otherwise. Notice of
demand for arbitration shall be filed in writing with the other party to the
Agreement between the Owner and Contractor and with the American Arbitration
Association, and a copy shall be filed with the Architect.
4.5.3 CONTACT PERFORMANCE DURING ARBITRATION. During arbitration proceedings,
the Owner and Contractor shall comply with Subparagraph 4.3.4.
4.5.4 WHEN ARBITRATION MAY BE DEMANDED. Demand for arbitration of any Claim may
not be made until the earlier of (1) the date on which the Architect has
rendered a final written decision on the Claim, (2) the tenth day after the
parties have presented evidence to the Architect or have been given reasonable
opportunity to do so, if the Architect has not rendered a final written decision
by that date, or (3) any of the five events described in Subparagraph 4.3.2.
4.5.4.1 When a written decision of the Architect states that (1) the decision is
final but subject to arbitration and (2) a demand for arbitration of a Claim
covered by such decision must be made within 30 days after the date on which the
party making the demand receives the final written decision, then failure to
demand arbitration within said 30 days' period shall result in the Architect's
decision becoming final and binding upon the Owner and Contractor. If the
Architect renders a decision after arbitration proceedings have been initiated,
such decision may be entered as evidence, but shall not supersede arbitration
proceedings unless the decision is acceptable to all parties concerned.
4.5.4.2 A demand for arbitration shall be made within the time limits specified
in Subparagraphs 4.5.1 and 4.5.4 and Clause 4.5.4.1 as applicable, and in other
cases within a reasonable time after the Claim has arisen, and in no event shall
it be made after the date when institution of legal or equitable proceedings
based on such Claim would be barred by the applicable statute of limitations as
determined pursuant to Paragraph 13.7.
4.5.5 LIMITATION ON CONSOLIDATION OR JOINDER. No arbitration arising out of or
relating to the Contract Documents shall include, by consolidation or joinder or
in any other manner, the Architect, the Architect's employees or consultants,
except by written consent containing specific reference to the Agreement and
signed by the Architect, Owner, Contractor and any other person or entity sought
to be joined. No arbitration shall include, by consolidation or joinder or in
any other manner, parties other than the Owner, Contractor, a separate
contractor as described in Article 6 and other persons substantially involved in
a common question of fact or law whose presence is required if complete relief
is to be accorded in arbitration. No person or entity other than the Owner,
Contractor or a separate contractor as described in Article 6 shall be included
as an original third party or additional third party to an arbitration whose
interest or responsibility is insubstantial. Consent to arbitration involving an
additional person or entity shall not constitute consent to arbitration of a
dispute not described therein or with a person or entity not named or described
therein. The foregoing agreement to arbitrate and other agreements to arbitrate
with an additional person or entity duly consented to by parties to the
Agreement shall be specifically enforceable under applicable law in any court
having jurisdiction thereof.
4.5.6 CLAIMS AND TIMELY ASSERTION OF CLAIMS. A party who files a notice of
demand for arbitration must assert in the demand all Claims then known to that
party on which arbitration is permitted to be demanded. When a party fails to
include a Claim through oversight, inadvertence or excusable neglect, or when a
Claim has matured or been acquired subsequently, the arbitrator or arbitrators
may permit amendment.
4.5.7 JUDGMENT ON FINAL AWARD. The award rendered by the arbitrator or
arbitrators shall be final, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof.
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ARTICLE 5
SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is a person or entity who has a direct contract with the
Contractor to perform a portion of the Work at the site. The term
"Subcontractor" is referred to throughout the Contract Documents as if singular
in number and means a Subcontractor or an authorized representative of the
Subcontractor. The term "Subcontractor" does not include a separate contractor
or subcontractors of a separate contractor.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform a portion of the Work at the site. The
term "Sub-subcontractor" is referred to throughout the Contract Documents as if
singular in number and means a Sub-subcontractor or an authorized representative
of the Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK
5.2.1 Unless otherwise stated in the Contract Documents or the bidding
requirements, the Contractor, as soon as practicable after award of the
Contract, shall furnish in writing to the Owner through the Architect the names
of persons or entities (including those who are to furnish materials or
equipment fabricated to a special design) proposed for each principal portion of
the Work. The Architect will promptly reply to the Contractor in writing stating
whether or not the Owner or the Architect, after due investigation, has
reasonable objection to any such proposed person or entity. Failure of the Owner
or Architect to reply promptly shall constitute notice of no reasonable
objection.
5.2.2 The Contractor shall not contract with a proposed person or entity to whom
the Owner or Architect has made reasonable and timely objection. The Contractor
shall not be required to contract with anyone to whom the Contractor has made
reasonable objection.
5.2.3 If the Owner or Architect has reasonable objection to a person or entity
proposed by the Contractor, the Contractor shall propose another to whom the
Owner or Architect has no reasonable objection. The Contract Sum shall be
increased or decreased by the difference in cost occasioned by such change and
an appropriate Change Order shall be issued. However, no increase in the
Contract Sum shall be allowed for such change unless the Contractor has acted
promptly and responsively in submitting names as required.
5.2.4 The Contractor shall not change a Subcontractor, person or entity
previously selected if the Owner or Architect makes reasonable objection to such
change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropriate agreement, written where legally required for validity, the
Contractor shall require each Subcontractor, to the extent of the Work to be
performed by the Subcontractor, to be bound to the Contractor by terms of the
Contract Documents, and to assume toward the Contractor all the obligations and
responsibilities which the Contractor, by these Documents, assumes toward the
Owner and Architect. Each subcontract agreement shall preserve and protect the
rights of the Owner and Architect under the Contract Documents with respect to
the Work to be performed by the Subcontractor so that subcontracting thereof
will not prejudice such rights, and shall allow to the Subcontractor, unless
specifically provided otherwise in the subcontract agreement, the benefit of all
rights, remedies and redress against the Contractor that the Contractor, by the
Contract Documents, has against the Owner. Where appropriate, the Contractor
shall require each Subcontractor to enter into similar agreements with
Sub-subcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the subcontract agreement, copies of
the Contract Documents to which the Subcontractor will be bound, and, upon
written request of the Subcontractor, identify to the Subcontractor terms and
conditions of the proposed subcontract agreement which may be at variance with
the Contract Documents. Subcontractors shall similarly make copies of applicable
portions of such documents available to their respective proposed
Sub-subcontractors.
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5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS
5.4.1 Each subcontract agreement for a portion of the Work is assigned by the
Contractor to the Owner provided that:
.1 assignment is effective only after termination of the Contract by
the Owner for cause pursuant to Paragraph 14.2 and only for those
subcontract agreements which the Owner accepts by notifying the
Subcontractor in writing; and
.2 assignment is subject to the prior rights of the surety, if any,
obligated under bond relating to the Contract.
5.4.2 If the Work has been suspended for more than 30 days, the Subcontractor's
compensation shall be equitably adjusted.
ARTICLE 6
CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS
6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations related
to the Project with the Owner's own forces, and to award separate contracts in
connection with other portions of the Project or other construction or
operations on the site under Conditions of the Contract identical or
substantially similar to these including those portions related to insurance and
waiver of subrogation. If the Contractor claims that delay or additional cost is
involved because of such action by the Owner, the Contractor shall make such
Claim as provided elsewhere in the Contract Documents.
6.1.2 When separate contracts are awarded for different portions of the Project
or other construction or operations on the site, the term "Contractor" in the
Contract Documents in each case shall mean the Contractor who executes each
separate Owner-Contractor Agreement.
6.1.3 The Owner shall provide for coordination of the activities of the Owner's
own forces and of each separate contractor with the Work of the Contractor, who
shall cooperate with them. The Contractor shall participate with other separate
contractors and the Owner in reviewing their construction schedules when
directed to do so. The Contractor shall make any revisions to the construction
schedule and Contract Sum deemed necessary after a joint review and mutual
agreement. The construction schedules shall then constitute the schedules to be
used by the Contractor, separate contractors and the Owner until subsequently
revised.
6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the Owners own
forces, the Owner shall be deemed to be subject to the same obligations and to
have the same rights which apply to the Contractor under the Conditions of the
Contract, including, without excluding others, those stated in Article 3, this
Article 6 and Articles 10,11 and 12.
6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors reasonable
opportunity for introduction and storage of their materials and equipment and
performance of their activities and shall connect and coordinate the
Contractor's construction and operations with theirs as required by the Contract
Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or results
upon construction or operations by the Owner or a separate contractor, the
Contractor shall, prior to proceeding with that portion of the Work, promptly
report to the Architect apparent discrepancies or defects in such other
construction that would render it unsuitable for such proper execution and
results. Failure of the Contractor so to report shall constitute an
acknowledgment that the Owner's or separate contractors' completed or partially
completed
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construction is fit and proper to receive the Contractor's Work, except as to
defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the
Contractor to completed or partially completed construction or to property of
the Owner or separate contractors as provided in Subparagraph 10.2.5.
6.2.5 Claims and other disputes and matters in question between the Contractor
and a separate contractor shall be subject to the provisions of Paragraph 4.3
provided the separate contractor has reciprocal obligations.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the Contractor in
Paragraph 3.14.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for maintaining
the premises and surrounding area free from waste materials and rubbish as
described in Paragraph 3.15, the Owner may clean up and allocate the cost among
those responsible as the Architect determines to be just.
ARTICLE 7
CHANGES IN THE WORK
7.1 CHANGES
7.1.1 Changes in the Work may be accomplished after execution of the Contract,
and without invalidating the Contract, by Change Order, Construction Change
Directive or order for a minor change in the Work, subject to the limitations
stated in this Article 7 and elsewhere in the Contract Documents.
7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor
and Architect; a Construction Change Directive requires agreement by the Owner
and Architect and may or may not be agreed to by the Contractor; an order for a
minor change in the Work may be issued by the Architect alone.
7.1.3 Changes in the Work shall be performed under applicable provisions of the
Contract Documents, and the Contractor shall proceed promptly, unless otherwise
provided in the Change Order, Construction Change Directive or order for a minor
change in the Work.
7.1.4 If unit prices are stated in the Contract Documents or subsequently agreed
upon, and if quantities originally contemplated are so changed in a proposed
Change Order or Construction Change Directive that application of such unit
prices to quantities of Work proposed will cause substantial inequity to the
Owner or Contractor, the applicable unit prices shall be equitably adjusted.
7.2 CHANGE ORDERS
7.2.1 A Change Order is a written instrument prepared by the Architect and
signed by the Owner, Contractor and Architect, stating their agreement upon all
of the following:
.1 a change in the Work;
.2 the amount of the adjustment in the Contract Sum, if any; and
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.3 the extent of the adjustment in the Contract Time, if any.
7.2.2 Methods used in determining adjustments to the Contract Sum may include
those listed in Subparagraph 7.3.3.
7.3 CONSTRUCTION CHANGE DIRECTIVES
7.3.1 A Construction Change Directive is a written order prepared by the
Architect and signed by the Owner and Architect, directing a change in the Work
and stating a proposed basis for adjustment, if any, in the Contract Sum, or
Contract Time, or both. The Owner may by Construction Change Directive, without
invalidating the Contract, order changes in the Work within the general scope of
the Contract consisting of additions, deletions or other revisions, the Contract
Sum and Contract Time being adjusted accordingly.
7.3.2 A Construction Change Directive shall be used in the absence of total
agreement on the terms of a Change Order.
7.3.3 If the Construction Change Directive provides for an adjustment to the
Contract Sum, the adjustment shall be based on one of the following methods:
.1 mutual acceptance of a lump sum properly itemized and supported by
sufficient substantiating data to permit evaluation;
.2 unit prices stated in the Contract Documents or subsequently agreed
upon;
.3 cost to be determined in a manner agreed upon by the parties and a
mutually acceptable fixed or percentage fee; or
.4 as provided in Subparagraph 7.3.6.
7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall
promptly proceed with the change in the Work involved and advise the Architect
of the Contractor's agreement or disagreement with the method, if any, provided
in the Construction Change Directive for determining the proposed adjustment in
the Contract Sum or Contract Time.
7.3.5 A Construction Change Directive signed by the Contractor indicates the
agreement of the Contractor therewith, including adjustment in Contract Sum and
Contract Time or the method for determining them. Such agreement shall be
effective immediately and shall be recorded as a Change Order.
7.3.6 If the Contractor does not respond promptly or disagrees with the method
for adjustment in the Contract Sum, the method and the adjustment shall be
determined by the Architect on the basis of reasonable expenditures and savings
of those performing the Work attributable to the change, including, in case of
an increase in the Contract Sum, a reasonable allowance for overhead and profit.
In such case, and also under Clause 7.3.3.3, the Contractor shall keep and
present, in such form as the Architect may prescribe, an itemized accounting
together with appropriate supporting data. Unless otherwise provided in the
Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be
limited to the following:
.1 costs of labor, including social security, old age and unemployment
insurance, fringe benefits required by agreement or custom, and
workers' or workmen's compensation insurance;
.2 costs of materials, supplies and equipment, including cost of
transportation, whether incorporated or consumed;
.3 rental costs of machinery and equipment, exclusive of hand tools,
whether rented from the Contractor or others;
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.4 costs of premiums for all bonds and insurance, permit fees, and
sales, use or similar taxes related to the Work; and
.5 additional costs of supervision and field office personnel directly
attributable to the change.
7.3.7 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be allowed
by the Contractor to the Owner for a deletion or change which results in a net
decrease in the Contract Sum shall be actual net cost as confirmed by the
Architect. When both additions and credits covering related Work or
substitutions are involved in a change, the allowance for overhead and profit
shall be figured on the basis of net increase, if any, with, respect to that
change.
7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract
Time or the method for determining it, the adjustment or the method shall be
referred to the Architect for determination.
7.3.9 When the Owner and Contractor agree with the determination made by the
Architect concerning the adjustments in the Contract Sum and Contract Time, or
otherwise reach agreement upon the adjustments, such agreement shall be
effective immediately and shall be recorded by preparation and execution of an
appropriate Change Order.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Architect will have authority to order minor changes in the Work not
involving adjustment in the Contract Sum or extension of the Contract Time and
not inconsistent with the intent of the Contract Documents. Such changes shall
be effected by written order and shall be binding on the Owner and Contractor.
The Contractor shall carry out such written orders promptly.
ARTICLE 8
TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time is the period of time, including
authorized adjustments, allotted in the Contract Documents for Substantial
Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by the failure to act of the
Contractor or of persons or entities for whom the Contractor is responsible.
8.1.3 The date of Substantial Completion is the date certified by the Architect
in accordance with Paragraph 9.8.
8.1.4 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically defined.
8.2 PROGRESS AND COMPLETION
8.2.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the Contract
Time is a reasonable period for performing the Work.
8.2.2 The Contractor shall not knowingly, except by agreement or instruction of
the Owner in writing, prematurely commence operations on the site or elsewhere
prior to the effective date of insurance required by Article 11 to be furnished
by the Contractor. The date of commencement of the Work shall not be changed by
the effective date of such
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insurance. Unless the date of commencement is established by a notice to proceed
given by the Owner, the Contractor shall notify the Owner in writing not less
than five days or other agreed period before commencing the Work to permit the
timely filing of mortgages, mechanic's liens and other security interests.
8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall
achieve Substantial Completion within the Contract Time.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in progress of the Work by an act
or neglect of the Owner or Architect, or of an employee of either, or of a
separate contractor employed by the Owner, or by changes ordered in the Work, or
by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or
other causes beyond the Contractor's control, or by delay authorized by the
Owner pending arbitration, or by other causes which the Architect determines may
justify delay, then the Contract Time shall be extended by Change Order for such
reasonable time as the Architect may determine.
8.3.2 Claims relating to time shall be made in accordance with applicable
provisions of Paragraph 4.3.
8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
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ARTICLE 9
PAYMENTS AND COMPLETION
9.1 CONTRACT SUM
9.1.1 The Contract Sum is stated in the Agreement and, including authorized
adjustments, is the total amount payable by the Owner to the Contractor for
performance of the Work under the Contract Documents.
9 2 SCHEDULE OF VALUES
9.2.1 Before the first Application for Payment, the Contractor shall submit to
the Architect a schedule of values allocated to various portions of the Work,
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least ten days before the date established for each progress payment,
the Contractor shall submit to the Architect an itemized Application for Payment
for operations completed in accordance with the schedule of values. Such
application shall be notarized, if required, and supported by such data
substantiating the Contractor's right to payment as the Owner or Architect may
require, such as copies of requisitions from Subcontractors and material
suppliers, and reflecting retainage if provided for elsewhere in the Contract
Documents.
9.3.1.1 Such applications may include requests for payment on account of changes
in the Work which have been properly authorized by Construction Change
Directives but not yet included in Change Orders.
9.3.1.2 Such applications may not include requests for payment of amounts the
Contractor does not intend to pay to a Subcontractor or material supplier
because of a dispute or other reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be
made on account of materials and equipment delivered and suitably stored at the
site for subsequent incorporation in the Work. If approved in advance by the
Owner, payment may similarly be made for materials and equipment suitably stored
off the site at a location agreed upon in writing. Payment for materials and
equipment stored on or off the site shall be conditioned upon compliance by the
Contractor with procedures satisfactory to the Owner to establish the Owner's
title to such materials and equipment or otherwise protect the Owner's interest,
and shall include applicable insurance, storage, and transportation to the site
for such materials and equipment stored off the site.
9.3.3 The Contractor warrants that title to all Work covered by an Application
for Payment will pass to the Owner no later than the time of payment. The
Contractor further warrants that upon submittal of an Application for Payment
all Work for which Certificates for Payment have been previously issued and
payments received from the Owner shall, to the best of the Contractor's
knowledge, information and belief, be free and clear of liens, claims, security
interests or encumbrances favor of the Contractor, Subcontractors, material
suppliers, or other persons or entities making a claim by reason of having
provided labor, materials and equipment relating to the Work.
9.4 CERTIFICATES FOR PAYMENT
9.4.1 The Architect will, within seven days after receipt of the Contractor's
Application for Payment, either issue to the Owner a Certificate for Payment,
with a copy to the Contractor, for such amount as the Architect determines is
properly due, or notify the Contractor and Owner in writing of the Architect's
reasons for withholding certification in whole or in part as provided in
Subparagraph 9.5.1.
9.4.2 The issuance of a Certificate for Payment will constitute a representation
by the Architect to the Owner, based on the Architect's observations at the site
and the data comprising the Application for Payment, that the Work has
progressed to the point indicated and that, to the best of the Architect's
knowledge, information
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and belief, quality of the Work is in accordance with the Contract Documents.
The foregoing representations are subject to an evaluation of the Work for
conformance with the Contract Documents upon Substantial Completion, to results
of subsequent tests and inspections, to minor deviations from the Contract
Documents correctable prior to completion and to specific qualifications
expressed by the Architect. The issuance of a Certificate for Payment will
further constitute a representation that the Contractor is entitled to payment
in the amount certified. However, the issuance of a Certificate for Payment will
not be a representation that the Architect has (1) made exhaustive or continuous
on-site inspections to check the quality or quantity of the Work, (2) reviewed
construction means, methods, techniques, sequences or procedures, (3) reviewed
copies of requisitions received from Subcontractors and material suppliers and
other data requested by the Owner to substantiate the Contractor's right to
payment or (4) made examination to ascertain how or for what purpose the
Contractor has used money previously paid on account of the Contract Sum.
9.5 DECISIONS TO WITHHOLD CERTIFICATION
9.5.1 The Architect may decide not to certify payment and may withhold a
Certificate for Payment in whole or in part, to the extent reasonably necessary
to protect the Owner, if in the Architect's opinion the representations to the
Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable
to certify payment in the amount of the Application, the Architect will notify
the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor
and Architect cannot agree on a revised amount, the Architect will promptly
issue a Certificate for Payment for the amount for which the Architect is able
to make such representations to the Owner. The Architect may also decide not to
certify payment or, because of subsequently discovered evidence or subsequent
observations, may nullify the whole or a part of a Certificate for Payment
previously issued, to such extent as may be necessary in the Architect's opinion
to protect the Owner from loss because of:
.1 defective Work not remedied;
.2 third party claims filed or reasonable evidence indicating probable
filing of such claims;
.3 failure of the Contractor to make payments properly to
Subcontractors or for labor, materials or equipment;
.4 reasonable evidence that the Work cannot be completed for the unpaid
balance of the Contract Sum;
.5 damage to the Owner or another contractor;
.6 reasonable evidence that the Work will not be completed within the
Contract Time, and that the unpaid balance would not be adequate to
cover actual or liquidated damages for the anticipated delay; or
.7 persistent failure to carry out the Work in accordance with the
Contract Documents.
9.5.2 When the above reasons for withholding certification are removed,
certification will be made for amounts previously withheld.
9.6 PROGRESS PAYMENTS
9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall
make payment in the manner and within the time provided in the Contract
Documents, and shall so notify the Architect.
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of
payment from the Owner, out of the amount paid to the Contractor on account of
such Subcontractor's portion of the Work the amount to which said Subcontractor
is entitled reflecting percentages actually retained from payments to the
Contractor on account of such Subcontractor's portion of the Work. The
Contractor shall, by appropriate agreement with each Subcontractor, require each
Subcontractor to make payments to Sub-subcontractors in similar manner.
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9.6.3 The Architect will, on request, furnish to a Subcontractor, if
practicable, information regarding percentages of completion or amounts applied
for by the Contractor and action taken thereon by the Architect and Owner on
account of portions of the Work done by such Subcontractor.
9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to see
to the payment of money to a Subcontractor except as may otherwise be required
by law.
9.6.5 Payment to material suppliers shall be treated in a manner similar to that
provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4.
9.6.6 A Certificate for Payment, a progress payment, or partial or entire use or
occupancy of the Project by the Owner shall not constitute acceptance of Work
not in accordance with the Contract Documents.
9.7 FAILURE OF PAYMENT
9.7.1 If the Architect does not issue a Certificate for Payment, through no
fault of the Contractor, within seven days after receipt of the Contractor's
Application for Payment, or if the Owner does not pay the Contractor within
seven days after the date established in the Contract Documents the amount
certified by the Architect or awarded by arbitration, then the Contractor may,
upon seven additional days' written notice to the Owner and Architect, stop the
Work until payment of the amount owing has been received. The Contract Time
shall be extended appropriately and the Contract Sum shall be increased by the
amount of the Contractor's reasonable costs of shut-down, delay and start-up,
which shall be accomplished as provided in Article 7.
9.8 SUBSTANTIAL COMPLETION
9.8.1 Substantial Completion is the stage in the progress of the Work when the
Work or designated portion thereof is sufficiently complete in accordance with
the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.
9.8.2 When the Contractor considers that the Work, or a portion thereof which
the Owner agrees to accept separately, is substantially complete, the Contractor
shall prepare and submit to the Architect a comprehensive list of items to be
completed or corrected. The Contractor shall proceed promptly to complete and
correct items on the list. Failure to include an item on such list does not
alter the responsibility of the Contractor to complete all Work in accordance
with the Contract Documents. Upon receipt of the Contractor's list, the
Architect will make an inspection to determine whether the Work or designated
portion thereof is substantially complete. If the Architect's inspection
discloses any item, whether or not included on the Contractor's list, which is
not in accordance with the requirements of the Contract Documents, the
Contractor shall, before issuance of the Certificate of Substantial Completion,
complete or correct such item, upon notification by the Architect. The
Contractor shall then submit a request for another inspection by the Architect
to determine Substantial Completion. When the Work or designated portion thereof
is substantially complete, the Architect will prepare a Certificate of
Substantial Completion which shall establish the date of Substantial Completion,
shall establish responsibilities of the Owner and Contractor for security,
maintenance, heat, utilities, damage to the Work and insurance, and shall fix
the time within which the Contractor shall finish all items on the list
accompanying the Certificate. Warranties required by the Contract Documents
shall commence on the date of Substantial Completion of the Work or designated
portion thereof unless otherwise provided in the Certificate of Substantial
Completion. The Certificate of Substantial Completion shall be submitted to the
Owner and Contractor for their written acceptance of responsibilities assigned
to them in such Certificate.
9.8.3 Upon Substantial Completion of the Work or designated portion thereof and
upon application by the Contractor and certification by the Architect, the Owner
shall make payment, reflecting adjustment in retainage, if any, for such Work or
portion thereof as provided in the Contract Documents.
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9.9 PARTIAL OCCUPANCY OR USE
9.9.1 The Owner may occupy or use any completed or partially completed portion
of the Work at any stage when such portion is designated by separate agreement
with the Contractor, provided such occupancy or use is consented to by the
insurer as required under Subparagraph 11.3.11 and authorized by public
authorities having jurisdiction over the Work. Such partial occupancy or use may
commence whether or not the portion is substantially complete, provided the
Owner and Contractor have accepted in writing the responsibilities assigned to
each of them for payments, retainage if any, security, maintenance, heat,
utilities, damage to the Work and insurance, and have agreed in writing
concerning the period for correction of the Work and commencement of warranties
required by the Contract Documents. When the Contractor considers a portion
substantially complete, the Contractor shall prepare and submit a list to the
Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to
partial occupancy or use shall not be unreasonably withheld. The stage of the
progress of the Work shall be determined by written agreement between the Owner
and Contractor or, if no agreement is reached, by decision of the Architect.
9.9.2 Immediately prior to such partial occupancy or use, the Owner, Contractor
and Architect shall jointly inspect the area to be occupied or portion of the
Work to be used in order to determine and record the condition of the Work.
9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or
portions of the Work shall not constitute acceptance of Work not complying with
the requirements of the Contract Documents.
9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work is ready for final
inspection and acceptance and upon receipt of a final Application for Payment,
the Architect will promptly make such inspection and, when the Architect finds
the Work acceptable under the Contract Documents and the Contract fully
performed, the Architect will promptly issue a final Certificate for Payment
stating that to the best of the Architect's knowledge, information and belief,
and on the basis of the Architect's observations and inspections, the Work has
been completed in accordance with terms and conditions of the Contract Documents
and that the entire balance found to be due the Contractor and noted in said
final Certificate is due and payable. The Architect's final Certificate for
Payment will constitute a further representation that conditions listed in
Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final
payment have been fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall become
due until the Contractor submits to the Architect (1) an affidavit that
payrolls, bills for materials and equipment, and other indebtedness connected
with the Work for which the Owner or the Owner's property might be responsible
or encumbered (less amounts withheld by Owner) have been paid or otherwise
satisfied, (2) a certificate evidencing that insurance required by the Contract
Documents to remain in force after final payment is currently in effect and will
not be cancelled or allowed to expire until at least 30 days' prior written
notice has been given to the Owner, (3) a written statement that the Contractor
knows of no substantial reason that the insurance will not be renewable to cover
the period required by the Contract Documents, (4) consent of surety, if any, to
final payment and (5), if required by the Owner, other data establishing payment
or satisfaction of obligations, such as receipts, releases and waivers of liens,
claims, security interests or encumbrances arising out of the Contract, to the
extent and in such form as may be designated by the Owner. If a Subcontractor
refuses to furnish a release or waiver required by the Owner, the Contractor may
furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the Contractor
shall refund to the Owner all money that the Owner may be compelled to pay in
discharging such lien, including all costs and reasonable attorneys' fees.
9.10.3 If, after Substantial Completion of the Work, final completion thereof is
materially delayed through no fault of the Contractor or by issuance of Change
Orders affecting final completion, and the Architect so confirms, the Owner
shall, upon application by the Contractor and certification by the Architect,
and without terminating the Contract, make payment of the balance due for that
portion of the Work fully completed and accepted. If the remaining balance for
Work not fully completed or corrected is less than retainage stipulated in the
Contract Documents, and if bonds have been furnished, the written consent of
surety to payment of the balance due for that portion of the Work fully
completed and accepted shall be submitted by the Contractor to
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the Architect prior to certification of such payment. Such payment shall be made
under terms and conditions governing final payment, except that it shall not
constitute a waiver of claims. The making of final payment shall constitute a
waiver of claims by the Owner as provided in Subparagraph 4.3.5.
9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or
material supplier shall constitute a waiver of claims by that payee except those
previously made in writing and identified by that payee as unsettled at the time
of final Application for Payment. Such waivers shall be in addition to the
waiver described in Subparagraph 4.3.5.
ARTICLE 10
PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Contract.
10.1.2 In the event the Contractor encounters on the site material reasonably
believed to be asbestos or polychlorinated biphenyl (PCB) which has not been
rendered harmless, the Contractor shall immediately stop Work in the area
affected and report the condition to the Owner and Architect in writing. The
Work in the affected area shall not thereafter be resumed except by written
agreement of the Owner and Contractor if in fact the material is asbestos or
polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in
the affected area shall be resumed in the absence of asbestos or polychlorinated
biphenyl (PCB), or when it has been rendered harmless, by written agreement of
the Owner and Contractor, or in accordance with final determination by the
Architect on which arbitration has not been demanded, or by arbitration under
Article 4.
10.1.3 The Contractor shall not be required pursuant to Article 7 to perform
without consent any Work relating to asbestos or polychlorinated biphenyl (PCB).
10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Contractor, Architect, Architect's consultants and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work in the affected area if in fact the material is asbestos
or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided
that such claim, damage, loss or expense is attributable to bodily injury,
sickness, disease or death, or to injury to or destruction of tangible property
(other than the Work itself) including loss of use resulting therefrom, but only
to the extent caused in whole or in part by negligent acts or omissions of the
Owner, anyone directly or indirectly employed by the Owner or anyone for whose
acts the Owner may be liable, regardless of whether or not such claim, damage,
loss or expense is caused in part by a party indemnified hereunder. Such
obligation shall not be construed to negate, abridge, or reduce other rights or
obligations of indemnity which would otherwise exist as to a party or person
described in this Subparagraph 10.1.4.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall take reasonable precautions for safety of, and shall
provide reasonable protection to prevent damage, injury or loss to:
.1 employees on the Work and other persons who may be affected thereby;
.2 the Work and materials and equipment to be incorporated therein,
whether in storage on or off the site, under care, custody or
control of the Contractor or the Contractor's Subcontractors or
Sub-subcontractors; and
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.3 other property at the site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and utilities
not designated for removal, relocation or replacement in the course
of construction.
10.2.2 The Contractor shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on safety of persons or property or their protection from damage, injury or
loss.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Contract, reasonable safeguards for safety and
protection, including posting danger signs and other warnings against hazards,
promulgating safety regulations and notifying owners and users of adjacent sites
and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, the
Contractor shall exercise utmost care and carry on such activities under
supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract Documents) to
property referred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in part
by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or
indirectly employed by any of them, or by anyone for whose acts they may be
liable and for which the Contractor is responsible under Clauses 10.2.1.2 and
10.2.1.3, except damage or loss attributable to acts or omissions of the Owner
or Architect or anyone directly or indirectly employed by either of them, or by
anyone for whose acts either of them may be liable, and not attributable to the
fault or negligence of the Contractor. The foregoing obligations of the
Contractor are in addition to the Contractor's obligations under Paragraph 3.18.
10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the site whose duty shall be the prevention of accidents. This
person shall be the Contractor's superintendent unless otherwise designated by
the Contractor in writing to the Owner and Architect.
10.2.7 The Contractor shall not load or permit any part of the construction or
site to be loaded so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened damage, injury
or loss. Additional compensation or extension of time claimed by the Contractor
on account of an emergency shall be determined as provided in Paragraph 4.3 and
Article 7.
ARTICLE 11
INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase from and maintain in a company or companies
lawfully authorized to do business in the jurisdiction in which the Project is
located such insurance as will protect the Contractor from claims set forth
below which may arise out of or result from the Contractor's operations under
the Contract and for which the Contractor may be legally liable, whether such
operations be by the Contractor or by a Subcontractor or by anyone directly or
indirectly employed by any of them, or by anyone for whose acts any of them may
be liable:
.1 claims under workers' or workmen's compensation, disability benefit
and other similar employee benefit acts which are applicable to the
Work to be performed;
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.2 claims for damages because of bodily injury, occupational sickness
or disease, or death of the Contractor's employees;
.3 claims for damages because of bodily injury, sickness or disease, or
death of any person other than the Contractor's employees;
.4 claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such person
by the Contractor, or (2) by another person;
.5 claims for damages, other than to the Work itself, because of injury
to or destruction of tangible property, including loss of use
resulting therefrom;
.6 claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
.7 claims involving contractual liability insurance applicable to the
Contractor's obligations under Paragraph 3.18.
11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not
less than limits of liability specified in the Contract Documents or required by
law, whichever coverage is greater. Coverages, whether written on an occurrence
or claims-made basis, shall be maintained without interruption from date of
commencement of the Work until date of final payment and termination of any
coverage required to be maintained after final payment.
11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with the
Owner prior to commencement of the Work. These Certificates and the insurance
policies required by this Paragraph 11.1 shall contain a provision that
coverages afforded under the policies will not be cancelled or allowed to expire
until at least 30 days' prior written notice has been given to the Owner. If any
of the foregoing insurance coverages are required to remain in force after final
payment and are reasonably available, all additional certificate evidencing
continuation of such coverage shall be submitted with the final Application for
Payment as required by Subparagraph 9.10.2. Information concerning reduction of
coverage shall be furnished by the Contractor with reasonable promptness in
accordance with the Contractor's information and belief.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's
usual liability insurance. Optionally, the Owner may purchase and maintain other
insurance for self-protection against claims which may arise from operations
under the Contract. The Contractor shall not be responsible for purchasing and
maintaining this optional Owner's liability insurance unless specifically
required by the Contract Documents.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a
company or companies lawfully authorized to do business in the jurisdiction in
which the Project is located, property insurance in the amount of the initial
Contract Sum as well as subsequent modifications thereto for the entire Work at
the site on a replacement cost basis without voluntary deductibles. Such
property insurance shall be maintained, unless otherwise provided in the
Contract Documents or otherwise agreed in writing by all persons and entities
who are beneficiaries of such insurance, until final payment has been made as
provided in Paragraph 9.10 or until no person or entity other than the Owner has
an insurable interest in the property required by this Paragraph 1.1.3 to be
covered, whichever is earlier. This insurance shall include interests of the
Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work.
11.3.1.1 Property insurance shall be on an all-risk policy form and shall insure
against the perils of fire and extended coverage and physical loss or damage
including without duplication of coverage, theft, vandalism, malicious mischief,
collapse, false-work, temporary buildings and debris removal including
demolition
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occasioned by enforcement of any applicable legal requirements, and shall cover
reasonable compensation for Architect's services and expenses required as a
result of such insured loss. Coverage for other perils shall not be required
unless otherwise provided in the Contract Documents.
11.3.1.2 If the Owner does not intend to purchase such property insurance
required by the Contract and with all of the coverages in the amount described
above, the Owner shall so inform the Contractor in writing prior to commencement
of the Work. The Contractor may then effect insurance which will protect the
interests of the Contractor, Subcontractors and Sub-subcontractors in the Work,
and by appropriate Change Order the cost thereof shall be charged to the Owner.
If the Contractor is damaged by the failure or neglect of the Owner to purchase
or maintain insurance as described above, without so notifying the Contractor,
then the Owner shall bear all reasonable costs properly attributable thereto.
11.3.1.3 If the property insurance requires minimum deductibles and such
deductibles are identified in the Contract Documents, the Contractor shall pay
costs not covered because of such deductibles. If the Owner or insurer increases
the required minimum deductibles above the amounts so identified or if the Owner
elects to purchase this insurance with voluntary deductible amounts, the Owner
shall be responsible for payment of the additional costs not covered because of
such increased or voluntary deductibles. If deductibles are not identified in
the Contract Documents, the Owner shall pay costs not covered because of
deductibles.
11.3.1.4 Unless otherwise provided in the Contract Documents, this property
insurance shall cover portions of the Work stored off the site after written
approval of the Owner at the value established in the approval, and also
portions of the Work in transit.
11.3.2 Boiler and Machinery Insurance. The Owner shall purchase and maintain
boiler and machinery insurance required by the Contract Documents or by law,
which shall specifically cover such insured objects during installation and
until final acceptance by the Owner; this insurance shall include interests of
the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and
the Owner and Contractor shall be named insureds.
11.3.3 LOSS OF USE INSURANCE. The Owner, at the Owner's option, may purchase and
maintain such insurance as will insure the Owner against loss of use of the
Owner's property due to fire or other hazards, however caused. The Owner waives
all rights of action against the Contractor for loss of use of the Owner's
property, including consequential losses due to fire or other hazards however
caused.
11.3.4 If the Contractor requests in writing that insurance for risks other than
those described herein or for other special hazards be included in the property
insurance policy, the Owner shall, if possible, include such insurance, and the
cost there of shall be charged to the Contractor by appropriate Change Order.
11.3.5 If during the Project construction period the Owner insures properties,
real or personal or both, adjoining or adjacent to the site by property
insurance under policies separate from those insuring the Project, or if after
final payment property insurance is to be provided on the completed Project
through a policy or policies other than those insuring the Project during the
construction period, the Owner shall waive all rights in accordance with the
terms of Subparagraph 11.3.7 for damages caused by fire or other perils covered
by this separate property insurance. All separate policies shall provide this
waiver of subrogation by endorsement or otherwise.
11.3.6 Before an exposure to loss may occur, the Owner shall file with the
Contractor a copy of each policy that includes insurance coverages required by
this Paragraph 11.3. Each policy shall contain all generally applicable
conditions, definitions, exclusions and endorsements related to this Project.
Each policy shall contain a provision that the policy will not be cancelled or
allowed to expire until at least 30 days' prior written notice has been given to
the Contractor.
11.3.7 WAIVERS OF SUBROGATION. The Owner and Contractor waive all rights against
(1) each other and any of their subcontractors, sub-subcontractors, agents and
employees, each of the other, and (2) the Architect, Architect's consultants,
separate contractors described in Article 6, if any, and any of their
subcontractors, sub-subcontractors, agents and employees, for damages caused by
fire or other perils to the extent covered by property insurance obtained
pursuant to this Paragraph 11.3 or other property insurance applicable to the
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Work, except such rights as they have to proceeds of such insurance held by the
Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of
the Architect, Architect's consultants, separate contractors described in
Article 6, if any, and the subcontractors, sub-subcontractors, agents and
employees of any of them, by appropriate agreements, written where legally
required for validity, similar waivers each in favor of other parties enumerated
herein. The policies shall provide such waivers of subrogation by endorsement or
otherwise. A waiver of subrogation shall be effective as to a person or entity
even though that person or entity would otherwise have a duty of
indemnification, contractual or otherwise, did not pay the insurance premium
directly or indirectly, and whether or not the person or entity had an insurable
interest in the property damaged.
11.3.8 A loss insured under Owner's property insurance shall be adjusted by the
Owner as fiduciary and made payable to the Owner as fiduciary for the insureds,
as their interests may appear, subject to requirements of any applicable
mortgagee clause and of Subparagraph 11.3.10. The Contractor shall pay
Subcontractors their just shares of insurance proceeds received by the
Contractor, and by appropriate agreements, written where legally required for
validity, shall require Subcontractors to make payments to their
Sub-subcontractors in similar manner.
11.3.9 If required in writing by a party in interest, the Owner as fiduciary
shall, upon occurrence of an insured loss, give bond for proper performance of
the Owner's duties. The cost of required bonds shall be charged against proceeds
received as fiduciary. The Owner shall deposit in a separate account proceeds so
received, which the Owner shall distribute in accordance with such agreement as
the parties in interest may reach, or in accordance with an arbitration award in
which case the procedure shall be as provided in Paragraph 4.5. If after such
loss no other special agreement is made, replacement of damaged property shall
be covered by appropriate Change Order.
11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss with
insurers unless one of the parties in interest shall object in writing within
five days after occurrence of loss to the Owner's exercise of this power; if
such objection be made, arbitrators shall be chosen as provided in Paragraph
4.5. The Owner as fiduciary shall, in that case, make settlement with insurers
in accordance with directions of such arbitrators. If distribution of insurance
proceeds by arbitration is required, the arbitrators will direct such
distribution.
11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not
commence until the insurance company or companies providing property insurance
have consented to such partial occupancy or use by endorsement or otherwise. The
Owner and the Contractor shall take reasonable steps to obtain consent of the
insurance company or companies and shall, without mutual written consent, take
no action with respect to partial occupancy or use that would cause
cancellation, lapse or reduction of insurance.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 The Owner shall have the right to require the Contractor to furnish bonds
covering faithful performance of the Contract and payment of obligations arising
thereunder as stipulated in bidding requirements or specifically required in the
Contract Documents on the date of execution of the Contract.
11.4.2 Upon the request of any person or entity appearing to be a potential
beneficiary of bonds covering payment of obligations arising under the Contract,
the Contractor shall promptly furnish a copy of the bonds or shall permit a copy
to be made.
34
<PAGE> 61
ARTICLE 12
UNCOVERING AND CORRECTION OF WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Architect's request
or to requirements specifically expressed in the Contract Documents, it must, if
required in writing by the Architect, be uncovered for the Architect's
observation and be replaced at the Contractor's expense without change in the
Contract Time.
12.1.2 If a portion of the Work; has been covered which the Architect has not
specifically requested to observe prior to its being covered, the Architect may
request to see such Work and it shall be uncovered by the Contractor. If such
Work is in accordance with the Contract Documents, costs of uncovering and
replacement shall, by appropriate Change Order, be charged to the Owner. If such
Work is not in accordance with the Contract Documents, the Contractor shall pay
such costs unless the condition was caused by the Owner or a separate contractor
in which event the Owner shall be responsible for payment of such costs.
12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Architect or
failing to conform to the requirements of the Contract Documents, whether
observed before or after Substantial Completion and whether or not fabricated,
installed or completed. The Contractor shall bear costs of correcting such
rejected Work, including additional testing and inspections and compensation for
the Architect's services and expenses made necessary thereby.
12.2.2 If, within one year after the date of Substantial Completion of the Work
or designated portion thereof, or after the date for commencement of warranties
established under Subparagraph 9.9.1, or by terms of an applicable special
warranty required by the Contract Documents, any of the Work is found to be not
in accordance with the requirements of the Contract Documents, the Contractor
shall correct it promptly after receipt of written notice from the Owner to do
so unless the Owner has previously given the Contractor a written acceptance of
such condition. This period of one year shall be extended with respect to
portions of Work first performed after Substantial Completion by the period of
time between Substantial Completion and the actual performance of the Work. This
obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work
under the Contract and termination of the Contract. The Owner shall give such
notice promptly after discovery of the condition.
12.2.3 The Contractor shall remove from the site portions of the Work which are
not in accordance with the requirements of the Contract Documents and are
neither corrected by the Contractor nor accepted by the Owner.
12.2.4 If the Contractor fails to correct nonconforming Work within a reasonable
time, the Owner may correct it in accordance with Paragraph 2.4. If the
Contractor does not proceed with correction of such nonconforming Work within a
reasonable time fixed by written notice from the Architect, the Owner may remove
it and store the salvable materials or equipment at the Contractor's expense. If
the Contractor does not pay costs of such removal and storage within ten days
after written notice, the Owner may upon ten additional days written notice sell
such materials and equipment at auction or at private sale and shall account for
the proceeds thereof, after deducting costs and damages that should have been
borne by the Contractor, including compensation for the Architect's services and
expenses made necessary thereby. If such proceeds of sale do not cover costs
which the Contractor should have borne, the Contract Sum shall be reduced by the
deficiency. If payments then or thereafter due the Contractor are not sufficient
to cover such amount, the Contractor shall pay the difference to the Owner.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or separate
contractors caused by the Contractor's correction or removal of Work which is
not in accordance with the requirements of the Contract Documents.
35
<PAGE> 62
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to establish
a period of limitation with respect to other obligations which the Contractor
might have under the Contract Documents. Establishment of the time period of one
year as described in Subparagraph 12.2.2 relates only to the specific obligation
of the Contractor to correct the Work, and has no relationship to the time
within which the obligation to comply with the Contract Documents may be sought
to be enforced, nor to the time within which proceedings may be commenced to
establish the Contractor's liability with respect to the Contractor's
obligations other than specifically to correct the Work.
12.3 ACCEPTANCE OF NONCONFORMING WORK
12.3.1 If the Owner prefers to accept Work which is not in accordance with the
requirements of the Contract Documents, the Owner may do so instead of requiring
its removal and correction, in which case the Contract Sum will be reduced as
appropriate and equitable. Such adjustment shall be effected whether or not
final payment has been made.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW
13.1.1 The Contract shall be governed by the law of the place where the Project
is located.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 The Owner and Contractor respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto and to
partners, successors, assigns and legal representatives of such other party in
respect to covenants, agreements and obligations contained in the Contract
Documents. Neither party to the Contract shall assign the Contract as a whole
without written consent of the other. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under the Contract.
13.3 WRITTEN NOTICE
13.3.1 Written notice shall be deemed to have been duly served if delivered in
person to the individual or a member of the firm or entity or to an officer of
the corporation for which it was intended, or if delivered at or sent by
registered or certified mail to the last business address known to the party
giving notice.
13 4 RIGHTS AND REMEDIES
13.4.1 Duties and obligations imposed by the Contract Documents and rights and
remedies available thereunder shall be in addition to and not a limitation of
duties, obligations, rights and remedies otherwise imposed or available by law.
13.4 2 No action or failure to act by the Owner Architect or Contractor shall
constitute a waiver of a right or duty afforded them under the Contract, nor
shall such action or failure to act constitute approval of or acquiescence in a
breach thereunder, except as may be specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by the
Contract Documents or by laws, ordinances, rules, regulations or orders of
public authorities having jurisdiction shall be made at an appropriate time.
Unless otherwise provided, the Contractor shall make arrangements for such
tests, inspections and approvals with an independent testing laboratory or
entity acceptable to the Owner, or with the appropriate public authority, and
shall bear all related costs of tests, inspections and approvals. The Contractor
shall give the Architect timely notice of when and where tests and inspections
are to be made so
36
<PAGE> 63
the Architect may observe such procedures. The Owner shall bear costs of tests,
inspections or approvals which do not become requirements until after bids are
received or negotiations concluded.
13.5.2 If the Architect, Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing, inspection or
approval not included under Subparagraph 13.5.1, the Architect will, upon
written authorization from the Owner, instruct the Contractor to make
arrangements for such additional testing, inspection or approval by an entity
acceptable to the Owner, and the Contractor shall give timely notice to the
Architect of when and where tests and inspections are to be made so the
Architect may observe such procedures. The Owner shall bear such costs except as
provided in Subparagraph 13.5.3.
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to
comply with requirements established by the Contract Documents, the Contractor
shall bear all costs made necessary by such failure including those of repeated
procedures and compensation for the Architect's services and expenses.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the Contractor and
promptly delivered to the Architect
13.5.5 If the Architect is to observe tests, inspections or approvals required
by the Contract Documents, the Architect will do so promptly and, where
practicable, at the normal place of testing.
13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall
be made promptly to avoid unreasonable delay in the Work.
13.6 INTEREST
13.6.1 Payments due and unpaid under the Contract Documents shall bear interest
from the date payment is due at such rate as the parties may agree upon in
writing or, in the absence thereof, at the legal rate prevailing from time to
time at the place where the Project is located.
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and Contractor:
.1 BEFORE SUBSTANTIAL COMPLETION. As to acts or failures to act
occurring prior to the relevant date of Substantial Completion, any
applicable statute of limitations shall commence to run and any alleged
cause of action shall be deemed to have accrued in any and all events
not later than such date of Substantial Completion;
.2 BETWEEN SUBSTANTIAL COMPLETION AND FINAL CERTIFICATE FOR PAYMENT. As
to acts or failures to act occurring subsequent to the relevant date of
Substantial Completion and prior to issuance of the final Certificate
for Payment, any applicable statute of limitations shall commence to
run and any alleged cause of action shall be deemed to have accrued in
any and all events not later than the date of issuance of the final
Certificate for Payment; and
.3 AFTER FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act
occurring after the relevant date of issuance of the final Certificate
for Payment, any applicable statute of limitations shall commence to
run and any alleged cause of action shall be deemed to have accrued in
any and all events not later than the date of any act or failure to act
by the Contractor pursuant to any warranty provided under Paragraph
3.5, the date of any correction of the Work or failure to correct the
Work by the Contractor under Paragraph 12.2, or the date of actual
commission of any other act or failure to perform any duty or
obligation by the Contractor or Owner, whichever occurs last.
37
<PAGE> 64
ARTICLE 14
TERMINATION OR SUSPENSION OF THE CONTRACT
14.1 TERMINATION BY THE CONTRACTOR
14.1.1 The Contractor may terminate the Contract if the Work is stopped for a
period of 30 days through no act or fault of the Contractor or a Subcontractor,
Sub-subcontractor or their agents or employees or any other persons performing
portions of the Work under contract with the Contractor, for any of the
following reasons:
.1 issuance of an order of a court or other public authority having
jurisdiction;
.2 an act of government, such as a declaration of national emergency,
making material unavailable;
.3 because the Architect has not issued a Certificate for Payment and
has not notified the Contractor of the reason for withholding
certification as provided in subparagraph 9.4.1, or because the
Owner has not made payment on a Certificate for Payment within the
time stated in the Contract Documents;
.4 if repeated suspensions, delays or interruptions by the Owner as
described in Paragraph 14.3 constitute in the aggregate more than
100 percent of the total number of days scheduled for completion, or
120 days in any 365-day period, whichever is less; or
.5 the Owner has failed to furnish to the Contractor promptly, upon the
Contractor's request, reasonable evidence as required by
Subparagraph 2.2.1.
14.1.2 If one of the above reasons exists, the Contractor may, upon seven
additional days' written notice to the Owner and Architect, terminate the
Contract and recover from the Owner payment for Work executed and for proven
loss with respect to materials, equipment, tools, and construction equipment and
machinery, including reasonable overhead, profit and damages.
14.1.3 If the Work is stopped for a period of 60 days through no act or fault of
the Contractor or a Subcontractor or their agents or employees or any other
persons performing portions of the Work under contract with the Contractor
because the Owner has persistently failed to fulfill the Owner's obligations
under the Contract Documents with respect to matters important to the progress
of the Work, the Contractor may, upon seven additional days' written notice to
the Owner and the Architect, terminate the Contract and recover from the Owner
as provided in Subparagraph 14.1.2
14.2 TERMINATION BY THE OWNER FOR CAUSE
14.2.1 The Owner may terminate the Contract if the Contractor:
.1 persistently or repeatedly refuses or falls to supply enough
properly skilled workers or proper materials;
.2 fails to make payment to Subcontractors for materials or labor in
accordance with the respective agreements between the Contractor and
the Subcontractors;
.3 persistently disregards laws, ordinances, or rules, regulations or
orders of a public authority having jurisdiction; or
.4 otherwise is guilty of substantial breach of a provision of the
Contract Documents.
14.2.2 When any of the above reasons exist, the Owner, upon certification by the
Architect that sufficient cause exists to justify such action, may without
prejudice to any other rights or remedies of the Owner and after giving the
Contractor and the Contractor's surety, if any, seven days' written notice,
terminate employment of the Contractor and may, subject to any prior rights of
the surety:
38
<PAGE> 65
.1 take possession of the site and of all materials, equipment, tools,
and construction equipment and machinery thereon owned by the
Contractor;
.2 accept assignment of subcontracts pursuant to Paragraph 5.4; and
.3 finish the Work by whatever reasonable method the Owner may deem
expedient.
14.2.3 When the Owner terminates the Contract for one of the reasons stated in
Subparagraph 14.2.1, the Contractor shall not be entitled to receive further
payment until the Work is finished.
14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing the
Work, including compensation for the Architect's services and expenses made
necessary thereby, such excess shall be paid to the Contractor. If such costs
exceed the unpaid balance, the Contractor shall pay the difference to the Owner.
The amount to be paid to the Contractor or Owner, as the case may be, shall be
certified by the Architect, upon application, and this obligation for payment
shall survive termination of the Contract.
14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE
14.3.1 The Owner may, without cause, order the Contractor in writing to suspend,
delay or interrupt the Work in whole or in part for such period of time as the
Owner may determine.
14.3.2 An adjustment shall be made for increases in the cost of performance of
the Contract, including profit on the increased cost of performance, caused by
suspension, delay or interruption. No adjustment shall be made to the extent:
.1 that performance is, was or would have been so suspended, delayed or
interrupted by another cause for which the Contractor is
responsible; or
.2 that an equitable adjustment is made or denied under another
provision of this Contract.
14.3.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
39
<PAGE> 66
EXHIBIT "A"
INSIGHT OFFICE PROJECT
LIST OF CONTRACT DOCUMENTS
MARCH 12, 1996
Price of 02/21/96 based on the following:
<TABLE>
<CAPTION>
DRAWING
NO. DESCRIPTION DATE REVISION
--- ----------- ---- --------
CIVIL
-----
<S> <C> <C> <C>
C1 GRADING & DRAINAGE PLAN/OFFSITE PLAN 01/10/96 NONE
C2 GRADING & DRAINAGE PLAN 01/10/96 NONE
C3 STORMWATER POLUTION PREVENTION PLAN 01/10/96 NONE
ARCHITECTURAL
-------------
A0-0 COVER SHEET 01/15/96 NONE
A0-1 ABBREVIATION, SYMBOLS, NOTES 01/15/96 NONE
A0-2 ROOF PLAN 01/15/96 NONE
A1-1 OVERALL FLOOR PLAN 01/15/96 NONE
A1-2 FLOOR PLAN AREA "A" 01/15/96 NONE
A1-3 FLOOR PLAN AREA "B" 01/15/96 NONE
A1-4 FLOOR PLAN AREA "C" 01/15/96 NONE
A1-5 FLOOR PLAN AREA "D" 01/15/96 NONE
A1-6 FLOOR PLAN CORE AREA 01/15/96 NONE
A2-1 BUILDING ELEVATIONS 01/15/96 NONE
A2-2 BUILDING SECTIONS 01/15/96 NONE
A3-1 WALL SECTIONS 01/15/96 NONE
A3-2 WALL SECTIONS 01/15/96 NONE
A3-3 WALL PARTITIONS 01/15/96 NONE
A3-4 WALL PARTITIONS 01/15/96 NONE
A3-5 SECTIONS AND DETAILS 01/15/96 NONE
A4-1 ENLARGED TOILET ROOM PLANS 01/15/96 NONE
A4-2 1/4" FLOOR PLAN ENLARGEMENTS 01/15/96 NONE
A4-3 1/4" FLOOR PLAN ENLARGEMENTS 01/15/96 NONE
A5-1 LOBBY INTERIOR ELEVATIONS 01/15/96 NONE
A5-2 INTERIOR ELEVATIONS 01/15/96 NONE
A5-3 INTERIOR ELEVATIONS 01/15/96 NONE
A5-5 TOILET ROOM INTERIOR ELEVATIONS 01/15/96 NONE
A5-6 TOILET ROOM INTERIOR ELEVATIONS 01/15/96 NONE
A5-7 INTERIOR ELEVATIONS/SKYLIGHT SECTIONS 01/15/96 NONE
A5-8 EXECUTIVE AREA INTERIOR ELEVATIONS 01/15/96 NONE
A5-9 LUNCH ROOM INTERIOR ELEVATIONS 01/15/96 NONE
A6-1 STAIR/RAMP PLANS, DETAILS AND ELEVATIONS 01/15/96 NONE
A7-1 EXTERIOR DETAILS 01/15/96 NONE
A7-2 EXTERIOR DETAILS 01/15/96 NONE
A8-1 DOOR & DINTERIOR WINDOW SCHEDULES/DETAILS 01/15/96 NONE
A8-2 INTERIOR DETAILS 01/15/96 NONE
A8-3 INTERIOR DETAILS 01/15/96 NONE
A8-4 INTERIOR DETAILS 01/15/96 NONE
A8-5 STOREFRONT TYPES 01/15/96 NONE
A8-6 STOREFRONT TYPES 01/15/96 NONE
</TABLE>
1 OF 3
<PAGE> 67
<TABLE>
<CAPTION>
DRAWING
NO. DESCRIPTION DATE REVISION
--- ----------- ---- --------
CIVIL
-----
<S> <C> <C> <C>
A9-1 OVERALL REFLECTED CEILING PLAN 01/15/96 NONE
A9-2 REFLECTED CEILING AREA "A" 01/15/96 NONE
A9-3 REFLECTED CEILING AREA "B" 01/15/96 NONE
A9-4 REFLECTED CEILING AREA "C" 01/15/96 NONE
A9-5 REFLECTED CEILING AREA "D" 01/15/96 NONE
A9-6 ENLARGED REFLECTED CEILING PLAN
BOARD ROOM/CIRCULATION 01/15/96 NONE
A9-7 ENLARGED REFLECTED CEILING PLAN
LOBBY/RESTROOM 01/15/96 NONE
A9-8 ENLARGED REFLECTED CEILING PLAN
RESTROOM/NODES/EXTERIOR 01/15/96 NONE
A9-9 ENLARGED REFLECTED CEILING PLAN
LUNCH ROOM 01/15/96 NONE
A10-1 PANEL ELEVATIONS 01/15/96 NONE
A10-2 PANEL ELEVATIONS 01/15/96 NONE
A10-3 PANEL ELEVATIONS 01/15/96 NONE
A10-4 PANEL ELEVATIONS 01/15/96 NONE
A10-5 PANEL ELEVATIONS 01/15/96 NONE
A10-6 PANEL ELEVATIONS 01/15/96 NONE
STRUCTURAL
S1-1 GENERAL NOTES 01/15/96 NONE
S1-2 GENERAL NOTES - CONT., ABBREVIATIONS 01/15/96 NONE
S2-1 TYPICAL DETAILS - CONCRETE WALLS,
MASONRY WALLS, LINTELS 01/15/96 NONE
S2-2 TYPICAL DEILS - SLABS ON GRADE,
EQUIPMENT PAD 01/15/96 NONE
S2-3 TYPICAL DETAILS - WALL FOOTINGS,
COLUMN FOOTINGS 01/15/96 NONE
S3-1 FOUNDATION PLAN 01/15/96 NONE
S4-1 FOUNDATION DETAILS - BUILDING 01/15/96 NONE
S4-2 FOUNDATION DETAILS - BUILDING 01/15/96 NONE
S5-1 ROOF FRAMING PLAN - LOW ROOF 01/15/96 NONE
S5-2 ROOF FRAMING PLAN - HIGH ROOF 01/15/96 NONE
S6-1 ROOF FRAMING DETAILS 01/15/96 NONE
S6-2 ROOF FRAMING DETAILS 01/15/96 NONE
S7-1 STEEL FRAMING DETAILS - JOIST SCHEDULE,
DETAILS 01/15/96 NONE
S7-2 STEEL FRAMING DETAILS - COLUMNS, BEAMS 01/15/96 NONE
S7-3 STEEL FRAMING DETAILS 01/15/96 NONE
S8-1 WALL PANELS - REINFORCING 01/15/96 NONE
S8-2 WALL PANELS - CONNECTION DETAILS 01/15/96 NONE
MECHANICAL
M1-1 OVERALL MECHANICAL FLOOR PLAN
AND GENERAL NOTES 01/16/96 NONE
M1-2 AREA "A" MECHANICAL FLOOR PLAN 01/16/96 NONE
M1-3 AREA "B" MECHANICAL FLOOR PLAN 01/16/96 NONE
M1-4 AREA "C" MECHANICAL FLOOR PLAN 01/16/96 NONE
M1-5 AREA "D" MECHANICAL FLOOR PLAN 01/16/96 NONE
M2-1 OVERALL MECHANICAL FLOOR PLAN
AND GENERAL NOTES 01/16/96 NONE
M3-1 MECHANICAL DETAILS AND SCHEDULES 01/16/96 NONE
</TABLE>
2 OF 3
<PAGE> 68
<TABLE>
<CAPTION>
DRAWING
NO. DESCRIPTION DATE REVISION
--- ----------- ---- --------
CIVIL
-----
<S> <C> <C> <C>
PLUMBING
P1-0 NOTES, LEGENDS, SCHEDULES & CALCULATIONS 01/16/96 NONE
P1-1 OVERALL PLUMBING FLOOR PLAN 01/16/96 NONE
P1-2 AREA "A" PLUMBING FLOOR PLAN 01/16/96 NONE
P1-3 AREA "B" PLUMBING FLOOR PLAN 01/16/96 NONE
P1-4 AREA "C" PLUMBING FLOOR PLAN 01/16/96 NONE
P1-5 AREA "D" PLUMBING FLOOR PLAN 01/16/96 NONE
P2-1 DETAILS AND SCHEMACTCIS 01/16/96 NONE
ELECTRICAL
E0 ELECTRICAL SYMBOLS & SCHEDULES 11/29/95 NONE
E1-0 SITE PLAN 10/31/95 NONE
E1-1 OVERALL LIGHTING 12/11/95 NONE
E1-2 AREA "A" ELECTRICAL LIGHTING PLAN NOT DATED
E1-3 AREA "B" ELECTRICAL LIGHTING PLAN NOT DATED
E1-4 AREA "C" ELECTRICAL LIGHTING PLAN NOT DATED
E1-5 AREA "D" ELECTRICAL LIGHTING PLAN NOT DATED
E2-1 OVERALL POWER PLAN 10/24/95 NONE
E2-2 AREA "A" POWER PLAN 10/25/95 NONE
E2-3 AREA "B" POWER PLAN NOT DATED
E2-4 AREA "C" POWER PLAN 12/18/95 NONE
E2-5 AREA "D" POWER PLAN NOT DATED
E3 ONE-LINE DIAGRAM 10/24/95 NONE
E4 ROOF PLAN 11/28/95 NONE
E5 DETAILS 11/29/95 NONE
E6 PANEL SCHEDULES NOT DATED
E6-1 PANEL SCHEDULES NOT DATED
E6-2 PANEL SCHEDULES NOT DATED
LANDSCAPE
L1-1 LANDSCAPE PLAN/AREA 1 01/15/96 NONE
L1-2 LANDSCAPE PLAN/AREA 2 01/15/96 NONE
L1-3 LANDSCAPE PLAN/AREA 3 01/15/96 NONE
L1-4 LANDSCAPE PLAN/AREA 4 01/15/96 NONE
L1-5 PATIO LANDSCAPE PLANS AND INTERIOR PLANTER 01/15/96 NONE
L1-6 LANDSCAPE & IRRIGATION DETAILS 01/15/96 NONE
L1-7 GENERAL NOTES AND LEGENDS 01/15/96 NONE
L1-8 PATIO LAYOUT PLANS 01/15/96 NONE
L1-9 SITE DETAILS AND SCREEN WALL LAYOUTS 01/15/96 NONE
L2-1 IRRIGATION PLAN - AREA 1 01/15/96 NONE
L2-2 IRRIGATION PLAN - AREA 2 01/15/96 NONE
L2-3 IRRIGATION PLAN - AREA 3 01/15/96 NONE
L2-4 IRRIGATION PLAN - AREA 4 01/15/96 NONE
</TABLE>
ADDENDUMS INCLUDED: ADDENDUM #1 DATED 02/07/96
ADDENDUM #2 DATED 02/09/96
3 OF 3
<PAGE> 69
EXHIBIT H
INSIGHT OFFICE PROJECT
MODIFICATIONS TO
AIA A121/CMC
AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER
MARCH 12, 1996
2.1.8 Add at end: Also, if the Construction manager recognizes that any of the
drawings and specifications contain conflicts, errors or deficiencies, the
Construction Manager shall promptly notify the Architect and the Owner in
writing.
2.3.1.1(2)(C) Add at end: in the name of Construction Manager and not of Owner.
2.3.2.2 After (3), insert: ; and (4) has submitted performance and payment bonds
in the forms required for the Construction Manager, in the amount of the
Subcontract price and by a surety meeting all Arizona statutory requirements.
3.1.2 The existing language is deleted and the following language is
substituted: The Owner, upon written request from the Construction Manager,
shall, when construction financing is obtained, furnish evidence of such
financing. Construction Manager may also request evidence of such financing if
Owner enters into a sale/leaseback transaction or ownership of the project
changes, if Owner fails to make payment as required by the Agreement, if
Constructor has reasonable evidence of insolvency or inability to pay, or if the
Guaranteed Maximum Price increases to more that 120% of the original figure. All
requests by Construction Manager will be made to Owner and not to Owner's
lender.
3.1.4.2 Add at end: Notwithstanding the foregoing, verification of utilities
services and lines, both public and private, above and below grade, including
inverts and depths shall be the responsibility of the Construction Manager.
3.1.4.3 In second line after "Construction Manager", insert: when deemed
necessary by Owner or Architect.
3.1.4.5 In second line after "Construction Manager", insert: when deemed
necessary by Owner or Architect.
5.2.1 Since the Construction Manager is being paid for Pre-Construction
Services, which includes value engineering, a participation in cost savings
would be double compensation. This should be left blank.
5.3.1 DELETE IN ITS ENTIRETY AND SUBSTITUTE: SUBJECT TO THE PROVISIONS OF
SUBPARAGRAPH 5.1.1.
5.3.2 Add to the end of the first sentence, "except as provided in subparagraph
5.1.1."
5.3.3 Leave as is
5.3.4 Delete
1
<PAGE> 70
5.1.1 Add at end: The cost of the Work shall be the responsibility of the
Construction Manager.
7.1.2 This must not be left blank. Typically, the Owner pays by the 10th of the
calendar month for work performance through the 25th of the previous calendar
month. The time in between is needed for Architect's approval, verifications and
making arrangements for the Payment.
7.1.3 As above, first blank: 25th; second blank: 10th; third blank: following;
and fourth blank: 20.
7.1.7.3 Delete the first sentence and insert, "Add the Construction Manager's
Fee, less retainage against the progress payment of ten percent (10%). At
Owner's discretion, the retainage may be reduced to five percent (5%) when the
work reaches fifty percent (50%) completion.
7.1.8 Insert "ten percent (10%)". [subject to negotiation with subcontractors].
7.2.1 THE WORDS "30 DAYS" ARE DELETED AND THE WORDS "23 DAYS" ARE INSERTED IN
SUBPARAGRAPH (3).
7.2.3 The words "30 days" are deleted and the words "15 days" are inserted..[to
be reviewed by Insight]
8.1.1 Consult insurance expert for advice.
8.1.2 Consult insurance expert for advice.
8.1.3 Consult insurance expert for advice.
8.1.4 Consult insurance expert for advice, but we highly recommend a large
umbrella.
8.3.1 INSERT: SHALL NOT.
9.1 Delete and substitute the following: Any claim, dispute or other matter in
question arising out of or related to this Agreement or the breach thereof,
whenever and however arising, shall be resolved in accordance with Article 4 of
AIA Document A201, as amended.
9.2 Delete in its entirety.
9.3.5 Add at end: Notwithstanding the foregoing, Owner shall have the right to
assign the Contract at any time to any person or entity without the consent of
the Construction Manager.
10.1.3 In second line of third paragraph, delete "with the Owner's written
approval prior to the execution of Amendment No. 1."
10.2.2 Delete the last four lines, beginning with the work "except" and ending
with the work "completed".
2
<PAGE> 71
EXHIBIT I
INSIGHT OFFICE PROJECT
MODIFICATIONS TO
AIA DOCUMENT A201
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
MARCH 12, 1996
1.2.3 Add at end: To the extent there is any inconsistency between the Agreement
between the Owner and the Construction Manager and these General Conditions, the
Agreement shall prevail.
2.3.1 In fourth line, delete: persistently.
2.4.1 Change "seven" to "three".
3.2.1 In the second sentence after "recognized", insert or should reasonably
have recognized as an experienced contractor.
3.5.1 At end of first sentence insert: and that the Work shall be performed in a
good and workmanlike manner, and that the Project will be safe and habitable
upon completion.
3.12.6 In the first sentence, before the word "Architect" insert: Owner and the.
4.1.2 Delete last nine words beginning with "Contractor" and ending with
"withheld".
4.1.3 In third and fourth lines delete: against whom the Contractor makes no
reasonable objection. Add at end: Owner shall notify Contractor promptly upon
making this change.
4.1.4 Delete this in its entirety.
4.2.2 In the first sentence delete: "generally", "completed" (in the fourth
line), and "a manner indicating that the work, when completed, will be". Delete
the second sentence in its entirety. In the last sentence, delete "endeavors
to".
4.2.3 Add at end: The Architect will notify the Owner promptly of any failure to
comply with the Contract Documents or any failure to use proper construction
means, materials or procedures, but only to the extent the Architect becomes, or
reasonably should become, aware of the same.
4.2.4 In first sentence delete: "Owner and", "endeavor to" and "through". In
lieu of "through", insert: directly to Owner with copy to.
4.2.5 In third line, after "and" insert: after consultation with Owner.
4.2.6 In first line, after "have" insert: the responsibility and. In the second
line, after "contract Documents" insert: , and shall do so unless, after
consultation with Owner in each instance, Owner instructs otherwise. Delete the
last sentence in its entirety.
1
<PAGE> 72
4.2.7 In the first line, after "will" insert: promptly: and after "approve"
insert: or reject. In the first sentence delete the clause beginning with "but"
and ending with "documents." In the tenth line, delete "sufficient" and
substitute "reasonable". In the tenth and eleventh lines, delete "in the
Architect's professional judgment". In the eleventh line after "review" insert:
not to exceed ten working days. Delete third sentence in its entirety. Delete
fifth sentence in its entirety.
4.2.8 At end add: All Change Orders, Construction Change Directives, and field
directives shall require the approval of Owner in writing to be binding on
Owner.
4.2.9 In seventh line, after "issue a" insert: Certificate of Substantial
Completion and a.
4.2.11 At end add: Should a conflict be discovered within the Contract
Documents, the Contractor shall be deemed to have agreed to perform the Work to
the most stringent standards or in the highest quality manner of performing the
Work.
4.2.12 Delete the last sentence in its entirety.
4.2.13 Add at end: and if the Owner consents in writing to such decisions.
4.3.2 Delete this in its entirety.
4.3.3 In the fourth line delete: the claimant first recognizes. In the fifth
line after "claim" insert "became apparent". In the sixth line, after "notice"
insert: to the other party with copy to the Architect. Delete the last sentence
in its entirety.
4.3.4 In the next-to-last line after "payments" insert: for those portions of
the Work not in dispute.
4.3.6 In the tenth, eleventh and twelfth lines, delete the phrase beginning with
"notice" and ending with "promptly" and substitute: the Contractor shall
immediately give notice to the Owner.
4.3.7 At the end add: Notice under this subparagraph shall itemize all Claims
and shall contain sufficient detail and substantiating data to permit evaluation
to Owner and Architect. No such claim shall be valid unless so made.
4.4.4 In lines six and seven delete: which decision shall be final and binding
on the parties, but subject to arbitration. For deletion substitute: which
decision shall be subject to the procedures in Subparagraph 4.3.
4.5 Delete existing language and substitute Arizona Uniform Arbitration Act as
follows:
4.5 NEGOTIATION, MEDIATION AND ARBITRATION.
4.5.1 DISPUTES AND CLAIMS. Any Claim, dispute or other matter in controversy
arising out of or related to the Contract, or the breach thereof, shall be
settled according to the procedures set forth in Paragraph 4.4 and this
Paragraph 4.5 exclusive; provided, however, that (1) the Owner or the Contractor
may seek preliminary judicial relief if, in its judgment, such action is
necessary to avoid irreparable damage during the pendency of such procedures,
and (2) nothing in Paragraphs 4.4 and 4.5 shall prevent the Owner or the
Contractor from exercising the rights of termination or suspension set forth in
Article 14. Despite such judicial, termination or suspension action, the Owner
and the Contractor will continue to participate in good faith in such
procedures.
2
<PAGE> 73
4.5.2 NEGOTIATION. If a Claim, dispute or other matter is not resolved under
Paragraph 4.4, the Owner and the Contractor shall endeavor in good faith to
resolve the Claim or dispute by direct negotiations between representatives of
the parties who have full authority to settle the matter. Such negotiations
shall be conducted in the spirit of collaboration and compromise to avoid more
extreme dispute resolution procedures and at the same time approximating
satisfaction of the mutual interest of the parties.
4.5.3 MEDIATION. If the Claim, dispute or other matter has not been settled by
direct negotiations within thirty (30) days after either party gives notice of a
Claim or dispute to the other party, then the parties agree to try in good faith
to settle the dispute by mediation in Phoenix, Arizona administered by the
American Arbitration Association ("AAA") under its Construction Mediation Rules.
4.5.3.1 Unless otherwise agreed in writing by the parties, mediation will be
commenced by notice of mediation filed by either party with the other and the
AAA, with copy to the Architect, within ten (10) working days after the first to
occur of the following: (1) the date on which the Architect has rendered a final
written decision on the Claim, (2) the tenth (10th) day after the parties have
presented evidence to the Architect, or been given a reasonable opportunity to
do so, under Paragraph 4.4, if the Architect has not rendered a final decision
by that date, or (3) any of the five (5) events described in Subparagraph 4.3.2.
The time limits for any subsequent arbitration will be extended for the duration
of the mediation process plus fourteen (14) calendar days. Issues to be mediated
are subject to the exception in Subparagraph 4.4.5.3 for arbitration.
4.5.3.2 In the event either party to the Claim, dispute or other matter has need
for material information in the possession of the other in order to prepare for
mediation, the parties shall attempt in good faith to agree to procedures for
the exchange of such information, with the help of the mediator, if required.
Any discovery disputes will be resolved by the mediator.
4.5.3.3 The mediation proceedings are confidential, and no stenographic, visual
or audio record shall be made. All conduct, statements, promises, offers, views,
documents, records, papers and opinions, whether oral or written, made or
delivered in the course of the mediation proceedings by any of the parties to
the dispute, their agents, employees or representatives, and by the mediator
(who will be the joint agent of the parties for the purpose of the mediation
proceedings), are confidential and shall be kept confidential by all parties to
the dispute and the mediator. Such conduct, statements, promises, offers, views,
documents, records, papers and opinions shall not be discoverable or admissible
for any purposes, and shall not be disclosed to anyone not a party to the
dispute; provided, however, that (i) the fact that the parties have reached a
settlement of their dispute may be made to anyone, and (ii) by agreement of the
parties, the settlement agreement may be converted into an arbitration award,
and the award, in turn, may be enforced by any court having jurisdiction.
4.5.4 ARBITRATION. If the parties have first attempted in good faith to resolve
the Claim, dispute or other matter by negotiation as provided in Subparagraph
4.5.2, and then by mediation as provided in Subparagraph 4.5.3, and if the
matter is not resolved within sixty (60) days after mediation is initiated, or
within sixty (60) days after the mediator sooner determines or the parties
sooner agree in writing, that the dispute cannot be resolved by mediation, then
the dispute shall be settled by arbitration in Phoenix, Arizona in accordance
with the AAA Construction Rules of Arbitration (" RULES"), as supplemented or
modified by the following:
4.5.4.1 Notice of demand for arbitration shall be filed with the other party and
the AAA, with copy to the Architect, within the sixty-day period set forth in
Subparagraph 4.5.4.
3
<PAGE> 74
4.5.4.2 Notwithstanding any choice of law or other provisions of this Agreement
to the contrary, this agreement to arbitrate shall be governed by the ARIZONA
UNIFORM ARBITRATION ACT (the ACT"), which shall not be superseded or
supplemented by any other arbitration act, statute or regulation.
4.5.4.3 In the event the parties determine that all or a portion of any Claim,
dispute or other matter in question between them is the responsibility in whole
or in part of a person or entity who is under no obligation to arbitrate such
matter with the parties in the same proceeding, then the parties shall, in the
absence of an agreement between them to the contrary, delay or stay any
arbitration between them pending the determination, in a separate proceeding, of
the responsibility and liability of such person or entity for the Claim, dispute
or matter involved. Each party agrees that the arbitration instituted by them
under this Subparagraph 4.5.4 may, at the election of the other part, be
consolidated with any other arbitration proceeding involving a common question
of fact or law between the electing party and any other persons or entities. In
any dispute concerning the application of this Subparagraph 4.5.4, the question
of arbitrability shall be decided by the appropriate court and not by
arbitration. The Contractor agrees that in all contracts with Subcontractors and
suppliers there shall be provisions (1) that are substantially identical to the
provisions of this Paragraph 4.5, and (2) that require such provisions to be
inserted in all sub-subcontracts and all supply contracts to the Subcontractors,
and (3) that require all Subcontractors, sub-subcontractors and suppliers to any
of them to join in any arbitration proceedings between the Owner and the
Contractor involving a common question of fact or law with respect to the action
or nonaction of such Subcontractors, sub-subcontractors and suppliers.
4.5.4.4 A party who files a notice of demand for arbitration must assert in the
demand all Claims, disputes or other matters then known to that party on which
arbitration is permitted to be demanded. When a party fails to include a Claim
through oversight, inadvertence of excusable neglect, or when the Claim had
matured or been acquired subsequently, the arbitration panel shall permit
amendment. In no event shall a demand for arbitration be made when the
institution of legal or equitable proceedings based on such Claim, dispute or
other matter in question would be barred by laches or any applicable statute of
limitations.
4.5.4.5 If the claim in the dispute does not exceed $25,000, there shall be a
single arbitrator [selected by mutual agreement of the parties] appointed
according to the Rules. If the claim in the dispute exceeds $25,000, the
arbitration panel shall consist of three (3) members, one of whom shall be
selected by each party and the third shall be selected by the two (2) so
selected. If either party fails to select an arbitrator within ten (10) days
after a demand for arbitration, or if the two arbitrators named by the parties
fail to agree upon a third within ten days after the last of them have been
appointed, then AAA shall select the arbitrator(s). All arbitrators must be
neutral and must be knowledgeable and experienced in the subject matter of the
dispute. The mediator who has served in that capacity under Subparagraph 4.5.3
or otherwise shall not be eligible to serve as an arbitrator.
4.5.4.6 In advance of the hearing, the arbitrator(s) may compel the parties to
exchange a detailed statement of their claims, including the names and addresses
of the witnesses and a brief description of the documents on which they intend
to rely. The arbitrator(s) may exclude from the hearing the introduction of any
evidence or the testimony of any witness not disclosed to the other party in
advance as ordered by the arbitrator(s). The arbitrator(s) may also permit the
oral depositions of the parties to be taken. However, there shall be no other
pre-hearing discovery unless and then only to the extent that all parties
otherwise agree in writing.
4
<PAGE> 75
4.5.5.7 Except for good cause, or in case of emergency, the arbitrator(s) shall
commence and proceed with the hearing each business day thereafter until
concluded. The intent of this paragraph is to prevent breaks and disruptions in
the hearing process except for unusual and unanticipated circumstances.
4.5.4.8 The award may not grant any relief that could not be granted in court
litigation to resolve the dispute under the law of the place governing the
substance of the dispute. A monetary award may only be made for compensatory
damages, and if any other damages (whether exemplary, punitive, consequential or
other) are included, the award shall be vacated and remanded, or modified or
corrected as appropriate to promote this damage limitation. The arbitration
panel shall award the prevailing party its reasonable attorney's fees and costs
incurred in connection with the arbitration. "Prevailing party" for this purpose
includes any party who succeeds, by claim or counterclaim, in court proceedings
to stay litigation or compel arbitration. In addition, the arbitration panel
shall award the costs of administration by AAA as it may in its judgment decide.
4.5.4.9 The arbitration award shall be in writing and shall include findings of
fact and conclusions of law. The findings of fact shall be final and binding.
Subject to Subparagraph 4.5.4.8 below, the award rendered by the arbitrator(s)
shall be final and judgment may be entered upon it in accordance with the Act in
any court having jurisdiction.
4.5.4.10 Either party can appeal AS PERMITTED UNDER THE ADR CLAUSE if the award
is clearly contrary to the intent of this Contract or to the law of Arizona.
5.3.1 In first line after "appropriate" insert "written", and delete: written
where legally required for validity.
5.4.1.1 Delete the language "for cause pursuant to paragraph 14.2"
6.2.5 Add to the end of the subparagraph: Contractor shall indemnify and save
Owner harmless against all loss, cost, damage and expense, including attorney's
fees, arising from or related to any such claims or disputes, to the extent of
contractor's negligence.
7.1.1 When submitting a Change Order proposal, or when a Change Order proposal
is requested from the Contractor, the Contractor shall include in the proposal a
clear and precise breakdown of the actual cost of labor and materials for all
trades involved and the estimated impact on the construction schedule.
7.3.6.5 Delete this subparagraph in its entirety.
7.3.3.2 Delete in its entirety.
7.3.3.3 Delete in its entirety.
7.3.3.4 Delete as written and substitute: as provided in Subparagraph 5.3 of the
Agreement Between Owner and Construction Manager.
7.3.6 Delete in its entirety and substitute: If the Contractor does not respond
promptly or disagrees with the method for determining the amount to be paid to
or credited by the Contractor, the amount shall be determined in accordance with
Subparagraph 5.3 of the Agreement Between Owner and Construction Manager.
5
<PAGE> 76
7.3.7 Delete last sentence.
8.1.3 After "Architect" insert: and approved by Owner.
8.3.1 In the eighth line, after "control" insert: "and which could not have been
foreseen by a reasonable contractor at the time of contracting" and delete the
words beginning with "only" and ending with "pending arbitration." In the ninth
line substitute "Owner" for "Architect". At the end of the subparagraph add:
"and contractor shall be entitled its time sensitive general conditions but
otherwise not to any damages or other relief of any kind or nature. Any such
extension of Contract Time shall be net of any delays caused by or due to the
fault or negligence of the Contractor or otherwise the responsibility of the
Contractor and shall be net of any contingency of "float" time allowance
included in the Contractor's construction schedule. The Contractor shall, in the
event of any occurrence likely to cause delay, notify Owner and Architect
promptly of such occurrence."
9.5.1.6 In the second line, substitute "or" for "and".
9.5.1.7 In the first line delete "persistent".
9.6.1 At end add: the Owner may refuse to make payment on any Certificate of
Payment for any default of the Contract Documents, and Owner shall not be in
default for withholding payment while any default of Contractor remains uncured.
10.1.1 At end add: and as required by the Owner's Safety Engineer, if any.
11.3.1.3 Notwithstanding the foregoing, the Contractor shall be responsible for
all damage and loss caused by Contractor's negligence or intentional acts to the
extent of any deductibles or lack of insurance.
12.2.2 Delete first and second lines beginning with "one" and ending with
"Completion" and substitute: 14 months after the issuance of the Certificate of
Substantial Compleion as established by written Certificate of Substantial
Completion
12.2.3 In the second line after "are" insert: defective or otherwise.
12.2.1 At end of first sentence insert: or under law or in equity. In the second
sentence delete: of one year as.
13.2.1 Delete second and third sentences and substitute: Contractor shall not
assign the Contract as a whole or in part without the written consent of the
Owner. Any attempted assignment by Contractor shall be null and void. At the end
add: Owner may assign all or any portion of its rights and obligations under the
Contract, and Contractor agrees to enter into an agreement with any such
assignee to complete the Work and perform all its obligations hereunder, subject
only to payment so herein provided.
13.8 [NEW] LENDER COOPERATION
13.8.1 Contractor shall provide all documents, reports and other information
requested by any lender, escrow agent or title insurer and shall cooperate with
such entities to the fullest extent possible. 14.1.1.5 Delete in its entirety.
6
<PAGE> 77
14.2.1.1 Add sub-subparagraph .4 as follows: .3 fails to timely discharge or
bond over liens recorded against the project.
14.2.1.2 Delete: in accordance with the respective agreements between the
Contractor and the Subcontractor.
14.3.2 Delete the work "delay". [Johnson Carlier to review suspension provisions
in subcontracts.]
14.4 [NEW] TERMINATION FOR CONVENIENCE
14.4.1 Upon seven (7) days written notice to Contractor, Owner may, without
cause and without prejudice to any other right or remedy, elect to terminate the
Contract. Immediately upon receipt of written notice to terminate, Contractor
shall cease all activities relating to the Work, unless otherwise specifically
directed by the written notice to terminate. In the event of such termination,
Contractor shall receive as its sole and exclusive compensation (measure of
damages) the Cost of the Work performed to the effective date of termination,
plus a proportionate amount of the Construction Manager's fee based on the
percentage of Work completed on the Project to the effective date of
termination. "Cost of the Work" and "Construction Manager's Fee" are defined in
the Agreement Between Owner and Construction Manager.
7
<PAGE> 78
Date 02/21/96
Time 08:47:00
Estimator J.MICHAELS
Estimate GMP #1
EXHIBIT "J"
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SUMMARY
Project :Insight - GMP #1 02/21/96 Bid Closing 2/14/96
Location:Tempe, Az, 2:00 PM
Bldg. Sq. 98300
<PAGE> 79
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SUMMARY
ESTIMATE # GMP #1 03/13/96
PROJECT Insight - GMP #1 02/21/96 10:01:09
LOCATION Tempe, Az, J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION % TOTAL UNIT COST TOTAL LABOR COST MATERIAL SUBCONTRACT TOTAL COMMENTS
COST BLDNG. AREA MANHOURS TOTAL COST COST
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SITEWORK 7.04% 4.47 0 0 0 439,200 439,200
BUILDING EXCAVATION 1.52% 0.97 0 0 0 95,000 95,000
LOOSE FORMWORK 16.47% 10.46 0 0 0 1,028,000 1,028,000
GANG & FLY FORMWORK 0.00% 0.00 0 0 0 0 0
CONCRETE AND PLACING 0.00% 0.00 0 0 0 0 0
CEM FINISH/CONC SPEC 0.00% 0.00 0 0 0 0 0
REINFORCING STEEL 0.00% 0.00 0 0 0 0 0
PRECAST CONCRETE 0.00% 0.00 0 0 0 0 0
MASONRY 0.72% 0.46 0 0 0 45,000 45,000
METALS 12.88% 8.18 0 0 0 804,000 804,000
WOOD AND PLASTICS 1.20% 0.76 495 9,900 11,350 53,500 74,750
THERM./MOIST. PROTECT 4.42% 2.81 10 200 500 275,200 275,900
DOORS & WINDOWS 3.39% 2.16 112 2,131 35,000 174,805 211,936
FINISHES 10.60% 6.73 762 14,476 14,264 632,800 661,540
SPECIALTIES 0.37% 0.23 24 600 2,400 20,000 23,000
BUILDING EQUIPMENT 0.12% 0.08 40 1,000 0 6,500 7,500
FURNISHINGS 0.00% 0.00 0 0 0 0 0
SPECIAL CONSTRUCTION 0.00% 0.00 0 0 0 0 0
CONVEYING SYSTEMS 0.00% 0.00 0 0 0 0 0
MECHANICAL 15.20% 9.65 0 0 0 949,000 949,000
ELECTRICAL 11.88% 7.54 40 880 7,550 733,000 741,430
CASH ALLOWANCES 1.56% 0.99 0 0 0 97,500 97,500
TOTAL DIRECT COST 87.36% 55.48 1,483 29,187 71,064 5,353,505 5,453,756
PROJECT STAFF 1.72% 1.09 3,120 107,130 0 0 107,130
CONSTRUCTION EQUIPMENT 0.25% 0.16 0 0 15,380 0 15,380
PROJECT OVERHEAD 0.44% 0.28 52 1,040 26,185 500 27,725
TOTAL GENERAL CONDITIONS 2.41% 1.53 3,172 108,170 41,565 500 150,235 21,462
PER MONTH
FEES /INSURANCES/BONDS 5.24% 3.32 326,819 326,819
TOTAL COST 95.00% 60.33 4,655 137,357 439,448 5,354,005 5,930,810
FEE 5.00% 3.18 312,148 0.0500
FEE %
TOTAL BID 100.00% 63.51 6,242,958
</TABLE>
<PAGE> 80
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST SUBTRADE COST
PROD TOTAL RATE TOTAL UNIT TOTAL UNIT TOTAL
SITEWORK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
H ASPHALT PAVING 1 LS 0.000 0 0.00 0 0.00 0 160000.00 160,000
H LINE PAINTING 1 LS 0.000 0 0.00 0 0.00 0 1700.00 1,700
H EXTRUDED CURBS 1 LS 0.000 0 0.00 0 0.00 0 12500.00 12,500
H TERMITE CONTROL 1 LS 0.000 0 0.00 0 0.00 0 16000.00 16,000
H LANDSCAPING 1 LS 0.000 0 0.00 0 0.00 0 173000.00 173,000
S SITE UTILITIES 1 LS 0.000 0 0.00 0 0.00 0 65000.00 65,000
S DRYWELLS 1 LS 0.000 0 0.00 0 0.00 0 11000.00 11,000
TOTAL SITEWORK 1 LS 0.000 0 ERR 0 0.00 0 0.00 439,200
BUILDING EXCAVATION
H EARTHWORK 1 LS 0.000 0 0.00 0 0.00 0 95000.00 95,000
TOTAL BUILDING EXCAVATION 1 LS 0 ERR 0 0 95,000
LOOSE FORMWORK
H FORM/PLACE/FINISH CONCRETE 1 LS 0.000 0 0.00 0 0.00 0 1028000.00 1,028,000
TOTAL LOOSE FORMWORK 0 SF ERR 0 ERR 0 ERR 0 ERR 1,028,000
GANG & FLY FORMWORK
TOTAL GANG & FLY FORMWORK 0 SF ERR 0 ERR 0 ERR 0 ERR 0
<CAPTION>
COST CODE DESCRIPTION TOTAL
DIRECT COST
- -----------------------------------------------------------
SITEWORK
<S> <C>
H ASPHALT PAVING 160,000
H LINE PAINTING 1,700
H EXTRUDED CURBS 12,500
H TERMITE CONTROL 16,000
H LANDSCAPING 173,000
S SITE UTILITIES 65,000
S DRYWELLS 11,000
TOTAL SITEWORK 439,200
BUILDING EXCAVATION
H EARTHWORK 95,000
TOTAL BUILDING EXCAVATION 95,000
LOOSE FORMWORK
H FORM/PLACE/FINISH CONCRETE 1,028,000
TOTAL LOOSE FORMWORK 1,028,000
GANG & FLY FORMWORK
TOTAL GANG & FLY FORMWORK 0
</TABLE>
<PAGE> 81
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST SUBTRADE COST
PROD TOTAL RATE TOTAL UNIT TOTAL UNIT TOTAL
SITEWORK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONCRETE AND PLACING
TOTAL CONCRETE AND PLACING 0 CY ERR 0 ERR 0 ERR 0 ERR 0
CEM FINISH/CONC SPEC
TOTAL CEM FINISH/CONC SPEC 1 LS 0 ERR 0 0 0
REINFORCING STEEL
TOTAL REINFORCING STEEL 1 LS 0 0 0 0
PRECAST CONCRETE
TOTAL PRECAST CONCRETE 1 LS 0 0.00 0 0 0
MASONRY
<CAPTION>
COST CODE DESCRIPTION
TOTAL
SITEWORK DIRECT COST
- ------------------------------------------------------------
<S> <C>
CONCRETE AND PLACING 0
TOTAL CONCRETE AND PLACING
CEM FINISH/CONC SPEC
TOTAL CEM FINISH/CONC SPEC 0
REINFORCING STEEL
TOTAL REINFORCING STEEL 0
PRECAST CONCRETE
TOTAL PRECAST CONCRETE 0
MASONRY
</TABLE>
<PAGE> 82
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST SUBTRADE COST
PROD TOTAL RATE TOTAL UNIT TOTAL UNIT TOTAL
SITEWORK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
H MASONRY 1 LS 0.000 0 0.00 0 0.00 0 45000.00 45,000
TOTAL MASONRY 1 LS 0 ERR 0 0 45,000
METALS
H STRUCT STEEL/METAL DECK/MISC 1 LS 0.000 0 0.00 0 0.00 0 795000.00 795,000
S EXPANSION JOINTS 1 LS 0.000 0 0.00 0 0.00 0 9000.00 9,000
TOTAL METALS 1 LS 0 ERR 0 0 804,000
WOOD AND PLASTICS
H ROOF BLOCKING 5,500 BF 0.055 303 20.00 6,050 1.15 6,325 0.00 0
H MISC WOOD BLOCKING 3,500 BF 0.055 193 20.00 3,850 1.15 4,025 0.00 0
H NAILS/ROUGH HARDWARE 1 LS 0.000 0 0.00 0 1000.00 1,000 0.00 0
H MILLWORK 1 LS 0.000 0 0.00 0 0.00 0 53500.00 53,500
TOTAL WOODS AND PLASTICS 1 LS 495 20.00 9,900 11,350 53,500
THERM/MOIST PROTECT
H INSULATION 1 LS 0.000 0 0.00 0 0.00 0 29000.00 29,000
H ROOFING 1 LS 0.000 0 0.00 0 0.00 0 207000.00 207,000
H METAL SIDING 1 LS 0.000 0 0.00 0 0.00 0 16300.00 16,300
H FLASHING/SHEET METAL-W/MECHANICAL 1 LS 0.000 0 0.00 0 0.00 0 0.00 0
H ROOF ACESSORIES 1 LS 10.000 10 20.00 200 500.00 500 0.00 0
H SKYLIGHTS 1 LS 0.000 0 0.00 0 0.00 0 4400.00 4,400
H CAULKING/SEALANTS 1 LS 0.000 0 0.00 0 0.00 0 18500.00 18,500
TOTAL THERM/MOIST PROTECT 1 LS 10 0.00 200 500 275,200
<CAPTION>
COST CODE DESCRIPTION
TOTAL
SITEWORK DIRECT COST
- ----------------------------------------------------------------
<S> <C>
H MASONRY 45,000
TOTAL MASONRY 45,000
METALS
H STRUCT STEEL/METAL DECK/MISC 795,000
S EXPANSION JOINTS 9,000
TOTAL METALS 804,000
WOOD AND PLASTICS
H ROOF BLOCKING 12,375
H MISC WOOD BLOCKING 7,875
H NAILS/ROUGH HARDWARE 1,000
H MILLWORK 53,500
TOTAL WOODS AND PLASTICS 74,750
THERM/MOIST PROTECT
H INSULATION 29,000
H ROOFING 207,000
H METAL SIDING 16,300
H FLASHING/SHEET METAL-W/MECHANICAL 0
H ROOF ACESSORIES 700
H SKYLIGHTS 4,400
H CAULKING/SEALANTS 18,500
TOTAL THERM/MOIST PROTECT 275,900
</TABLE>
<PAGE> 83
JOHNSON CARLIER
Phoenix, Arizona
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST SUBTRADE COST
PROD TOTAL RATE TOTAL UNIT TOTAL UNIT TOTAL
SITEWORK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOORS AND WINDOWS
H METAL DOORS/FRAMES 1 LS 0.000 0 0.00 0 11500.00 11,500 0.00 0
H DOORS-INSTALL 1 LS 0.000 0 0.00 0 0.00 0 10000.00 10,000
H PS FRAMES-INSTALL-BY DRYWALLER 1 LS 1.000 1 22.00 22 0.00 0 0.00 0
H PS FRAMES/DOORS-HANDLE/SORT 222 EA 0.500 111 19.00 2,109 0.00 0 0.00 0
H GLAZING 1 LS 0.000 0 0.00 0 0.00 0 88855.00 88,855
H WOOD DOORS 1 LS 0.000 0 0.00 0 23500.00 23,500 0.00 0
S ACCESS DOORS 1 LS 0.000 0 0.00 0 0.00 0 1500.00 1,500
H O/H DOORS 1 LS 0.000 0 0.00 0 0.00 0 24200.00 24,200
H COILING DOORS 1 LS 0.000 0 0.00 0 0.00 0 16750.00 16,750
H FINISH HARDWARE 1 LS 0.000 0 0.00 0 0.00 0 33500.00 33,500
TOTAL DOORS AND WINDOWS 1 LS 112 19.03 2,131 35,000 174,805
FINISHES
H DRYWALL/FRAMING/PAINTING 1 LS 0.000 0 0.00 0 0.00 0 340000.00 340,000
H ACOUSTICAL CEILINGS 1 LS 0.000 0 0.00 0 0.00 0 82800.00 82,800
H CARPET/VCT 1 LS 0.000 0 0.00 0 0.00 0 174000.00 174,000
H CERAMIC TILE 1 LS 0.000 0 0.00 0 0.00 0 36000.00 36,000
H HOUSEKEEPING 462 HRS 1.000 462 18.00 8,316 0.00 0 0.00 0
H DUMP BOXES 30 EA 0.000 0 0.00 0 200.00 6,000 0.00 0
H FINAL CLEAN-BUILDING 98,300 SF 0.000 0 0.00 0 0.08 7,864 0.00 0
H FINAL CLEAN-SITE 120 HRS 1.000 120 18.00 2,160 0.00 0 0.00 0
H EXPIDITE PUNCH LIST 80 HRS 1.000 80 25.00 2,000 5.00 400 0.00 0
H OVERTIME - MISC ONLY 100 HRS 1.000 100 20.00 2,000 0.00 0 0.00 0
TOTAL FINISHES 1 LS 762 0.00 14,476 14,264 632,800
<CAPTION>
COST CODE DESCRIPTION
TOTAL
SITEWORK DIRECT COST
- -----------------------------------------------------------------
<S> <C>
DOORS AND WINDOWS
H METAL DOORS/FRAMES 11,500
H DOORS-INSTALL 10,000
H PS FRAMES-INSTALL-BY DRYWALLER 22
H PS FRAMES/DOORS-HANDLE/SORT 2,109
H GLAZING 88,855
H WOOD DOORS 23,500
S ACCESS DOORS 1,500
H O/H DOORS 24,200
H COILING DOORS 16,750
H FINISH HARDWARE 33,500
TOTAL DOORS AND WINDOWS 211,936
FINISHES
H DRYWALL/FRAMING/PAINTING 340,000
H ACOUSTICAL CEILINGS 82,800
H CARPET/VCT 174,000
H CERAMIC TILE 36,000
H HOUSEKEEPING 8,316
H DUMP BOXES 6,000
H FINAL CLEAN-BUILDING 7,864
H FINAL CLEAN-SITE 2,160
H EXPIDITE PUNCH LIST 2,400
H OVERTIME - MISC ONLY 2,000
TOTAL FINISHES 661,540
</TABLE>
<PAGE> 84
JOHNSON CARLIER
PHOENIX, ARIZONA
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST
-------------- ------------- ----------------
PROD TOTAL RATE TOTAL UNIT TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPECIALTIES
H PARTITIONS/ACCESSORIES 1 LS 0.000 0 0.00 0 0.00 0
H SIGNAGE-BY OWNER 1 LS 0.000 0 0.00 0 0.00 0
S FIRE EXTINGUISHERS/CABS 1 LS 24.000 24 25.00 600 2400.00 2,400
================================================================================================================
TOTAL SPECIALTIES 1 LS 24 0.00 600 2,400
================================================================================================================
BUILDING EQUIPMENT
H PROJECTION SCREENS 1 LS 40.000 40 25.00 1,000 0.00 0
================================================================================================================
TOTAL BUILDING EQUIPMENT 1 LS 40 0.00 1,000 0
================================================================================================================
FURNISHINGS
H BLINDS/DRAPES -BY OWNER 1 LS 0.000 0 0.00 0 0.00 0
================================================================================================================
TOTAL FURNISHINGS 1 LS 0 0.00 0 0
================================================================================================================
SPECIAL CONSTRUCTION
================================================================================================================
TOTAL SPECIAL CONSTRUCTION 1 LS 0 0.00 0 0
================================================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM SUBTRADE COST
---------------- TOTAL
UNIT TOTAL DIRECT COST
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SPECIALTIES
H PARTITIONS/ACCESSORIES 1 LS 20000.00 20,000 20,000
H SIGNAGE-BY OWNER 1 LS 0.00 0 0
S FIRE EXTINGUISHERS/CABS 1 LS 0.00 0 3,000
=========================================================================================
TOTAL SPECIALTIES 1 LS 20,000 23,000
=========================================================================================
BUILDING EQUIPMENT
H PROJECTION SCREENS 1 LS 6500.00 6,500 7,500
=========================================================================================
TOTAL BUILDING EQUIPMENT 1 LS 6,500 7,500
=========================================================================================
FURNISHINGS
H BLINDS/DRAPES -BY OWNER 1 LS 0.00 0 0
=========================================================================================
TOTAL FURNISHINGS 1 LS 0 0
=========================================================================================
SPECIAL CONSTRUCTION
=========================================================================================
TOTAL SPECIAL CONSTRUCTION 1 LS 0 0
=========================================================================================
</TABLE>
<PAGE> 85
JOHNSON CARLIER
PHOENIX, ARIZONA
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST
-------------- ------------- ---------------
PROD TOTAL RATE TOTAL UNIT TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONVEYING SYSTEMS
===============================================================================================================
TOTAL CONVEYING SYSTEMS 1 LS 0 0.00 0 0
===============================================================================================================
BUILDING MECHANICAL
H HVAC 1 LS 0.000 0 0.00 0 0.00 0
H PLUMBING 1 LS 0.000 0 0.00 0 0.00 0
H FIRE PROTECTION 1 LS 0.000 0 0.00 0 0.00 0
H PRE-ACTION SYSTEM 1 LS 0.000 0 0.00 0 0.00 0
===============================================================================================================
TOTAL BUILDING MECHANICAL LS 0 0.00 0 0
===============================================================================================================
BUILDING ELECTRICAL
H ELECTRICAL 1 LS 0.000 0 0.00 0 0.00 0
H PLY BACKBOARDS 40 HRS 1.000 40 22.00 880 10.00 400
H TEMP POWER-HOOKUP BY SUB 1 LS 0.000 0 0.00 0 0.00 0
H TEMP POWER-CONSUMPTION 7 MOS 0.000 0 0.00 0 450.00 3,150
H TEMP POWER-COMMISSIONING 1 MOS 0.000 0 0.00 0 4000.00 4,000
===============================================================================================================
TOTAL BUILDING ELECTRICAL LS 40 0.00 880 7,550
===============================================================================================================
CASH ALLOWANCES
H SITE SURVEY 1 LS 0.000 0 0.000 0 0.000 0
H MATERIALS TESTING 1 LS 0.000 0 0.00 0 0.00 0
H CONTINGENCY 1 LS 0.000 0 0.00 0 0.00 0
<CAPTION>
- -----------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM SUBTRADE COST
---------------- TOTAL
UNIT TOTAL DIRECT COST
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONVEYING SYSTEMS
=========================================================================================
TOTAL CONVEYING SYSTEMS 1 LS 0 0
=========================================================================================
BUILDING MECHANICAL
H HVAC 1 LS 762000.00 762,000 762,000
H PLUMBING 1 LS 65000.00 65,000 65,000
H FIRE PROTECTION 1 LS 80000.00 80,000 80,000
H PRE-ACTION SYSTEM 1 LS 42000.00 42,000 42,000
=========================================================================================
TOTAL BUILDING MECHANICAL LS 949,000 949,000
=========================================================================================
BUILDING ELECTRICAL
H ELECTRICAL 1 LS 732000.00 732,000 732,000
H PLY BACKBOARDS 40 HRS 0.00 0 1,280
H TEMP POWER-HOOKUP BY SUB 1 LS 1000.00 1,000 1,000
H TEMP POWER-CONSUMPTION 7 MOS 0.00 0 3,150
H TEMP POWER-COMMISSIONING 1 MOS 0.00 0 4,000
=========================================================================================
TOTAL BUILDING ELECTRICAL LS 733,000 741,430
=========================================================================================
CASH ALLOWANCES
H SITE SURVEY 1 LS 15000.00 15,000 15,000
H MATERIALS TESTING 1 LS 7500.00 7,500 7,500
H CONTINGENCY 1 LS 75000.00 75,000 75,000
</TABLE>
<PAGE> 86
JOHNSON CARLIER
PHOENIX, ARIZONA
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST
-------------- ------------- ---------------
PROD TOTAL RATE TOTAL UNIT TOTAL
- ------------------------------------------------------------------------------------------------------------------
TOTAL CASH ALLOWANCES LS 0 0.00 0 0
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECT STAFF
H PRECONSTRUCTION - PM/ESTIMATOR 8 WKS 40.000 320 34.000 10,880 0.000 0
H PROJECT MANAGER 35 WKS 40.000 1,400 34.250 47,950 0.000 0
H SUPERINTENDENT 35 WKS 40.000 1,400 34.500 48,300 0.000 0
H SECRETARY 0 WKS 40.000 0 0.000 0 0.000 0
==================================================================================================================
TOTAL PROJECT STAFF 1 LS 3,120 34.34 107,130 0
==================================================================================================================
CONSTRUCTION EQUIP
H TRUCKS 70 WKS 0.000 0 0.00 0 174.00 12,180
H MISC RENTALS 32 WKS 0.000 0 0.00 0 100.00 3,200
==================================================================================================================
TOTAL CONSTRUCTION EQUIP 1 LS 0 0.00 0 15,380
==================================================================================================================
PROJECT OVERHEAD
H OFFICE-JC 7 MOS 0.000 0 0.00 0 400.00 2,800
H TOOL CRIB 7 MOS 0.000 0 0.00 0 100.00 700
H MOVE IN/OUT-TRAILERS 40 HRS 1.000 40 20.00 800 15.00 600
H TOILETS 49 MOS 0.000 0 0.00 0 75.00 3,675
H TEMP WATER-HOOK UP 1 LS 0.000 0 0.00 0 0.00 0
H TEMP WATER-CONSUMPTION 7 MOS 0.000 0 0.00 0 75.00 525
H TEMP WATER-BOTTLES/ICE/CUPS 7 MOS 0.000 0 0.00 0 65.00 455
H PROJECT SIGN 1 EA 12.000 12 20.00 240 500.00 500
H COURIER SERVICE 7 MOS 0.000 0 0.00 0 50.00 350
H TEMP POWER-APS/SRP CHARGES 0 LS 0.000 0 0.00 0 0.00 0
H TELEPHONE-HOOK UP 1 LS 0.000 0 0.00 0 400.00 400
H TELEPHONE-SYSTEM PURCHASE 1 LS 0.000 0 0.00 0 250.00 250
<CAPTION>
- -------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM SUBTRADE COST
------------------ TOTAL
UNIT TOTAL DIRECT COST
- -------------------------------------------------------------------------------------------
TOTAL CASH ALLOWANCES LS 97,500 97,500
===========================================================================================
<S> <C> <C> <C> <C>
PROJECT STAFF
H PRECONSTRUCTION - PM/ESTIMATOR 8 WKS 0.000 0 10,880
H PROJECT MANAGER 35 WKS 0.000 0 47,950
H SUPERINTENDENT 35 WKS 0.000 0 48,300
H SECRETARY 0 WKS 0.000 0 0
===========================================================================================
TOTAL PROJECT STAFF 1 LS 0 107,130
===========================================================================================
CONSTRUCTION EQUIP
H TRUCKS 70 WKS 0.00 0 12,180
H MISC RENTALS 32 WKS 0.00 0 3,200
===========================================================================================
TOTAL CONSTRUCTION EQUIP 1 LS 0 15,380
===========================================================================================
PROJECT OVERHEAD
H OFFICE-JC 7 MOS 0.00 0 2,800
H TOOL CRIB 7 MOS 0.00 0 700
H MOVE IN/OUT-TRAILERS 40 HRS 0.00 0 1,400
H TOILETS 49 MOS 0.00 0 3,675
H TEMP WATER-HOOK UP 1 LS 500.00 500 500
H TEMP WATER-CONSUMPTION 7 MOS 0.00 0 525
H TEMP WATER-BOTTLES/ICE/CUPS 7 MOS 0.00 0 455
H PROJECT SIGN 1 EA 0.00 0 740
H COURIER SERVICE 7 MOS 0.00 0 350
H TEMP POWER-APS/SRP CHARGES 0 LS 0.00 0 0
H TELEPHONE-HOOK UP 1 LS 0.00 0 400
H TELEPHONE-SYSTEM PURCHASE 1 LS 0.00 0 250
</TABLE>
<PAGE> 87
JOHNSON CARLIER
PHOENIX, ARIZONA
ESTIMATE SHEET
ESTIMATE # GMP #1 Date 03/13/96
PROJECT Insight - GMP #1 02/21/96 Time 10:01:09
LOCATION Tempe, Az, Estimator J.MICHAELS
BUILDING SF 98,300
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM LABOR MANHOURS LABOR COST MATERIAL COST
-------------- --------------- -----------------
PROD TOTAL RATE TOTAL UNIT TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H TELEPHONE 7 MOS 0.000 0 0.00 0 350.00 2,450
H SITE RADIOS 0 MOS 0.000 0 0.00 0 0.00 0
H PHOTO COPIER 7 MOS 0.000 0 0.00 0 215.00 1,505
H FAX 7 MOS 0.000 0 0.00 0 50.00 350
H COMPUTER HARDWARE 7 MOS 0.000 0 0.00 0 250.00 1,750
H OFFICE SUPPLIES 7 MOS 0.000 0 0.00 0 200.00 1,400
H OFFICE FURNITURE 1 LS 0.000 0 0.00 0 750.00 750
H PHOTOGRAPHS 7 MOS 0.000 0 0.00 0 50.00 350
H PHOTOGRAPHS - PROFESSIONAL 1 LS 0.000 0 0.00 0 500.00 500
H SAFETY SUPPLIES 7 MOS 0.000 0 0.00 0 75.00 525
H TEMP FIRE PROTECTION 7 MOS 0.000 0 0.00 0 75.00 525
H TEMP FENCING 1,400 LF 0.000 0 0.00 0 2.00 2,800
H CONSTRUCTION DRAWINGS-BY ARCH 0 EA 0.000 0 0.00 0 0.00 0
H AS BUILT SEPIAS 1 LS 0.000 0 0.00 0 1000.00 1,000
H CONSULTING SERVICES 0 LS 0.000 0 0.00 0 0.00 0
H ADVERTISING/PR/ET 7 MOS 0.000 0 0.00 0 150.00 1,050
H LIQUIDATED DAMAGES 0 LS 0.000 0 0.00 0 0.00 0
H LOSSES-UNINSURED 0 EA 0.000 0 0.00 0 0.00 0
H LEGAL FEES 0 EA 0.000 0 0.00 0 0.00 0
H STAFF TRAVEL 750 MI 0.000 0 0.00 0 0.30 225
H SMALL TOOLS 1 LS 0.000 0 0.00 0 500.00 500
H MISC FEES 1 LS 0.000 0 0.00 0 250.00 250
H BUILDING PERMIT - BY OWNER 0 LS 0.000 0 0.00 0 0.00 0
======================================================================================================================
TOTAL PROJECT OVERHEAD 1 LS 52 20.00 1,040 26,185
======================================================================================================================
SPEC. GENERAL CONDITIONS
H BONDS-SUBTRADE 0 LS 0.000 0 0.00 0 0.00000 0
H BONDS-PERFORMANCE/PAYMENT 6,242,958 TB$ 0.000 0 0.00 0 0.00000 0
H INSURANCE-ALL-RISK 0 TB$ 0.000 0 0.00 0 0.00175 0
H INSURANCE-LIABILITY 6,242,958 TB$ 0.000 0 0.00 0 0.00350 21,850
H AGC DUES 6,242,958 TB$ 0.000 0 0.00 0 0.00060 3,746
H FIELD OVERHEAD 6,242,958 TB$ 0.000 0 0.00 0 0.00000 0
H GROSS RECEIPTS TAX 6,242,958 TB$ 0.000 0 0.00 0 0.04825 301,223
======================================================================================================================
TOTAL SPEC. GENERAL CONDITIONS 1 LS 0 ERR 0 326,819
======================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------
COST CODE DESCRIPTION QUANTITY UOM SUBTRADE COST
--------------- TOTAL
UNIT TOTAL DIRECT COST
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
H TELEPHONE 7 MOS 0.00 0 2,450
H SITE RADIOS 0 MOS 0.00 0 0
H PHOTO COPIER 7 MOS 0.00 0 1,505
H FAX 7 MOS 0.00 0 350
H COMPUTER HARDWARE 7 MOS 0.00 0 1,750
H OFFICE SUPPLIES 7 MOS 0.00 0 1,400
H OFFICE FURNITURE 1 LS 0.00 0 750
H PHOTOGRAPHS 7 MOS 0.00 0 350
H PHOTOGRAPHS - PROFESSIONAL 1 LS 0.00 0 500
H SAFETY SUPPLIES 7 MOS 0.00 0 525
H TEMP FIRE PROTECTION 7 MOS 0.00 0 525
H TEMP FENCING 1,400 LF 0.00 0 2,800
H CONSTRUCTION DRAWINGS-BY ARCH 0 EA 0.00 0 0
H AS BUILT SEPIAS 1 LS 0.00 0 1,000
H CONSULTING SERVICES 0 LS 0.00 0 0
H ADVERTISING/PR/ET 7 MOS 0.00 0 1,050
H LIQUIDATED DAMAGES 0 LS 0.00 0 0
H LOSSES-UNINSURED 0 EA 0.00 0 0
H LEGAL FEES 0 EA 0.00 0 0
H STAFF TRAVEL 750 MI 0.00 0 225
H SMALL TOOLS 1 LS 0.00 0 500
H MISC FEES 1 LS 0.00 0 250
H BUILDING PERMIT - BY OWNER 0 LS 0.00 0 0
==============================================================================================
TOTAL PROJECT OVERHEAD 1 LS 500 27,725
==============================================================================================
SPEC. GENERAL CONDITIONS
H BONDS-SUBTRADE 0 LS 0.00 0 0
H BONDS-PERFORMANCE/PAYMENT 6,242,958 TB$ 0.00 0 0
H INSURANCE-ALL-RISK 0 TB$ 0.00 0 0
H INSURANCE-LIABILITY 6,242,958 TB$ 0.00 0 21,850
H AGC DUES 6,242,958 TB$ 0.00 0 3,746
H FIELD OVERHEAD 6,242,958 TB$ 0.00 0 0
H GROSS RECEIPTS TAX 6,242,958 TB$ 0.00 0 301,223
==============================================================================================
TOTAL SPEC. GENERAL CONDITIONS 1 LS 0 326,819
==============================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 11.1
INSIGHT ENTERPRISES, INC.
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings (proforma for 1995 and 1994) .......................... $ 5,720 $ 3,307 $ 1,889
========== ========== ==========
Weighted average shares:
Common shares outstanding .......................................... 4,787,649 3,440,743 2,790,698
Common equivalent shares issuable upon exercise of employee
stock options and warrants ....................................... 301,763 209,055 192,635
Shares deemed to be outstanding sufficient to repay notes payable to
stockholders' of $874,000 ....................................... -- 61,295 108,168
---------- ---------- ----------
Shares used is net earnings per share (proforma for 1995 and 1994) .... 5,289,612 3,711,093 3,091,501
========== ========== ==========
Net earnings per share (proforma for 1995 and 1994) ................... $ 1.08 $ 0.89 $ 0.61
========== ========== ==========
<CAPTION>
Years ended June 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE: (1)
Net earnings (proforma for 1995 and 1994) .......................... $ 5,720 $ 3,307 $ 1,889
========== ========== ==========
Weighted average shares:
Common shares outstanding .......................................... 4,987,649 3,440,743 2,790,698
Common equivalent shares issuable upon exercise of employee
stock options and warrants ....................................... 349,213 238,345 192,635
Shares deemed to be outstanding sufficient to repay notes payable to
stockholders' of $874,000 ....................................... -- 61,295 108,168
---------- ---------- ----------
Shares used in net earnings per share (proforma for 1995 and 1994) .... 5,336,862 3,740,383 3,091,501
========== ========== ==========
Net earnings per share (proforma for 1995 and 1994) ................... $ 1.07 $ 0.88 $ 0.61
========== ========== ==========
</TABLE>
(1) The calculation is submitted in accordance with Regulation S-K Item 601
(b) (11), although the amounts of per share earnings on the fully diluted
basis are not required to be presented in the Consolidated Statements of
Earnings under the provisions of paragraph 40 of APB No. 15 because the
reduction is less than three percent.
<PAGE> 1
EXHIBIT 23.1
{Letterhead of KPMG Peat Marwick LLP}
The Board of Directors
Insight Enterprises, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-96286, No. 33-96280 and No. 33-03158) on Form S-8 on Insight Enterprises,
Inc. of our report dated August 13, 1996, relating to the consolidated balance
sheets of Insight Enterprises, Inc. and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996, which report appears on Form 10-K of Insight Enterprises, Inc.
KPMG Peat Marwick LLP
Phoenix, Arizona
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES AS OF
JUNE 30, 1996 AND THE RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K FOR THE ANNUAL PERIOD ENDING JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,300
<SECURITIES> 0
<RECEIVABLES> 44,272
<ALLOWANCES> 2,474
<INVENTORY> 16,104
<CURRENT-ASSETS> 66,400
<PP&E> 9,861
<DEPRECIATION> 3,201
<TOTAL-ASSETS> 73,618
<CURRENT-LIABILITIES> 31,833
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 41,731
<TOTAL-LIABILITY-AND-EQUITY> 73,618
<SALES> 342,813
<TOTAL-REVENUES> 342,813
<CGS> 294,292
<TOTAL-COSTS> 294,292
<OTHER-EXPENSES> 37,621
<LOSS-PROVISION> 1,302
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 9,468
<INCOME-TAX> 3,748
<INCOME-CONTINUING> 5,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,720
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.07
</TABLE>
