SEC Filing | Ingram Micro

1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996 REGISTRATION NO. 333-08453 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ INGRAM MICRO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5045 62-1644402 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

1600 E. ST. ANDREW PLACE SANTA ANA, CA 92705 (714) 566-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JAMES E. ANDERSON, JR., ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL INGRAM MICRO INC. 1600 E. ST. ANDREW PLACE SANTA ANA, CA 92705 (714) 566-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: WINTHROP B. CONRAD, JR., ESQ. LARRY W. SONSINI, ESQ. DAVIS POLK & WARDWELL WILSON SONSINI GOODRICH & ROSATI 450 LEXINGTON AVENUE 650 PAGE MILL ROAD NEW YORK, NEW YORK 10017 PALO ALTO, CALIFORNIA 94304 (212) 450-4000 (415) 493-9300

------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ___________________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ___________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: (i) one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and (ii) the other to be used in connection with a concurrent offering outside of the United States and Canada (the "International Prospectus"). The U.S. Prospectus and the International Prospectus are identical in all respects except for the front cover page of the International Prospectus, which is included herein after the final page of the U.S. Prospectus and is labeled "Alternate Page for International Prospectus." Final forms of each of the Prospectuses will be filed with the Securities and Exchange Commission under Rule 424(b). i 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject to Completion) Issued August 27, 1996 20,000,000 Shares LOGO CLASS A COMMON STOCK --------------------------- OF THE 20,000,000 SHARES OF CLASS A COMMON STOCK (THE "COMMON STOCK") OFFERED HEREBY, 16,000,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS, AND 4,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." UP TO 2,000,000 OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING RESERVED FOR SALE TO CERTAIN INDIVIDUALS. SEE "EMPLOYEE AND PRIORITY OFFERS." ALL SUCH SHARES ARE BEING OFFERED ON THE SAME TERMS AND CONDITIONS AS THE SHARES BEING OFFERED TO THE PUBLIC GENERALLY, AND ANY PURCHASERS OF SUCH SHARES WHO ARE AFFILIATES OF THE COMPANY WILL REPRESENT THAT ANY PURCHASES ARE BEING MADE FOR INVESTMENT PURPOSES ONLY. ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING ISSUED AND SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK, THE COMMON STOCK OFFERED HEREBY AND THE CLASS B COMMON STOCK (THE "CLASS B COMMON STOCK," AND COLLECTIVELY WITH THE COMMON STOCK, THE "COMMON EQUITY"). THE RIGHTS OF HOLDERS OF COMMON STOCK AND CLASS B COMMON STOCK ARE IDENTICAL EXCEPT FOR VOTING AND CONVERSION RIGHTS AND RESTRICTIONS ON TRANSFERABILITY. HOLDERS OF THE COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF THE CLASS B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE ON MOST MATTERS SUBJECT TO STOCKHOLDER VOTE. UPON THE CLOSING OF THIS OFFERING, THE INGRAM FAMILY STOCKHOLDERS (AS DEFINED HEREIN) WILL HAVE APPROXIMATELY 80.7% OF THE COMBINED VOTING POWER OF THE COMMON EQUITY (80.5% IF THE U.S. UNDERWRITERS EXERCISE THEIR OVER-ALLOTMENT OPTION IN FULL). APPLICATION HAS BEEN MADE FOR THE COMMON STOCK TO BE LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "IM." --------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH THIS OFFERING. --------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------------- PRICE $ A SHARE ---------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) -------- -------------- ----------- ~~Per Share.............................. $ $ $ Total(3)............................... $ $ $~~
- ------------ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) Before deducting expenses payable by the Company estimated at $1,200,000. (3) The Company has granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 3,000,000 additional Shares at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." --------------------------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996 at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. --------------------------- MORGAN STANLEY & CO. Incorporated THE ROBINSON-HUMPHREY COMPANY, INC. ALEX. BROWN & SONS INCORPORATED HAMBRECHT & QUIST J.C. BRADFORD & CO. , 1996 4 INGRAM MICRO LEADING THE WAY IN WORLDWIDE DISTRIBUTION(TM) LOGO SUPPLYING OVER 36,000 PRODUCTS FROM 1,100 VENDORS WORLDWIDE [LOGOS OF VARIOUS VENDORS] PCS, PERIPHERALS, WORKSTATIONS [LOGOS OF VARIOUS VENDORS] SOFTWARE [LOGOS OF VARIOUS VENDORS] NETWORKING WORLDWIDE PRESENCE CUSTOMERS IN 120 COUNTRIES [FACILITIES MAP] SUPERIOR EXECUTION AND VALUE-ADDED SERVICES LOGISTICS BANKING - Warehousing - Credit - Fill Rates - Financing Programs - Product Tracking COST-EFFICIENT - Bullet-Proof Shipping SALES & SERVICES - Configuration - Telesales - Labelling - Field Sales - Returns - Customer Service - Forecasting - Marketing

PRODUCT KNOWLEDGE - Cross-Platform - Customer Information Technical Support Services - Technical Training

5 OVER 100,000 RESELLER CUSTOMERS IN 3 MARKET SECTORS Commercial - Corporate Resellers - Dealer Affiliates - Direct Marketers VAR - Systems Integrators - Application VARs - OEMs - Government/Education Resellers Consumer - Computer Superstores - Office Product Superstores - Mass Merchants - Consumer Electronics Stores - Warehouse Clubs IMPULSE WORLD CLASS INFORMATION SYSTEMS COMPETITIVE ADVANTAGE THROUGH REAL-TIME WORLDWIDE INFORMATION ACCESS AND PROCESSING - - 12 million on-line transactions per day - - 26,000 orders per day - - 37,000 shipments per day [GLOBE] 6 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------ For investors outside the United States: No action has been or will be taken in any jurisdiction by the Company or by any Underwriter that would permit a public offering of the Common Stock or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company and the Underwriters to inform themselves about and to observe any restrictions as to the offering of the Common Stock and the distribution of this Prospectus. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 3 Risk Factors........................... 5 The Company............................ 14 Use of Proceeds........................ 16 Dividend Policy........................ 16 Capitalization......................... 17 Dilution............................... 18 Selected Consolidated Financial Data... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 20 Business............................... 29 Management............................. 47 PAGE ---- Employee and Priority Offers........... 55 Certain Transactions................... 55 The Split-Off.......................... 56 Principal Stockholders................. 61 Description of Capital Stock........... 62 Shares Eligible for Future Sale........ 66 Certain U.S. Federal Income Tax Considerations....................... 68 Underwriters........................... 70 Legal Matters.......................... 73 Experts................................ 73 Additional Information................. 73 Index to Consolidated Financial Statements........................... F-1
------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ Ingram Micro and the Ingram Micro logo are registered trademarks of the Company. Ingram Alliance, IMpulse, "Leading the Way in Worldwide Distribution," and "Partnership America" are trademarks of the Company. All other trademarks or tradenames referred to in this Prospectus are the property of their respective owners. ------------------------ Unless the context otherwise requires, the "Company" or "Ingram Micro" refers to Ingram Micro Inc., a Delaware corporation, and its consolidated subsidiaries. In addition, unless otherwise indicated, all information in this Prospectus assumes (i) the occurrence of the Split-Off (as defined herein), concurrently with the closing of this offering and (ii) no exercise of the U.S. Underwriters' over-allotment option. See "Underwriters." The fiscal year of the Company is a 52- or 53-week period ending on the Saturday nearest to December 31. Unless the context otherwise requires, references in this Prospectus to "1991," "1992," "1993," "1994," and "1995" represent the fiscal years ended December 28, 1991 (52 weeks), January 2, 1993 (53 weeks), January 1, 1994 (52 weeks), December 31, 1994 (52 weeks), and December 30, 1995 (52 weeks), respectively. The Company's next 53-week fiscal year will be fiscal year 1997. 2 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. THE COMPANY Ingram Micro is the leading wholesale distributor of microcomputer products worldwide. The Company markets microcomputer hardware, networking equipment, and software products to more than 100,000 reseller customers in approximately 120 countries worldwide. Ingram Micro distributes microcomputer products through warehouses in eight strategic locations in the continental United States and 21 international warehouses located in Canada, Mexico, most countries of the European Union, Norway, Malaysia, and Singapore. The Company believes that it is the market share leader in the United States, Canada, and Mexico, and the second largest full-line distributor in Europe. In 1995, approximately 31% of the Company's net sales were derived from operations outside the United States. Ingram Micro offers one-stop shopping to its reseller customers by providing a comprehensive inventory of more than 36,000 products from over 1,100 suppliers, including most of the microcomputer industry's leading hardware manufacturers, networking equipment suppliers, and software publishers. The Company's suppliers include Apple Computer, Cisco Systems, Compaq Computer, Creative Labs, Hewlett-Packard, IBM, Intel, Microsoft, NEC, Novell, Quantum, 3Com, Toshiba, and U.S. Robotics. The Company conducts business with most of the leading resellers of microcomputer products around the world, including, in the United States, Ameridata, CDW Computer Centers, CompuCom, CompUSA, Computer City, Electronic Data Systems, En Pointe Technologies, Entex Information Services, Micro Warehouse, Sam's Club, Staples, and Vanstar. The Company's international reseller customers include Complet Data A/S, Consultores en Diagnostico Organizacional y de Sistemas, DSG Retail Ltd., 06 Software Centre Europe, B.V., GE Capital Technologies, Jump Ordenadores, Maxima S.A., Norsk Datasenter, Owell Svenska AB, SNI Siemens Nixdorf Infosys AG, and TC Sistema SPA. The Company has grown rapidly over the past five years, with net sales and net income increasing to $8.6 billion and $84.3 million, respectively, in 1995 from $2.0 billion and $30.2 million, respectively, in 1991, representing compound annual growth rates of 43.8% and 29.3%, respectively. The Company's growth during this period reflects substantial expansion of its existing domestic and international operations, resulting from the addition of new customers, increased sales to the existing customer base, the addition of new product categories and suppliers, and the establishment of Ingram Alliance Reseller Company ("Ingram Alliance"), the Company's master reseller business launched in late 1994, as well as the successful integration of ten acquisitions worldwide. Because of intense price competition in the microcomputer products wholesale distribution industry, the Company's margins have historically been narrow and are expected in the future to continue to be narrow. In addition, the Company is highly leveraged and has relied heavily on debt financing for its increasing working capital needs in connection with the expansion of its business. The Company is currently a subsidiary of Ingram Industries Inc. ("Ingram Industries"). Concurrently with the closing of this offering, Ingram Industries will consummate the Split-Off (as defined herein), and all information in this Prospectus assumes the occurrence of the Split-Off at such time. See "The Company" and "The Split-Off." The consummation of the Split-Off is a non-waiveable condition to the closing of this offering. 3 8 THE OFFERING Common Stock offered(1): U.S. Offering.............................. 16,000,000 Shares International Offering..................... 4,000,000 Shares Total................................... 20,000,000 Shares Common Equity to be outstanding after this offering(1)(2): Common Stock............................... 20,000,000 Shares Class B Common Stock(3).................... 109,868,752 Shares Total................................... 129,868,752 Shares Voting rights: Common Stock............................... One vote per share Class B Common Stock....................... Ten votes per share Use of proceeds.............................. To repay certain outstanding indebtedness. See "Use of Proceeds." Proposed NYSE Symbol......................... IM

SUMMARY CONSOLIDATED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE DATA)
TWENTY-SIX WEEKS ENDED FISCAL YEAR -------------------- ---------------------------------------------------- JULY 1, JUNE 29, 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- --------- INCOME STATEMENT DATA: Net sales.................... $2,016.6 $2,731.3 $4,044.2 $5,830.2 $8,616.9 $3,739.1 $5,543.2 Gross profit................. 185.4 227.6 329.6 439.0 605.7 271.3 377.0 Income from operations....... 67.6 68.9 103.0 140.3 186.9 78.7 114.4 (5) Net income(4)................ 30.2 31.0 50.4 63.3 84.3 35.5 50.6 (5) Earnings per share........... 0.25 0.26 0.42 0.53 0.70 0.29 0.42 (5) Weighted average common shares outstanding(6)...... 120.6 120.6 120.6 120.6 120.6 120.6 120.6

JUNE 29, 1996 ------------------------------------------- AS AS FURTHER ACTUAL ADJUSTED(7) ADJUSTED(7)(8) -------- ----------- -------------- BALANCE SHEET DATA: Working capital......................................... $ 946.2 $ 786.2 $ 776.4 Total assets............................................ 2,641.4 2,481.4 2,481.4 Total debt(9)........................................... 768.8 591.6 309.3 Stockholders' equity.................................... 338.8 338.4 610.9
- --------------- (1) Assumes no exercise of the U.S. Underwriters' over-allotment option. (2) See "Principal Stockholders." Excludes approximately 16,600,000 shares of Common Equity issuable in connection with outstanding stock options. See "Management -- 1996 Plan -- Options" and "-- Rollover Plan; Incentive Stock Units." (3) Each share of Class B Common Stock is convertible, at any time at the option of the holder, into one share of Common Stock. In addition, the Class B Common Stock will be automatically converted into Common Stock upon the occurrence of certain events. See "Description of Capital Stock." (4) The 1992 results reflect the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). (5) Reflects a non-cash compensation charge of $7.8 million ($4.8 million, or $0.04 per share, net of tax) in connection with the granting of the Rollover Stock Options (as defined herein). See "The Split-Off -- The Exchange" and Note 11 of Notes to Consolidated Financial Statements. (6) See Note 2 of Notes to Consolidated Financial Statements. (7) As adjusted to reflect (i) the assumption by the Company of the accounts receivable securitization program of Ingram Industries in partial satisfaction of amounts due to Ingram Industries (resulting in a $160.0 million decrease in each of working capital and total debt); (ii) the issuance of 2,510,400 redeemable shares of Class B Common Stock in the Employee Offering (as defined herein) (resulting in a $17.2 million increase in redeemable Class B Common Stock); and (iii) the repayment of $17.2 million of certain indebtedness with the net proceeds from the Employee Offering, as if such transactions had occurred on June 29, 1996. (8) As further adjusted to give effect to the issuance of the Common Stock offered by the Company in this offering, the repayment of certain indebtedness with the estimated net proceeds therefrom, and the estimated additional $9.8 million non-cash compensation charge related to certain Rollover Stock Options (as defined herein). See "Use of Proceeds," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (9) Includes long-term debt, current maturities of long-term debt, and amounts due to Ingram Industries. 4 9 RISK FACTORS In evaluating the Company's business, prospective investors should carefully consider the following factors in addition to the other information contained in this Prospectus. Intense Competition. The Company operates in a highly competitive environment, both in the United States and internationally. The microcomputer products distribution industry is characterized by intense competition, based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services, and availability of technical and product information. The Company's competitors include regional, national, and international wholesale distributors, as well as hardware manufacturers, networking equipment manufacturers, and software publishers that sell directly to resellers and large resellers who resell to other resellers. There can be no assurance that the Company will not lose market share in the United States or in international markets, or that it will not be forced in the future to reduce its prices in response to the actions of its competitors and thereby experience a further reduction in its gross margins. See "-- Narrow Margins" and "Business -- Competition." The Company entered the "aggregator" or "master reseller" business by launching Ingram Alliance in late 1994. See "Business -- Ingram Alliance." The Company competes with other master resellers, which sell to groups of affiliated franchisees and third-party dealers. Many of the Company's competitors in the master reseller business are more experienced and have more established contacts with affiliated resellers, third-party dealers, or suppliers, which may provide them with a competitive advantage over the Company. The Company is constantly seeking to expand its business into areas closely related to its core microcomputer products distribution business. As the Company enters new business areas, it may encounter increased competition from current competitors and/or from new competitors, some of which may be current customers of the Company. For example, the Company intends to distribute media in the new digital video disc format and may compete with traditional music and printed media distributors. In addition, certain services the Company provides may directly compete with those provided by the Company's reseller customers. There can be no assurance that increased competition and adverse reaction from customers resulting from the Company's expansion into new business areas will not have a material adverse effect on the Company's business, financial condition, or results of operations. See "Business -- The Industry" and "-- Competition." Narrow Margins. As a result of intense price competition in the microcomputer products wholesale distribution industry, the Company's margins have historically been narrow and are expected in the future to continue to be narrow. See "-- Intense Competition." These narrow margins magnify the impact on operating results of variations in operating costs. The Company's gross margins have declined from 8.1% for 1993 to 6.8% for the twenty-six weeks ended June 29, 1996. The Company receives purchase discounts from suppliers based on a number of factors, including sales or purchase volume and breadth of customers. These purchase discounts directly affect gross margins. Because many purchase discounts from suppliers are based on percentage increases in sales of products, it may become more difficult for the Company to achieve the percentage growth in sales required for larger discounts due to the current size of the Company's revenue base. The Company's gross margins have been further reduced by the Company's entry into the master reseller business through Ingram Alliance, which has lower gross margins than the Company's traditional wholesale distribution business. See "-- Risks Associated with Ingram Alliance" and "Business -- Ingram Alliance." The Company has taken a number of steps intended to address the challenges of declining gross margins, particularly by continually improving and enhancing its information systems and implementing procedures and systems designed to provide greater warehousing efficiencies and greater accuracy in shipping. However, there can be no assurance that these steps will prevent gross margins from continuing to decline. If the Company's gross margins continue to decline, the Company will be required to reduce operating expenses as a percentage of net sales further in order to maintain or increase its operating margins. While the Company will continue to explore ways to improve gross margins and reduce operating expenses as a percentage of net sales, there can be no assurance that the Company will be successful in such efforts or that the Company's margins will not decline in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 5 10 Fluctuations in Quarterly Results. The Company's quarterly net sales and operating results have varied significantly in the past and will likely continue to do so in the future as a result of seasonal variations in the demand for the products and services offered by the Company, the introduction of new hardware and software technologies and products offering improved features and functionality, the introduction of new products and services by the Company and its competitors, the loss or consolidation of a significant supplier or customer, changes in the level of operating expenses, inventory adjustments, product supply constraints, competitive conditions including pricing, interest rate fluctuations, the impact of acquisitions, currency fluctuations, and general economic conditions. The Company's narrow margins may magnify the impact of these factors on the Company's operating results. Specific historical seasonal variations in the Company's operating results have included a reduction of demand in Europe during the summer months, increased Canadian government purchasing in the first quarter, and pre-holiday stocking in the retail channel during the September to November period. In addition, as was the case with the introduction of Microsoft Windows 95 in August 1995, the product cycle of major products may materially impact the Company's business, financial condition, or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Data; Seasonality." Changes in supplier supported programs may also have a material impact on the Company's quarterly net sales and operating results. The Company may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall, which could materially adversely affect quarterly operating results. Accordingly, the Company believes that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance. In addition, the results of any quarterly period are not indicative of results to be expected for a full fiscal year. In certain future quarters, the Company's operating results may be below the expectations of public market analysts or investors. In such event, the market price of the Common Stock would be materially adversely affected. Capital Intensive Nature of Business; High Degree of Leverage. The Company's business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. The Company is highly leveraged and has relied heavily on debt financing for its increasing working capital needs in connection with the expansion of its business. At December 30, 1995 and June 29, 1996, the Company's total debt was $850.5 million and $768.8 million, respectively, and represented 73.6% and 70.2%, respectively, of the Company's total capitalization. Pro forma for this offering and the application of the estimated net proceeds therefrom, as of June 29, 1996, the Company's total debt would have been $309.3 million and would have represented 33.4% of the Company's total capitalization ($266.7 million and 28.8% assuming the U.S. Underwriters' over-allotment option is exercised in full). See "Use of Proceeds," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." In order to continue its expansion, the Company will need additional financing, including debt financing, which may or may not be available on terms acceptable to the Company, or at all. While a portion of the Company's historical financing needs has been satisfied through internally generated funds and trade creditors, a substantial amount has come from intercompany borrowings under debt facilities and an accounts receivable securitization facility maintained by Ingram Industries. No assurance can be given that the Company will continue to be able to borrow in adequate amounts for these or other purposes on terms acceptable to the Company, and the failure to do so could have a material adverse effect on the Company's business, financial condition, and results of operations. The Company has a commitment from NationsBank of Texas N.A. and The Bank of Nova Scotia providing for a $1 billion credit facility (the "Credit Facility"), and the Company expects to enter into a formal agreement prior to the closing of this offering. The Credit Facility is expected to be effective as of the closing of this offering, and will contain standard provisions for agreements of its type. Concurrently with the Split-Off, the Company will assume certain indebtedness of Ingram Industries, in partial satisfaction of amounts due to Ingram Industries. The Company will repay the remaining intercompany indebtedness with borrowings under the Credit Facility. Certain of the net proceeds from this offering will be used to repay outstanding revolving indebtedness related to amounts drawn by certain of the Company's subsidiaries, as participants in Ingram Industries' existing unsecured credit facility. The remainder of the net proceeds from this offering will be used to repay a portion of the borrowings under the Credit Facility. See "Use of Proceeds." The Company's ability in the future to satisfy its debt obligations will be dependent upon its future 6 11 performance, which is subject to prevailing economic conditions and financial, business, and other factors, including factors beyond the Company's control. See "-- Fluctuations in Quarterly Results," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Certain Transactions," and "The Split-Off -- The Reorganization." Management of Growth. The rapid growth of the Company's business has required the Company to make significant recent additions in personnel and has significantly increased the Company's working capital requirements. Although the Company has experienced significant sales growth in recent years, such growth should not be considered indicative of future sales growth. Such growth has resulted in new and increased responsibilities for management personnel and has placed and continues to place a significant strain upon the Company's management, operating and financial systems, and other resources. There can be no assurance that the strain placed upon the Company's management, operating and financial systems, and other resources will not have a material adverse effect on the Company's business, financial condition, and results of operations, nor can there be any assurance that the Company will be able to attract or retain sufficient personnel to continue the expansion of its operations. Also crucial to the Company's success in managing its growth will be its ability to achieve additional economies of scale. There can be no assurance that the Company will be able to achieve such economies of scale, and the failure to do so could have a material adverse effect on the Company's business, financial condition, and results of operations. To manage the expansion of its operations, the Company must continuously evaluate the adequacy of its management structure and its existing systems and procedures, including, among others, its data processing, financial, and internal control systems. When entering new geographic markets, the Company will be required to implement the Company's centralized IMpulse information processing system on a timely and cost-effective basis, hire personnel, establish suitable distribution centers, and adapt the Company's distribution systems and procedures to these new markets. There can be no assurance that management will adequately anticipate all of the changing demands that growth could impose on the Company's systems, procedures, and structure. In addition, the Company will be required to react to changes in the microcomputer distribution industry, and there can be no assurance that it will be able to do so successfully. Any failure to adequately anticipate and respond to such changing demands may have a material adverse effect on the Company's business, financial condition, or results of operations. See " -- Dependence on Information Systems" and "Business -- Information Systems." Dependence on Information Systems. The Company depends on a variety of information systems for its operations, particularly its centralized IMpulse information processing system which supports more than 40 operational functions including inventory management, order processing, shipping, receiving, and accounting. At the core of IMpulse is on-line, real-time distribution software which supports basic order entry and processing and customers' shipments and returns. The Company's information systems require the services of over 350 of the Company's associates with extensive knowledge of the Company's information systems and the business environment in which the Company operates. Although the Company has not in the past experienced significant failures or downtime of IMpulse or any of its other information systems, any such failure or significant downtime could prevent the Company from taking customer orders, printing product pick-lists, and/or shipping product and could prevent customers from accessing price and product availability information from the Company. In such event, the Company could be at a severe disadvantage in determining appropriate product pricing or the adequacy of inventory levels or in reacting to rapidly changing market conditions, such as a currency devaluation. A failure of the Company's information systems which impacts any of these functions could have a material adverse effect on the Company's business, financial condition, or results of operations. In addition, the inability of the Company to attract and retain the highly skilled personnel required to implement, maintain, and operate IMpulse and the Company's other information systems could have a material adverse effect on the Company's business, financial condition, or results of operations. In order to react to changing market conditions, the Company must continuously expand and improve IMpulse and its other information systems. From time to time the Company may acquire other businesses having information systems and records which must be converted and integrated into IMpulse or other Company information systems. This can be a lengthy and expensive process that results in a significant diversion of resources from other operations. The inability of the Company to convert the information systems 7 12 of any acquired businesses to the Company's information systems and to train its information systems personnel in a timely manner and on a cost-effective basis could materially adversely affect the Company's business, financial condition, or results of operations. There can be no assurance that the Company's information systems will not fail, that the Company will be able to attract and retain qualified personnel necessary for the operation of such systems, that the Company will be able to expand and improve its information systems, or that the information systems of acquired companies will be successfully converted and integrated into the Company's information systems on a timely and cost-effective basis. See "Business -- Information Systems." Exposure to Foreign Markets; Currency Risk. The Company, through its subsidiaries, operates in a number of countries outside the United States, including Canada, Mexico, most of the countries of the European Union, Norway, Malaysia, and Singapore. In 1994, 1995, and the first half of 1996, 29.3%, 30.7%, and 31.1%, respectively, of the Company's net sales were derived from operations outside of the United States, and the Company expects its international net sales to increase as a percentage of total net sales in the future. See "Business -- Geographic Tactics." The Company's international net sales are primarily denominated in currencies other than the U.S. dollar. Accordingly, the Company's international operations impose risks upon its business as a result of exchange rate fluctuations. Although the Company attempts to mitigate the effect of exchange rate fluctuations on its business, primarily by attempting to match the currencies of sales and costs, as well as through the use of foreign currency borrowings and derivative financial instruments such as forward exchange contracts, the Company does not seek to remove all risk associated with such fluctuations. Accordingly, there can be no assurance that exchange rate fluctuations will not have a material adverse effect on the Company's business, financial condition, or results of operations in the future. In certain countries outside the United States, operations are accounted for primarily on a U.S. dollar denominated basis. In the event of an unexpected devaluation of the local currency in those countries, the Company may experience significant foreign exchange losses. For example, the devaluation of the Mexican peso, which began in December 1994, significantly affected the Company's Mexican operations. The primary impact on the Company's operating results was a foreign exchange pre-tax charge of approximately $6.9 million and $7.8 million in 1994 and 1995, respectively. In addition, the Company's net sales in Mexico were adversely affected in 1995 as a result of the general economic impact of the devaluation of the Mexican peso. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's international operations are subject to other risks such as the imposition of governmental controls, export license requirements, restrictions on the export of certain technology, political instability, trade restrictions, tariff changes, difficulties in staffing and managing international operations, difficulties in collecting accounts receivable and longer collection periods, and the impact of local economic conditions and practices. As the Company continues to expand its international business, its success will be dependent, in part, on its ability to anticipate and effectively manage these and other risks. There can be no assurance that these and other factors will not have a material adverse effect on the Company's international operations or its business, financial condition, and results of operations as a whole. Dependence on Key Individuals. The Company is dependent in large part on its ability to retain the services of its executive officers, especially Messrs. Jeffrey R. Rodek (President and Chief Operating Officer) and David R. Dukes (Vice Chairman of Ingram Micro and Chief Executive Officer of Ingram Alliance). The loss of any of the Company's executive officers could have a material adverse effect on the Company. The Company does not have employment agreements with most of its executive officers, although it does have agreements, primarily relating to severance arrangements, with certain of the Named Executive Officers (as defined herein). See "Management -- Employment Agreements." Several of the Company's executive officers currently perform functions for both the Company and Ingram Industries, including James E. Anderson, Jr., the Company's Senior Vice President, Secretary, and General Counsel and Michael J. Grainger, the Company's Chief Financial Officer. Concurrently with the Split-Off, Mr. Anderson will resign from Ingram Industries. Mr. Grainger is devoting substantially all of his time to the Company's affairs while he remains the Company's Chief Financial Officer. Mr. Grainger eventually intends to return to a full time position with Ingram Industries. See "Management -- Executive Officers and Directors." The Company's continued success is also dependent upon its ability to retain and attract other qualified employees to meet the Company's needs. See "Business -- Employees." 8 13 Linwood A. (Chip) Lacy, Jr., the Company's Chief Executive Officer since 1985, resigned effective May 31, 1996. Pending appointment of a new Chief Executive Officer, John R. Ingram, Co-President of Ingram Industries, has been appointed Acting Chief Executive Officer and is devoting substantially all of his time to the Company's affairs. Although the Company believes that one of its distinguishing characteristics is the strength of its senior and middle management personnel, there can be no assurance that the Company will not experience a material adverse effect on its business, financial condition, or results of operations as a result of the resignation of Mr. Lacy. See "Management -- Employment Agreements." Product Supply; Dependence on Key Suppliers. The ability of the Company to obtain particular products or product lines in the required quantities and to fulfill customer orders on a timely basis is critical to the Company's success. In most cases, the Company has no guaranteed price or delivery agreements with its suppliers. As a result, the Company has experienced, and may in the future continue to experience, short-term inventory shortages. In addition, manufacturers who currently distribute their products through the Company may decide to distribute, or to substantially increase their existing distribution, through other distributors, their own dealer networks, or directly to resellers. Further, the personal computer industry experiences significant product supply shortages and customer order backlogs from time to time due to the inability of certain manufacturers to supply certain products on a timely basis. There can be no assurance that suppliers will be able to maintain an adequate supply of products to fulfill the Company's customer orders on a timely basis or that the Company will be able to obtain particular products or that a product line currently offered by suppliers will continue to be available. The failure of the Company to obtain particular products or product lines in the required quantities or fulfill customer orders on a timely basis could have a material adverse effect on its business, financial condition, or results of operations. Although Ingram Micro regularly stocks products and accessories supplied by over 1,100 suppliers, approximately 36.5%, 41.4%, 53.2%, and 55.4% of the Company's net sales in 1993, 1994, 1995, and the first half of 1996, respectively, were derived from products provided by its ten largest suppliers. In 1995, 23.4% of the Company's net sales were derived from sales of products from Microsoft (12.7%) and Compaq Computer (10.7%). In the first half of 1996, 24.5% of the Company's net sales were derived from sales of products from Compaq Computer (13.9%) and Hewlett-Packard (10.6%). Certain of the Company's non-U.S. operations are even more dependent on a limited number of suppliers. In addition, many services that the Company provides to its reseller customers, such as financing and technical training, are dependent on supplier support. The loss of a major supplier, the deterioration of the Company's relationship with a major supplier, the loss or deterioration of supplier support for certain Company-provided services, the decline in demand for a particular supplier's product, or the failure of the Company to establish good relationships with major new suppliers could have a material adverse effect on the Company's business, financial condition, or results of operations. Such a loss, deterioration, decline, or failure could also have a material adverse effect on the sales by the Company of products provided by other suppliers. The Company's ability to achieve increases in net sales or to sustain current net sales levels depends in part on the ability and willingness of the Company's suppliers to provide products in the quantities the Company requires. Although the Company has written distribution agreements with many of its suppliers, these agreements usually provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries in which Ingram Micro is permitted to distribute the products. The agreements are also generally short term, subject to periodic renewal, and often contain provisions permitting termination by either party without cause upon relatively short notice. The termination of an agreement may have a material adverse impact on the Company's business, financial condition, or results of operations. See "Business -- Products and Suppliers." Risks Associated with Ingram Alliance. Ingram Micro entered the master reseller (also known as "aggregation") business in late 1994 through the launch of Ingram Alliance. Ingram Alliance is designed to offer resellers access to products supplied by certain of the industry's leading hardware manufacturers at competitive prices by utilizing a low-cost business model that depends upon a higher average order size, lower product returns percentage, and supplier-paid financing. The master reseller business is characterized by gross margins and operating margins that are even narrower than those of the U.S. microcomputer products wholesale distribution business and by competition based almost exclusively on price, programs, and 9 14 execution. In the master reseller business, the Company has different supply arrangements and financing terms than in its traditional wholesale distribution business. There can be no assurance that the Company will be able to compete successfully in the master reseller business. A failure by Ingram Alliance to compete successfully could have a material adverse effect on the Company's business, financial condition, or results of operations. A substantial portion of Ingram Alliance's net sales (approximately 89.9% during 1995 and 92.5% during the twenty-six weeks ended June 29, 1996) is derived from the sale of products supplied by Compaq Computer, IBM, Toshiba, NEC, and Apple Computer. As a result, Ingram Alliance's business is dependent upon price and related terms and availability of products provided by these key suppliers. Although the Company considers Ingram Alliance's relationships with these suppliers to be good, there can be no assurance that these relationships will continue as presently in effect or that changes by one or more of such key suppliers in their volume discount schedules or other marketing programs would not adversely affect the Company's business, financial condition or results of operations. Termination or nonrenewal of Ingram Alliance's agreements with key suppliers would have a material adverse effect on the Company's business, financial condition, or results of operations. Although the Company's wholesale distribution division sells Hewlett-Packard products, Ingram Alliance does not currently have authorization to sell Hewlett-Packard products in the master reseller market. Because of Hewlett-Packard's position as a major supplier of microcomputer hardware products, the Company believes that sales of Hewlett-Packard products likely account for a substantial portion of sales at Ingram Alliance's major competitors in the master reseller business. The inability to offer Hewlett-Packard products places Ingram Alliance at a competitive disadvantage to its competitors because it is unable to provide a full range of products to its customers. The continued inability of Ingram Alliance to receive authorization to sell Hewlett-Packard products could have a material adverse effect on Ingram Alliance's business, financial condition, or results of operations. See "Business -- Ingram Alliance." Acquisitions. As part of its growth strategy, the Company pursues the acquisition of companies that either complement or expand its existing business. As a result, the Company is continually evaluating potential acquisition opportunities, which may be material in size and scope. Acquisitions involve a number of risks and difficulties, including expansion into new geographic markets and business areas, the requirement to understand local business practices, the diversion of management's attention to the assimilation of the operations and personnel of the acquired companies, the integration of the acquired companies' management information systems with those of the Company, potential adverse short-term effects on the Company's operating results, the amortization of acquired intangible assets, and the need to present a unified corporate image. The Company does not currently have any commitments or agreements with respect to any material acquisitions. The Company is currently in negotiations regarding potential acquisitions or joint ventures, none of which, if consummated, would be material to the Company's business. The Company anticipates that one or more potential acquisition opportunities, including some that could be material to the Company, may become available in the future. The Company may issue equity securities to consummate acquisitions, which may cause dilution to investors purchasing Common Stock in this offering. In addition, the Company may be required to utilize cash or increase its borrowings to consummate acquisitions. No assurance can be given that the Company will have adequate resources to consummate any acquisition, that any acquisition by the Company will or will not occur, that if any acquisition does occur it will not have a material adverse effect on the Company, its business, financial condition, or results of operations or that any such acquisition will be successful in enhancing the Company's business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risk of Declines in Inventory Value. The Company's business, like that of other wholesale distributors, is subject to the risk that the value of its inventory will be adversely affected by price reductions by suppliers or by technological changes affecting the usefulness or desirability of the products comprising the inventory. It is the policy of most suppliers of microcomputer products to protect distributors such as the Company, who purchase directly from such suppliers, from the loss in value of inventory due to technological change or the 10 15 supplier's price reductions. Under the terms of many distribution agreements, suppliers will credit the distributor for inventory losses resulting from the supplier's price reductions if the distributor complies with certain conditions. In addition, under many such agreements, the distributor has the right to return for credit or exchange for other products a portion of the inventory items purchased, within a designated period of time. A supplier who elects to terminate a distribution agreement generally will repurchase from the distributor the supplier's products carried in the distributor's inventory. The industry practices discussed above are sometimes not embodied in written agreements and do not protect the Company in all cases from declines in inventory value. No assurance can be given that such practices will continue, that unforeseen new product developments will not materially adversely affect the Company, or that the Company will be able to successfully manage its existing and future inventories. The Company's risk of declines in inventory value could be greater outside the United States where agreements with suppliers are more restrictive with regard to price protection and the Company's ability to return unsold inventory. The Company establishes reserves for estimated losses due to obsolete inventory in the normal course of business. Historically, the Company has not experienced losses due to obsolete inventory materially in excess of established inventory reserves. However, significant declines in inventory value in excess of established inventory reserves could materially adversely affect the Company's business, financial condition, or results of operations. The Company sometimes purchases from suppliers, usually at significant discounts, quantities of products that are nearing the end of their product life cycle. In addition, the Company's purchasing staff also seeks opportunities to purchase quantities of products from suppliers at discounts larger than those usually available. When the Company negotiates these purchases, it seeks to secure favorable terms for the return to suppliers of products unwanted by resellers and end-users. Because some of these purchase agreements contain terms providing for a 60-day time limit on returns to suppliers, end-user or reseller delays in returning the product to the Company may make it difficult for the Company to meet the deadline for returns to suppliers, and the Company could be left with unwanted product. Additionally, some suppliers may be unwilling or unable to pay the Company for products returned to them under purchase agreements, and this trend may accelerate as consolidation in the industry increases. For products offered by major suppliers, each of these events, were they to occur, could materially adversely impact the Company's business, financial condition, or results of operations. See "Business -- Products and Suppliers." Dependence on Independent Shipping Companies. The Company relies almost entirely on arrangements with independent shipping companies for the delivery of its products. Products are shipped from suppliers to the Company through Skyway Freight Systems, Yellow Freight Systems, APL Land Transport Services, and ABF Freight Systems. Currently, Federal Express Corporation ("FedEx"), United Parcel Service ("UPS"), Western Package Service, General Parcel Services, Roadway Parcel Services, and Purolator Courier deliver the substantial majority of the Company's products to its reseller customers in the United States and Canada. In other countries, the Company typically relies on one or two shipping companies prominent in local markets. The termination of the Company's arrangements with one or more of these independent shipping companies, or the failure or inability of one or more of these independent shipping companies to deliver products from suppliers to the Company or products from the Company to its reseller customers or their end-user customers could have a material adverse effect on the Company's business, financial condition, or results of operations. For instance, an employee work stoppage or slow-down at one or more of these independent shipping companies could materially impair that shipping company's ability to perform the services required by the Company. There can be no assurance that the services of any of these independent shipping companies will continue to be available to the Company on terms as favorable as those currently available or that these companies will choose or be able to perform their required shipping services for the Company. See "Business -- Operations -- Shipping." Rapid Technological Change; Alternate Means of Software Distribution. The microcomputer products industry is subject to rapid technological change, new and enhanced product specification requirements, and evolving industry standards. These changes may cause inventory in stock to decline substantially in value or to become obsolete. In addition, suppliers may give the Company limited or no access to new products being introduced. Although the Company believes that it has adequate price protection and other arrangements with its suppliers to avoid bearing the costs associated with these changes, no assurance can be made that future technological or other changes will not have a material adverse effect on the business, financial condition, or 11 16 results of operations of the Company. Outside North America, the supplier contracts can be more restrictive and place more risks on the Company. Net sales of software products have decreased as a percentage of total net sales in recent years due to a number of factors, including bundling of software with microcomputers; sales growth in Ingram Alliance, which is a hardware-only business; declines in software prices; and the emergence of alternative means of software distribution, such as site licenses and electronic distribution. The Company expects this trend to continue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and "Business -- Products and Suppliers." Relationship with Ingram Industries, Ingram Entertainment, and the Ingram Family Stockholders. The Company has historically depended on Ingram Industries and other subsidiaries of Ingram Industries for financing, cash management, tax and payroll administration, property/casualty insurance, employee benefits administration, and certain other administrative services. In conjunction with the Split-Off, the Company, Ingram Industries, and Ingram Entertainment Inc. ("Ingram Entertainment"), a wholly-owned subsidiary of Ingram Industries, will enter into agreements for the continued provision after the Split-Off of certain services formerly shared among such entities (collectively, the "Transitional Service Agreements"), as well as a tax sharing agreement. See "The Split-Off -- The Reorganization." The Company believes that the terms of the Transitional Service Agreements are on a basis at least as favorable to the Company as those that would have been obtained from third parties on an arm's length basis and that they will be adequate to allow the Company to continue its business as previously conducted on an independent basis. The Company's historical financial statements reflect an allocation of expenses in connection with the services covered by the Transitional Service Agreements. Although the Company expects the costs and fees it will pay in connection with the Transitional Service Agreements to be higher than its historical allocated costs, it does not believe the increase in costs will be material to its results of operations. In addition, the Transitional Service Agreements generally terminate on December 31, 1996, although payroll services under the Transitional Service Agreements will be provided through December 31, 1997. After such termination, the Company will be required to provide such services internally or find a third-party provider of such services. There can be no assurance that the Company will be able to secure the provision of such services on acceptable terms. Either the additional costs and fees associated with the Transitional Service Agreements or the failure to obtain acceptable provision of services upon termination of the Transitional Service Agreements could have a material adverse effect on the Company's business, financial condition, or results of operations. After the Split-Off, each of the Company, Ingram Industries, and Ingram Entertainment will be controlled by the Ingram Family Stockholders (as defined herein). See "-- Control by Ingram Family Stockholders; Certain Anti-takeover Provisions." Furthermore, the Company has incurred, and anticipates incurring in the future, higher payroll costs associated with the hiring of certain additional personnel and the addition of certain officers, previously paid by Ingram Industries, to the Company's payroll. There can be no assurance that the Company's results of operations will not be materially adversely affected by such additional costs. See "-- Capital Intensive Nature of Business; High Degree of Leverage," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Certain Transactions," and "The Split-Off -- The Reorganization." In connection with the Split-Off, the Company made a $20.0 million distribution to Ingram Industries in the second quarter of 1996. Additionally, the Company may declare a dividend, in an amount to be determined prior to the Split-Off, to Ingram Industries and the other holders of Class B Common Stock. The Company does not expect the dividend, if paid, to be material in relation to the Company's stockholders' equity or cash available for continuing operations. Control by Ingram Family Stockholders; Certain Anti-takeover Provisions. Immediately after the Exchange and the closing of this offering, 69.6% of the outstanding Common Equity (and 80.7% of the outstanding voting power) will be held by the Ingram Family Stockholders (68.0% and 80.5%, respectively, if the U.S. Underwriters' over-allotment option is exercised in full). Martha R. Ingram, her children, certain trusts created for their benefit, and two charitable trusts and a foundation created by the Ingram family (collectively, the "Ingram Family Stockholders") are expected to enter into a Board Representation Agreement (as defined herein) with the Company, which provides that certain types of corporate transactions, 12 17 including transactions involving the potential sale or merger of the Company; the issuance of additional equity, warrants, or options; certain acquisitions; or the incurrence of significant indebtedness, may not be entered into without the written approval of at least a majority of the voting power held by certain of the Ingram Family Stockholders acting in their sole discretion. See "The Split-Off," "Principal Stockholders," and "Description of Capital Stock." Voting control by the Ingram Family Stockholders may discourage certain types of transactions involving an actual or potential change of control of the Company, including transactions in which the holders of the Company's Common Stock might receive a premium for their shares over the prevailing market price of the Common Stock. Section 203 of the Delaware General Corporation Law (as amended from time to time, the "DGCL"), which is applicable to the Company, prohibits certain business combinations with certain stockholders for a period of three years after they acquire 15% or more of the outstanding voting stock of a corporation. See "Description of Capital Stock -- Section 203 of the DGCL." In addition, the authorized but unissued capital stock of the Company includes 1,000,000 shares of preferred stock. The Board of Directors is authorized to provide for the issuance of such preferred stock in one or more series and to fix the designations, preferences, powers and relative, participating, optional or other rights and restrictions thereof. Accordingly, the Company may issue a series of preferred stock in the future that will have preference over the Common Equity with respect to the payment of dividends and upon liquidation, dissolution or winding-up or which could otherwise adversely affect holders of the Common Equity or discourage or make difficult any attempt to obtain control of the Company. See "Description of Capital Stock -- Preferred Stock." Shares Eligible for Future Sale. Upon completion of this offering, the Company will have outstanding 20,000,000 shares of Common Stock (23,000,000 shares if the U.S. Underwriters' over-allotment option is exercised in full) and 109,868,752 shares of Class B Common Stock, and an additional approximately 11,800,000 shares of Common Stock and approximately 4,800,000 shares of Class B Common Stock will be reserved for issuance upon exercise of outstanding stock options held by employees and directors of the Company, Ingram Industries, and Ingram Entertainment. See "Management." The 20,000,000 shares of Common Stock to be sold by the Company in this offering will be freely tradeable without restriction. The Company and its directors and executive officers, and certain stockholders of the Company, have agreed, subject to certain exceptions, not to offer, sell, contract to sell or otherwise dispose of any Common Equity for a period of 180 days after the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated has informed the Company that it has no present intention to consent to any such transactions. Despite these limitations, the sale of a significant number of these shares could have an adverse impact on the price of the Common Stock or on any trading market that may develop. See "Shares Eligible for Future Sale." Absence of Public Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock or the Class B Common Stock. There can be no assurance that an active trading market for the Common Stock will develop, or, if one does develop, that it will be sustained following this offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations between the Company and the Representatives of the Underwriters. See "Underwriters -- Pricing of Offering." The market price of the Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's results of operations, changes in earnings estimates by research analysts, conditions in the personal computer industry, or general market or economic conditions, among other factors. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices of many technology companies, often unrelated to the operating performance of the specific companies. Such market fluctuations could materially adversely affect the market price for the Common Stock. Dilution. The initial public offering price of the shares of Common Stock offered hereby will be substantially higher than the net tangible book value per share of the Common Equity. Therefore, purchasers of the Common Stock offered hereby will experience an immediate and substantial dilution in net tangible book value per share. See "Dilution." 13 18 THE COMPANY Ingram Micro is the leading wholesale distributor of microcomputer products worldwide. The Company markets microcomputer hardware, networking equipment, and software products to more than 100,000 reseller customers in approximately 120 countries worldwide in three principal market sectors: the VAR sector, consisting of value-added resellers, systems integrators, network integrators, application VARs, and original equipment manufacturers; the Commercial sector, consisting of corporate resellers, direct marketers, independent dealers, and owner-operated chains; and the Consumer sector, consisting of consumer electronics stores, computer superstores, mass merchants, office product superstores, software-only stores, and warehouse clubs. As a wholesale distributor, the Company markets its products to each of these types of resellers as opposed to marketing directly to end-user customers. The Company conducts business with most of the leading resellers of microcomputer products around the world, including, in the United States, Ameridata, CDW Computer Centers, CompuCom, CompUSA, Computer City, Electronic Data Systems, En Pointe Technologies, Entex Information Services, Micro Warehouse, Sam's Club, Staples, and Vanstar. The Company's international reseller customers include Complet Data A/S, Consultores en Diagnostico Organizacional y de Sistemas, DSG Retail Ltd., 06 Software Centre Europe, B.V., GE Capital Technologies, Jump Ordenadores, Maxima S.A., Norsk Datasenter, Owell Svenska AB, SNI Siemens Nixdorf Infosys AG, and TC Sistema SPA. Ingram Micro offers one-stop shopping to its reseller customers by providing a comprehensive inventory of more than 36,000 products from over 1,100 suppliers, including most of the microcomputer industry's leading hardware manufacturers, networking equipment suppliers, and software publishers. The Company's broad product offerings include: desktop and notebook personal computers ("PCs"), servers, and workstations; mass storage devices; CD-ROM drives; monitors; printers; scanners; modems; networking hubs, routers, and switches; network interface cards; business application software; entertainment software; and computer supplies. The Company's suppliers include Apple Computer, Cisco Systems, Compaq Computer, Creative Labs, Hewlett-Packard, IBM, Intel, Microsoft, NEC, Novell, Quantum, 3Com, Toshiba, and U.S. Robotics. Ingram Micro distributes microcomputer products worldwide through warehouses in eight strategic locations in the continental United States and 21 international warehouses located in Canada, Mexico, most countries of the European Union, Norway, Malaysia, and Singapore. The Company believes that it is the market share leader in the United States, Canada, and Mexico, and the second largest full-line distributor in Europe. In 1995, approximately 31% of the Company's net sales were derived from operations outside the United States. The Export Division fulfills orders from U.S. exporters and from foreign customers in countries where the Company does not operate a distribution subsidiary, including much of Latin America, the Middle East, Africa, Australia, and parts of Europe and Asia. The Company participates in the master reseller business in the United States through Ingram Alliance. The Company's principal objective is to enhance its position as the preeminent wholesale distributor of microcomputer products worldwide. The Company is focused on providing a broad range of products and services, quick and efficient order fulfillment, and consistent on-time and accurate delivery to its reseller customers around the world. The Company believes that IMpulse, the Company's on-line information system, provides a competitive advantage through real-time worldwide information access and processing capabilities. This information system, coupled with the Company's exacting operating procedures in telesales, credit support, customer service, purchasing, technical support, and warehouse operations, enables the Company to provide its reseller customers with superior service in an efficient and low cost manner. In addition, to enhance sales and support its suppliers and reseller customers, the Company provides a wide range of value-added services, such as technical training, order fulfillment, tailored financing programs, systems configuration, and marketing programs. The Company has grown rapidly over the past five years, with net sales and net income increasing to $8.6 billion and $84.3 million, respectively, in 1995 from $2.0 billion and $30.2 million, respectively, in 1991, representing compound annual growth rates of 43.8% and 29.3%, respectively. The Company's growth during this period reflects substantial expansion of its existing domestic and international operations, resulting from the addition of new customers, increased sales to the existing customer base, the addition of new product 14 19 categories and suppliers, and the establishment of Ingram Alliance, as well as the successful integration of ten acquisitions worldwide. Because of intense price competition in the microcomputer products wholesale distribution industry, the Company's margins have historically been narrow and are expected in the future to continue to be narrow. In addition, the Company is highly leveraged and has relied heavily on debt financing for its increasing working capital needs in connection with the expansion of its business. See "Risk Factors -- Narrow Margins" and "-- Capital Intensive Nature of Business; High Degree of Leverage." The Company is currently a subsidiary of Ingram Industries, a company controlled by the Ingram Family Stockholders. Concurrently with the closing of this offering, Ingram Industries will consummate a reorganization (the "Reorganization"), pursuant to which the Company, Ingram Industries, and Ingram Entertainment will allocate certain liabilities and obligations among themselves. In conjunction with the Reorganization, Ingram Industries will consummate an exchange (the "Exchange"), pursuant to which the existing stockholders of Ingram Industries will exchange all or a portion of their shares of Ingram Industries common stock for shares of Class B Common Stock of the Company or common stock of Ingram Entertainment, in specified ratios. Immediately after the Exchange and the closing of this offering, none of the Common Equity will be held by Ingram Industries. At such time, 69.6% of the outstanding Common Equity (and 80.7% of the outstanding voting power) will be held by the Ingram Family Stockholders (68.0% and 80.5%, respectively, if the U.S. Underwriters' over-allotment option is exercised in full). See "Risk Factors -- Control by Ingram Family Stockholders; Certain Anti-takeover Provisions." The Exchange and the Reorganization, together with certain related transactions, are referred to herein as the "Split-Off." The consummation of the Split-Off is a non-waiveable condition to the closing of this offering. See "Principal Stockholders" and "The Split-Off." The Company's earliest predecessor began business in 1979 as a California corporation named Micro D, Inc. This company, through a series of acquisitions and mergers, is now a subsidiary of Ingram Micro Holdings Inc. ("Holdings"), which has expanded through additional acquisitions and internal growth to encompass the Company's current operations. The Company was reincorporated in Delaware on April 29, 1996. Holdings is presently a wholly-owned subsidiary of the Company and will be merged into the Company prior to consummation of the Split-Off. The Company's principal executive office is located at 1600 East St. Andrew Place, Santa Ana, California 92705, and its telephone number is (714) 566-1000. 15 20 USE OF PROCEEDS The net proceeds to the Company from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses, are assumed to be approximately $282.3 million ($324.8 million if the U.S. Underwriters' over-allotment option is exercised in full). At June 29, 1996, the Company had total outstanding debt of $768.8 million, of which $560.8 million was due to Ingram Industries. Concurrently with the Split-Off, the Company will assume certain indebtedness of Ingram Industries, including $192.9 million of Ingram Industries' private placement notes, and Ingram Industries' accounts receivable securitization program (expected to aggregate $210 million at the closing of this offering), in partial satisfaction of amounts due to Ingram Industries. The Company intends to use borrowings under the Credit Facility to repay the remaining intercompany indebtedness to Ingram Industries, which was incurred for general corporate purposes, primarily working capital needs in connection with the expansion of the Company's business. Certain of the net proceeds from this offering will be used to repay outstanding revolving indebtedness related to amounts drawn by certain of the Company's subsidiaries ($167.0 million at June 29, 1996), as participants in Ingram Industries' existing $380 million unsecured credit facility. The remainder of the net proceeds from this offering will be used to repay a portion of the borrowings under the Credit Facility described above (approximately $140.8 million on a pro forma basis at June 29, 1996). See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," and Note 6 of Notes to Consolidated Financial Statements. DIVIDEND POLICY The Company has never declared or paid any dividends on the Common Equity other than the distribution made to Ingram Industries in connection with the Split-Off. See "Risk Factors--Relationship with Ingram Industries, Ingram Entertainment, and the Ingram Family Stockholders." The Company currently intends to retain its future earnings to finance the growth and development of its business and therefore does not anticipate declaring or paying cash dividends on the Common Equity for the foreseeable future other than a dividend that may be paid to Ingram Industries and the other holders of Class B Common Stock in connection with the closing of the Split-Off. Any future determination to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deems relevant. In addition, the Credit Facility and the Company's other debt facilities will contain restrictions on the declaration and payment of dividends. 16 21 CAPITALIZATION The following table sets forth, as of June 29, 1996, (i) the actual short-term debt and capitalization of the Company, (ii) such short-term debt and capitalization as adjusted to give effect to the Split-Off (as if the Company had been organized as of such date), and (iii) such as adjusted short-term debt and capitalization as further adjusted to reflect the sale of the shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $15.00 per share (after deducting estimated underwriting discounts and commissions and estimated offering expenses) and the application of the estimated net proceeds therefrom. See "Use of Proceeds."
JUNE 29, 1996 ----------------------------------------- AS AS FURTHER ACTUAL ADJUSTED(1) ADJUSTED(1)(2) ---------- ----------- -------------- (IN THOUSANDS, EXCEPT SHARE DATA) Short-term debt: Current maturities of long-term debt........................... $ 12,044 $ 12,044 $ 12,044 ========== ======== ======== Long-term debt: Long-term debt................................................. $ 195,890 $ 579,564 $297,264 Due to Ingram Industries....................................... 560,847 0 0 ---------- -------- -------- Total long-term debt........................................ 756,737 579,564 297,264 Redeemable Class B Common Stock.................................. 0 17,573 17,573 ---------- -------- -------- Stockholders' equity(3)(4): Class A Common Stock, $0.01 par value; 265,000,000 shares authorized; 0, 0, and 20,000,000 shares issued and outstanding, respectively................................................ 0 0 200 Class B Common Stock, $0.01 par value; 135,000,000 shares authorized; 107,251,352, 109,868,752, and 109,868,752 shares issued and outstanding, respectively (including 2,510,400 redeemable shares).......................................... 1,073 1,074 1,074 Additional paid in capital..................................... 22,427 22,775 304,875 Retained earnings.............................................. 312,762 312,762 303,000 Cumulative translation adjustment.............................. 2,539 2,539 2,539 Unearned compensation.......................................... 0 (749) (749) ---------- -------- -------- Total stockholders' equity.................................. 338,801 338,401 610,939 ---------- -------- -------- Total capitalization........................................ $1,095,538 $ 935,538 $925,776 ========== ======== ========
- --------------- (1) As adjusted to reflect (i) the issuance of 2,510,400 redeemable shares of Class B Common Stock in the Employee Offering and the grant of 107,000 restricted shares of Class B Common Stock (unearned compensation) concurrently therewith; (ii) the repayment of $17.2 million in long-term debt with the net proceeds from the Employee Offering; and (iii) after consideration of (i) and (ii), the assumption by the Company of certain debt facilities and the accounts receivable program of Ingram Industries in satisfaction of amounts due to Ingram Industries (resulting in an increase of $383.7 million in long-term debt, a decrease of $560.8 million in amounts due to Ingram Industries, and a $160.0 million decrease in trade accounts receivable, not reflected in this table), as if such transactions had occurred on June 29, 1996. (2) As further adjusted to give effect to the issuance of the Common Stock offered by the Company in this offering at an assumed initial public offering price of $15.00 per share (after deducting estimated underwriting discounts and commissions and estimated offering expenses in connection with this offering) and the repayment of certain revolving indebtedness including amounts outstanding under the Credit Facility (approximately $140.8 million on a pro forma basis at June 29, 1996) with the net proceeds therefrom, and the additional estimated $9.8 million non-cash charge related to certain Rollover Stock Options. See "Use of Proceeds." (3) Each share of Class B Common Stock is convertible, at any time at the option of the holder, into one share of Common Stock. In addition, the Class B Common Stock will be automatically converted into Common Stock upon the occurrence of certain events. See "Description of Capital Stock." (4) Excludes approximately 16,600,000 shares of Common Equity issuable in connection with outstanding stock options. See "Management -- 1996 Plan -- Options" and "-- Rollover Plans; Incentive Stock Units." 17 22 DILUTION The pro forma net tangible book value of the Common Equity of the Company as of June 29, 1996 was $327.1 million or $2.98 per share of Common Equity (as adjusted to give effect to the Employee Offering, the grant of 107,000 restricted shares of Class B Common Stock, and the Split-Off). Net tangible book value represents the amount of total tangible assets less total liabilities. Dilution per share to new investors represents the difference between the amount per share paid by purchasers of Common Stock in the offering made hereby and the pro forma net tangible book value per share of Common Equity immediately after the closing of this offering. After giving effect to the sale of 20,000,000 shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $15.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of June 29, 1996 would have been $599.7 million or $4.62 per share of Common Equity. This represents an immediate increase in net tangible book value of $1.64 per share of Common Equity to existing stockholders and an immediate dilution of $10.38 per share of Common Equity to purchasers of Common Stock in this offering. The following table illustrates the per share dilution to new investors: Assumed initial public offering price per share............................. $15.00 Net tangible book value per share of Common Equity as of June 29, 1996, as adjusted................................ $2.98 Increase attributable to new investors.................................... 1.64 ----- Net tangible book value per share of Common Equity after this offering...... 4.62 ------ Dilution per share of Common Equity to new investors........................ $10.38 ======

The following table summarizes, on a pro forma basis to give effect to the Employee Offering, the grant of 107,000 restricted shares of Class B Common Stock, and the Split-Off, as of June 29, 1996, the difference (before deducting estimated underwriting discounts and commissions and estimated offering expenses) between existing stockholders and the purchasers of shares of Common Stock in this offering (at an assumed initial public offering price of $15.00 per share) with respect to: (i) the number of shares of Common Equity purchased from the Company; (ii) the effective cash consideration paid; and (iii) the average price paid per share of Common Equity.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------ PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ------- ------------ ------- --------- Existing stockholders(1)........... 109,868,752 84.6% $ 84,133,800 21.9% $ 0.77 New investors...................... 20,000,000 15.4 300,000,000 78.1 15.00 ----------- ----- ------------ ----- Total.................... 129,868,752 100.0% $384,133,800 100.0% =========== ===== ============ =====
- --------------- (1) Excludes options issued under the Company's 1996 Plan and Rollover Plan, to purchase an aggregate of 16,600,000 shares of Common Equity. To the extent any of these options are exercised, there will be further dilution to new investors. See "Management -- 1996 Plan -- Options" and " -- Rollover Plan; Incentive Stock Units." 18 23 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents selected consolidated financial data of the Company. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and notes thereto included elsewhere in this Prospectus. The consolidated statement of income data set forth below for each of the three years in the period ended December 30, 1995 and the consolidated balance sheet data at December 31, 1994 and December 30, 1995 are derived from, and are qualified by reference to, the audited consolidated financial statements included elsewhere in this Prospectus, and should be read in conjunction with those financial statements and the notes thereto. The consolidated balance sheet data as of January 1, 1994 are derived from the audited consolidated balance sheet of the Company as of January 1, 1994, which is not included in this Prospectus. The consolidated statement of income data for each of the two years in the period ended January 2, 1993 and the consolidated balance sheet data as of December 28, 1991 and January 2, 1993 are derived from unaudited consolidated financial statements not included in this Prospectus. The consolidated financial data as of and for the twenty-six weeks ended July 1, 1995, and as of and for the twenty-six weeks ended June 29, 1996, have been derived from unaudited consolidated financial statements of the Company which are included in this Prospectus and which, in the opinion of the Company, reflect all adjustments, consisting only of adjustments of a normal and recurring nature, necessary for a fair presentation. Results for the twenty-six weeks ended June 29, 1996 are not necessarily indicative of results for the full year. The historical consolidated financial data may not be indicative of the Company's future performance and do not necessarily reflect what the financial position and results of operations of the Company would have been had the Company operated as a separate, stand-alone entity during the periods covered. See "Consolidated Financial Statements."
TWENTY-SIX WEEKS ENDED FISCAL YEAR ----------------------- -------------------------------------------------------------- JULY 1, JUNE 29, 1991 1992 1993 1994 1995 1995 1996 INCOME STATEMENT DATA: ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.............................. $2,016,586 $2,731,272 $4,044,169 $5,830,199 $8,616,867 $3,739,145 $5,543,167 Cost of sales.......................... 1,831,140 2,503,702 3,714,527 5,391,224 8,011,181 3,467,838 5,166,134 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit........................... 185,446 227,570 329,642 438,975 605,686 271,307 377,033 Expenses: Selling, general and administrative..................... 116,793 157,306 225,047 296,330 415,344 190,924 252,652 Charges allocated from Ingram Industries......................... 1,030 1,330 1,567 2,355 3,461 1,678 2,143 Non-cash compensation charge......... 0 0 0 0 0 0 7,802(2) ---------- ---------- ---------- ---------- ---------- ---------- ---------- 117,823 158,636 226,614 298,685 418,805 192,602 262,597(2) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from operations................. 67,623 68,934 103,028 140,290 186,881 78,705 114,436(2) Other (income) expense: Interest income...................... (256) (103 ) (407) (937) (3,479) (2,425) (761) Interest expense..................... 3,233 5,556 5,003 8,744 13,451 6,024 7,526 Interest expense charged by Ingram Industries......................... 11,859 12,405 16,089 24,189 32,606 14,875 21,172 Net foreign currency exchange loss... 0 0 111 6,873 7,751 4,598 392 Other................................ 324 2,574 (623) 716 1,936 1,412 1,610 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 15,160 20,432 20,173 39,585 52,265 24,484 29,939 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes and minority interest............................. 52,463 48,502 82,855 100,705 134,616 54,221 84,497(2) Provision for income taxes............. 22,286 17,529 31,660 39,604 53,143 21,402 33,856 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before minority interest........ 30,177 30,973 51,195 61,101 81,473 32,819 50,641(2) Minority interest...................... 0 0 840 (2,243) (2,834) (2,701) 1 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income(1).......................... $ 30,177 $ 30,973 $ 50,355 $ 63,344 $ 84,307 $ 35,520 $ 50,640(2) ========== ========== ========== ========== ========== ========== ========== Earnings per share..................... $ 0.25 $ 0.26 $ 0.42 $ 0.53 $ 0.70 $ 0.29 $ 0.42(2) ========== ========== ========== ========== ========== ========== ========== Weighted average common shares outstanding.......................... 120,554 120,554 120,554 120,554 120,554 120,554 120,554

DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JUNE 29, 1991 1993 1994 1994 1995 1996 BALANCE SHEET DATA: ------------ ---------- ---------- ------------ ------------ ---------- (IN THOUSANDS) Cash.......................................... $ 15,510 $ 25,276 $ 44,391 $ 58,369 $ 56,916 $ 45,172 Working capital............................... 288,462 334,913 471,616 663,049 1,019,639 946,156 Total assets.................................. 670,649 915,590 1,296,363 1,974,289 2,940,898 2,641,421 Total debt(3)................................. 244,785 295,389 398,929 552,283 850,548 768,781 Stockholder's equity.......................... 78,972 109,418 155,459 221,344 310,795 338,801
- --------------- (1) The 1992 results reflect the adoption of FAS 109. (2) Reflects a non-cash compensation charge of $7.8 million ($4.8 million, or $0.04 per share, net of tax) in connection with the granting of Rollover Stock Options. See Note 11 of Notes to Consolidated Financial Statements. (3) Includes long-term debt, current maturities of long-term debt, and amounts due to Ingram Industries. 19 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Ingram Micro is the leading wholesale distributor of microcomputer products worldwide. The Company's net sales have grown to $8.6 billion in 1995 from $2.0 billion in 1991. This sales growth reflects substantial expansion of its existing domestic and international operations, resulting from the addition of new customers, increased sales to the existing customer base, the addition of new product categories and suppliers, and the establishment of Ingram Alliance, as well as the successful integration of ten acquisitions worldwide. Net income has grown to $84.3 million in 1995 from $30.2 million in 1991. The microcomputer wholesale distribution industry in which the Company operates is characterized by narrow gross and operating margins, which have declined industry-wide in recent years, primarily due to intense price competition. The Company's gross margins declined to 7.0% in 1995 from 9.2% in 1991. To partially offset the decline in gross margins, the Company has continually instituted operational and expense controls which have reduced selling, general, and administrative ("SG&A") expenses (including charges allocated from Ingram Industries) as a percentage of net sales to 4.8% in 1995 from 5.8% in 1991. As a result, the Company's operating margins and net margins have declined less than gross margins. Operating margins declined to 2.2% in 1995 from 3.4% in 1991, and net margins declined to 1.0% in 1995 from 1.5% in 1991. There can be no assurance that the Company will be able to continue to reduce operating expenses as a percentage of net sales to mitigate further reductions in gross margins. Although the Company's international operations have historically had similar gross margins to the Company's U.S. traditional wholesale operations, the Company's international operations have historically had lower operating margins due in part to greater economies of scale in the U.S. operations. See "Risk Factors -- Narrow Margins." Ingram Micro entered the master reseller (also known as "aggregation") business in late 1994 through the launch of Ingram Alliance. Ingram Alliance is designed to offer resellers access to certain of the industry's leading hardware manufacturers at competitive prices by utilizing a lower cost business model that depends upon a higher average order size, lower product returns percentage, and supplier-paid financing. In 1995, Ingram Alliance contributed over $700 million of net sales to the Company. Since its inception in late 1994, Ingram Alliance has operated with lower gross margins, lower SG&A expenses as a percentage of net sales, and lower financing costs than the Company's traditional wholesale distribution business. Accordingly, if Ingram Alliance's sales continue to grow as a percentage of the Company's total net sales, the Company expects such increase to cause its overall gross margins to decline. The Company sells microcomputer hardware, networking equipment, and software products. Sales of hardware products (including networking equipment) represent a majority of total net sales and have historically generated a higher operating margin than sales of software products, although operating margins on both hardware products and software products have historically declined. Hardware products and networking equipment have comprised an increasing percentage, and software products a decreasing percentage, of the Company's net sales in recent years, and the Company expects this trend to continue. Net sales of software products have decreased as a percentage of total net sales in recent years due to a number of factors, including bundling of software with microcomputers; sales growth in Ingram Alliance, which is a hardware-only business; declines in software prices; and the emergence of alternative means of software distribution, such as site licenses and electronic distribution. See "Risk Factors -- Rapid Technological Change; Alternate Means of Software Distribution" and "Business -- Products and Suppliers." Historically, the Company's sources of capital have primarily been borrowings from Ingram Industries through debt facilities maintained by Ingram Industries and guaranteed by the Company. The Company has a commitment providing for the $1 billion Credit Facility, and expects to enter into a formal agreement prior to the closing of this offering. The Credit Facility is expected to be effective as of the closing of this offering. Concurrently with the Split-Off, the Company will assume certain indebtedness of Ingram Industries, in partial satisfaction of amounts due to Ingram Industries. The Company will repay the remaining intercompany indebtedness with borrowings under the Credit Facility. Certain of the net proceeds from this offering will be used to repay outstanding revolving indebtedness related to amounts drawn by certain of the Company's 20 25 subsidiaries, as participants in Ingram Industries' existing unsecured credit facility. The remainder of the net proceeds from this offering will be used to repay a portion of the borrowings under the Credit Facility. See "Use of Proceeds." The Company has historically depended on Ingram Industries and other subsidiaries of Ingram Industries for financing, management, tax and payroll administration, property/casualty insurance, employee benefits administration, and certain other administrative services. In conjunction with the Split-Off, the Company, Ingram Industries, and Ingram Entertainment will enter into the Transitional Service Agreements, as well as a tax sharing agreement. See "The Split-Off -- The Reorganization." The Company believes that the terms of the Transitional Service Agreements will be on a basis at least as favorable to the Company as those that would have been obtained from third parties on an arm's length basis. The Company's historical financial statements reflect an allocation of expenses in connection with the services covered by the Transitional Service Agreements. Although the Company expects the costs and fees to be paid by it in connection with the Transitional Service Agreements to be higher than its historical allocated costs, it does not believe the increase in costs will be material to its results of operations. On a long-term basis, the Company will be required to hire personnel to perform such services or contract with one or more independent third parties to provide such services. See "Risk Factors -- Relationship with Ingram Industries, Ingram Entertainment, and the Ingram Family Stockholders." The microcomputer wholesale distribution business is capital intensive. The Company's business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. The Company is highly leveraged and has relied heavily on debt financing for its increasing working capital needs in connection with the expansion of its business. The Company will need additional capital to finance its product inventory and accounts receivable as it expands its business. The Company's interest expense for any current or future indebtedness will be subject to fluctuations in interest rates and may cause fluctuations in the Company's net income. In connection with the Split-Off, the Company will assume Ingram Industries' accounts receivable securitization program, and financing costs associated with this program will be classified as other expense. Prior to the Split-Off, such expenses were reflected as interest expense charged by Ingram Industries. While this structure will not increase the Company's cost of financing, this change in the classification of financing costs will result in an increase in the Company's other expenses of approximately $10.5 million per year and a corresponding decrease in its interest expense. In connection with the Split-Off, certain outstanding Ingram Industries options, incentive stock units ("ISUs"), and stock appreciation rights ("SARs") held by certain employees of Ingram Industries, Ingram Entertainment, and Ingram Micro will be converted to options to purchase up to an aggregate of approximately 11,000,000 shares of Common Stock ("Rollover Stock Options"). See "Management -- Rollover Plan; Incentive Stock Units." The Company has recorded a pre-tax non-cash compensation charge of approximately $7.8 million ($4.8 million net of tax) in the first half of 1996 related to the vested portion of certain of the Rollover Stock Options as the terms and grants of the Rollover Stock Options were established in the first quarter of 1996. This charge was based on the difference between the estimated fair value of such options in the first quarter of 1996 and the exercise price of such options or SARs. In addition, at the time of this offering, the Company will be required by applicable accounting rules to record a non-cash compensation charge with respect to the vested portion of approximately 1,300,000 formula plan Rollover Stock Options included in the 11,000,000 shares. This non-cash charge is expected to be approximately $9.8 million based on the difference between the average exercise price of $2.63 per share and $15.00 per share, the assumed initial public offering price of the Common Stock. The Company will be required by applicable accounting rules to record additional non-cash compensation charges over the remaining vesting periods of the Rollover Stock Options. The Company expects these additional charges to be $3.0 million ($2.3 million net of tax) in the aggregate for the third and fourth quarters of 1996, $6.4 million ($5.0 million net of tax) for 1997 and $4.3 million ($3.2 million net of tax) for 1998. 21 26 RESULTS OF OPERATIONS The following table sets forth the Company's net sales by geographic region (excluding intercompany sales), and the percentage of total net sales represented thereby, for each of the periods indicated.
FISCAL YEAR TWENTY-SIX WEEKS ENDED -------------------------------------------------- -------------------------------- 1993 1994 1995 JULY 1, 1995 JUNE 29, 1996 -------------- -------------- -------------- -------------- -------------- (DOLLARS IN MILLIONS) NET SALES BY GEOGRAPHIC REGION(1): United States.................. $ 3,118 77.1% $ 4,122 70.7% $ 5,970 69.3% $ 2,577 68.9% $ 3,821 68.9% Europe......................... 485 12.0 1,078 18.5 1,849 21.4 822 22.0 1,186 21.4 Other international............ 441 10.9 630 10.8 798 9.3 340 9.1 536 9.7 ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total.......................... $ 4,044 100.0% $ 5,830 100.0% $ 8,617 100.0% $ 3,739 100.0% $ 5,543 100.0% ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
- --------------- (1) Net sales are classified by location of the Company entity. For example, products sold through Ingram Alliance or the U.S. Export Division are classified as United States sales. The following table sets forth certain items from the Company's Consolidated Statement of Income as a percentage of net sales, for each of the periods indicated.
PERCENTAGE OF NET SALES ---------------------------------------------------- TWENTY-SIX WEEKS ENDED FISCAL YEAR ---------------------- ------------------------- JULY 1, JUNE 29, 1993 1994 1995 1995 1996 ----- ----- ----- -------- --------- Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales................................. 91.9 92.5 93.0 92.7 93.2 ----- ----- ----- ----- ----- Gross profit.................................. 8.1 7.5 7.0 7.3 6.8 Expenses: SG&A expenses and charges allocated from Ingram Industries........................ 5.6 5.1 4.8 5.2 4.6 Non-cash compensation charge................ 0.0 0.0 0.0 0.0 0.1 ----- ----- ----- ----- ----- Income from operations........................ 2.5 2.4 2.2 2.1 2.1 Other expense, net............................ 0.5 0.7 0.6 0.7 0.6 ----- ----- ----- ----- ----- Income before income taxes and minority interest.................................... 2.0 1.7 1.6 1.4 1.5 Provision for income taxes.................... 0.8 0.6 0.6 0.6 0.6 Minority interest............................. 0.0 0.0 0.0 (0.1) 0.0 ----- ----- ----- ----- ----- Net income.................................... 1.2% 1.1% 1.0% 0.9% 0.9% ===== ===== ===== ===== =====
FIRST HALF 1996 COMPARED TO FIRST HALF 1995 Consolidated net sales increased 48.2% to $5.5 billion in the first half of 1996 from $3.7 billion in the first half of 1995. The increase in worldwide net sales was attributable to growth in the microcomputer products industry in general, the addition of new customers, increased sales to the existing customer base, and expansion of the Company's product offerings. Net sales from U.S. operations increased 48.3% to $3.8 billion in the first half of 1996 from $2.6 billion in the first half of 1995. In addition to the factors above that impacted net sales worldwide, U.S. net sales were positively impacted by the strong growth in Ingram Alliance sales. Net sales from European operations increased 44.3% to $1.2 billion in the first half of 1996 from $822.4 million in the first half of 1995. Other international net sales increased 57.8% to $536.4 million in the first half of 1996 from $339.9 million in the first half of 1995, principally due to the growth in net sales from the Company's Canadian operations. In the first half of 1996, net sales from U.S. operations accounted for 68.9% of consolidated net sales, net sales from European operations accounted for 21.4% of consolidated net sales, and other international net sales accounted for 9.7% of consolidated net sales. In the first half of 1995, net sales from U.S. operations accounted for 68.9% of consolidated net sales, net sales from European operations accounted for 22.0% of consolidated net sales, and other international net sales accounted for 9.1% of consolidated net sales. 22 27 Cost of sales as a percentage of net sales increased to 93.2% in the first half of 1996 from 92.7% in the first half of 1995. This increase was largely attributable to competitive pricing pressures, especially in Europe, and the increase as a percentage of net sales of the lower gross margin Ingram Alliance business, which more than offset an increase in worldwide purchase discounts and rebates from the Company's suppliers. Total SG&A expenses and charges allocated from Ingram Industries increased 32.3% to $254.8 million in the first half of 1996 from $192.6 million in the first half of 1995, but decreased as a percentage of net sales to 4.6% in the first half of 1996 from 5.2% in the first half of 1995. The increased level of spending was attributable to expenses required to support expansion of the Company's business, consisting primarily of incremental personnel and support costs, lease payments relating to new operating facilities, and expenses associated with the development and maintenance of information systems. The decrease in operating expenses as a percentage of net sales was primarily attributable to the growth of Ingram Alliance, which utilizes a lower cost business model, and economies of scale from higher sales volumes. During the first half of 1996, the Company recorded a non-cash compensation charge of $7.8 million or 0.1% of net sales in connection with the Rollover Stock Options. The Company did not record any such charge during the first half of 1995. Excluding the $7.8 million non-cash compensation charge in the first half of 1996, total income from operations increased as a percentage of net sales to 2.2% in the first half of 1996 from 2.1% in the first half of 1995. Income from operations in the United States remained constant as a percentage of net sales at 2.7% in both periods. Income from operations in Europe decreased as a percentage of net sales to 0.7% in the first half of 1996 from 0.9% in the first half of 1995. The decrease was offset by an increase in income from operations as a percentage of net sales for geographic regions outside the United States and Europe to 2.2% in the first half of 1996 from 0.4% in the first half of 1995. The first half of 1995 included the negative impact of an inventory valuation loss of $3.8 million related to the decline in value of the Mexican peso and the associated impact on the Mexican economy. For the reasons set forth above, income from operations, including the $7.8 million non-cash compensation charge, increased 45.4% to $114.4 million in the first half of 1996 from $78.7 million in the first half of 1995, but remained constant as a percentage of net sales at 2.1%. Other expense, net, which consists primarily of net interest expense (including interest expense charged by Ingram Industries), foreign currency exchange losses, and miscellaneous non-operating expenses, increased 22.3% to $29.9 million in the first half of 1996 from $24.5 million in the first half of 1995, but declined as a percentage of net sales to 0.6% in the first half of 1996 from 0.7% in the first half of 1995. The increase in other expense was largely attributable to a higher level of borrowings to finance the Company's worldwide business expansion, partially offset by a period-over-period decrease in the amount of foreign currency losses which were primarily related to the Mexican peso devaluation. The provision for income taxes increased 58.2% to $33.9 million in the first half of 1996 from $21.4 million in the first half of 1995, reflecting the 55.8% increase in the Company's income before income taxes and minority interest. The Company's effective tax rate was 40.1% in the first half of 1996 compared to 39.5% in the first half of 1995. Excluding the $4.8 million (net of tax) non-cash compensation charge, net income increased 56.0% to $55.4 million in the first half of 1996 from $35.5 million in the first half of 1995 and, as a percentage of net sales, increased to 1.0% in the first half of 1996 from 0.9% in the first half of 1995. Net income, including the $4.8 million (net of tax) non-cash compensation charge, increased 42.6% to $50.6 million in the first half of 1996 from $35.5 million in the first half of 1995, but remained constant as a percentage of net sales at 0.9%. 1995 COMPARED TO 1994 Consolidated net sales increased 47.8% to $8.6 billion in 1995 from $5.8 billion in 1994. The increase in worldwide net sales was attributable to growth in the microcomputer products industry in general, the addition of new customers, increased sales to the existing customer base, and expansion of the Company's product 23 28 offerings, as well as to the release of significant new products, including the Microsoft Windows 95 operating system in August 1995. Net sales from U.S. operations increased 44.8% to $6.0 billion in 1995 from $4.1 billion in 1994. The increase in U.S. net sales was largely attributable to the growth of Ingram Alliance in 1995, its first full year of operations, as well as an increase in the Company's customer base and product lines. Net sales from European operations increased 71.5% to $1.8 billion in 1995 from $1.1 billion in 1994. In addition to factors affecting sales worldwide, European net sales were positively impacted by the full year contribution in 1995 of the Company's Scandinavian operations, which were acquired in September 1994. Other international net sales increased 26.7% to $798.0 million in 1995 from $629.6 million in 1994. The increase in net sales from other international operations was entirely attributable to an increase in Canadian sales, partially offset by a decrease in Mexican net sales resulting from the distressed Mexican economy and the related peso devaluation. In 1995, net sales from U.S. operations accounted for 69.3% of consolidated net sales, net sales from European operations accounted for 21.4% of consolidated net sales, and other international net sales accounted for 9.3% of consolidated net sales. In 1994, net sales from U.S. operations accounted for 70.7% of consolidated net sales, net sales from European operations accounted for 18.5% of consolidated net sales, and other international net sales accounted for 10.8% of consolidated net sales. Cost of sales as a percentage of net sales increased to 93.0% in 1995 from 92.5% in 1994. This increase was largely attributable to competitive pricing pressures worldwide and the growth of Ingram Alliance, which is characterized by lower gross margins than the Company's traditional wholesale distribution business. Gross margin was favorably impacted by effective operational controls and an increase in worldwide purchase discounts and rebates from the Company's suppliers. Total SG&A expenses and charges allocated from Ingram Industries increased 40.2% to $418.8 million in 1995 from $298.7 million in 1994, but decreased as a percentage of net sales to 4.8% in 1995 from 5.1% in 1994. The increased level of spending was attributable to expenses required to support expansion of the Company's business, consisting primarily of incremental personnel and support costs, lease payments relating to new facilities, and expenses associated with the development and maintenance of information systems. The decreased level of spending as a percentage of net sales was primarily attributable to economies of scale resulting from higher sales volumes, increased operating efficiencies, and the growth of Ingram Alliance, which is characterized by lower SG&A expenses as a percentage of net sales than the Company's traditional wholesale distribution business. For the reasons set forth above, income from operations increased 33.2% to $186.9 million in 1995 from $140.3 million in 1994, but decreased as a percentage of net sales to 2.2% in 1995 from 2.4% in 1994. Income from U.S. operations decreased as a percentage of net sales to 2.6% in 1995 from 3.0% in 1994. This decrease was partially offset by an increase in income from European operations as a percentage of net sales to 1.1% in 1995 from 0.7% in 1994. Other expense, net increased 32.0% to $52.3 million in 1995 from $39.6 million in 1994, but decreased as a percentage of net sales to 0.6% in 1995 from 0.7% in 1994. The increase in other expense was largely attributable to a higher level of borrowings to finance the Company's worldwide business expansion. The Company was also negatively impacted by the continued effect of the distressed Mexican economy and the related peso devaluation. Primarily due to events in Mexico, the Company sustained a net foreign currency exchange loss of $7.8 million in 1995 as compared to a $6.9 million loss in 1994. The provision for income taxes increased 34.2% to $53.1 million in 1995 from $39.6 million in 1994, reflecting the 33.7% increase in the Company's income before income taxes and minority interest. The Company's effective tax rate was 39.5% in 1995 as compared to 39.3% in 1994. Net income increased 33.1% to $84.3 million in 1995 from $63.3 million in 1994, but decreased as a percentage of net sales to 1.0% in 1995 from 1.1% in 1994. 1994 COMPARED TO 1993 Consolidated net sales increased 44.2% to $5.8 billion in 1994 from $4.0 billion in 1993. The increase in worldwide net sales was attributable to growth in the microcomputer products industry in general, the 24 29 acquisition of four international distributors, the addition of new customers, increased sales to the existing customer base, and expansion of the Company's product offerings. Net sales from U.S. operations increased 32.2% to $4.1 billion in 1994 from $3.1 billion in 1993. The increase in U.S. net sales was primarily attributable to the same factors favorably impacting worldwide consolidated net sales. Net sales from European operations increased 122.3% to $1.1 billion in 1994 from $485.1 million in 1993. The increase in European net sales was due to improved operating performance by several of the European subsidiaries (including the addition of some of the Company's suppliers to the German operation), as well as the Company's entry through acquisitions into the Spanish market in April 1994 and the Scandinavian market in September 1994. Net sales from other international operations increased 42.9% to $629.6 million in 1994 from $440.7 million in 1993. The increase in net sales from other international operations was largely attributable to the continued development of the Company's operations in Canada and Mexico. In 1994, net sales from U.S. operations accounted for 70.7% of consolidated net sales, net sales from European operations accounted for 18.5% of consolidated net sales, and net sales from other international operations accounted for 10.8% of consolidated net sales. In 1993, net sales from U.S. operations accounted for 77.1% of consolidated net sales, net sales from European operations accounted for 12.0% of consolidated net sales, and other international net sales accounted for 10.9% of consolidated net sales. Cost of sales as a percentage of net sales increased to 92.5% in 1994 from 91.9% in 1993. This increase was primarily attributable to competitive pricing pressures worldwide. Total SG&A expenses and charges allocated from Ingram Industries increased 31.8% to $298.7 million in 1994 from $226.6 million in 1993 but decreased as a percentage of net sales to 5.1% in 1994 from 5.6% in 1993. The increased level of spending was attributable to expenses required to support expansion of the Company's business, consisting primarily of incremental personnel and support costs, lease payments relating to new facilities, and expenses associated with the development and maintenance of information systems. The decreased level of spending as a percentage of net sales was primarily attributable to economies of scale resulting from higher sales volumes, as well as increased operating efficiencies. For the reasons set forth above, income from operations increased 36.2% to $140.3 million in 1994 from $103.0 million in 1993, but decreased as a percentage of net sales to 2.4% in 1994 from 2.5% in 1993. Contributing to the increase in income from operations was income from the European operations of $8.1 million, compared to a $3.2 million loss from such operations in 1993. Other expense, net increased 96.2% to $39.6 million in 1994 from $20.2 million in 1993, and increased as a percentage of net sales to 0.7% in 1994 from 0.5% in 1993. The increase in other expense was largely attributable to a higher level of borrowings to finance the Company's worldwide business expansion, including acquisitions, and foreign currency exchange losses of $6.9 million primarily related to Mexico in 1994. The provision for income taxes increased 25.1% to $39.6 million in 1994 from $31.7 million in 1993, reflecting the 21.5% increase in the Company's income before income taxes and minority interest. The Company's effective tax rate was 39.3% in 1994 as compared to 38.2% in 1993. Net income increased 25.8% to $63.3 million in 1994 from $50.4 million in 1993, but decreased as a percentage of net sales to 1.1% in 1994 from 1.2% in 1993. QUARTERLY DATA; SEASONALITY The Company's quarterly net sales and operating results have varied significantly in the past and will likely continue to do so in the future as a result of seasonal variations in the demand for the products and services offered by the Company, the introduction of new hardware and software technologies and products offering improved features and functionality, the introduction of new products and services by the Company and its competitors, the loss or consolidation of a significant supplier or customer, changes in the level of operating expenses, inventory adjustments, product supply constraints, competitive conditions including pricing, interest rate fluctuations, the impact of acquisitions, currency fluctuations, and general economic conditions. The Company's narrow operating margins may magnify any such fluctuations. Specific historical seasonal variations in the Company's operating results have included a reduction of demand in Europe during the summer months, increased Canadian government purchasing in the first quarter, and pre-holiday stocking 25 30 in the retail channel during the September to November period. In addition, as was the case with the introduction of Microsoft Windows 95 in August 1995, the product cycle of major products may materially impact the Company's business, financial condition, or results of operations. The following table sets forth certain unaudited quarterly historical consolidated financial data for each of the ten quarters up to the period ended June 29, 1996. This unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere herein and, in the Company's opinion, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the selected quarterly information. This information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus. The operating results for any quarter shown are not necessarily indicative of results for any future period.
THIRTEEN WEEKS ENDED ------------------------------------------------------------------------------------------------------------------ APR. 2, JULY 2, OCT. 1, DEC. 31, APR. 1, JULY 1, SEPT. 30, DEC. 30, MAR. 30, JUNE 29, 1994 1994 1994 1994 1995 1995 1995 1995 1996 1996 -------- -------- -------- -------- -------- -------- --------- -------- ----------- ----------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales.... $1,266.6 $1,298.9 $1,387.0 $1,877.7 $1,879.5 $1,859.6 $ 2,331.6 $2,546.2 $2,752.7 $2,790.4 Gross profit..... 92.4 96.8 105.1 144.7 132.4 138.9 151.2 183.2 186.6 190.5 Income from operations... 26.1 28.3 32.9 53.0 38.5 40.2 45.2 63.0 54.9(1) 59.5(2) Income before income taxes and minority interest... 19.4 19.5 24.3 37.5 24.3 30.0 33.8 46.5 39.6(1) 44.9(2) Net income... 11.6 12.1 14.6 25.0 17.1 18.4 20.8 28.0 23.8(1) 26.8(2) Earnings per share...... $ 0.10 $ 0.10 $ 0.12 $ 0.21 $ 0.14 $ 0.15 $ 0.17 $ 0.23 $ 0.20(1) $ 0.22(2)
- --------------- (1) Reflects a non-cash compensation charge of $6.7 million ($4.1 million, or $0.03 per share, net of tax) in connection with the granting of the Rollover Stock Options. (2) Reflects a non-cash compensation charge of $1.1 million ($0.7 million, or $0.01 per share, net of tax) in connection with the granting of the Rollover Stock Options. As indicated in the table above, the increases in the Company's net sales in the fourth quarter of each fiscal year have generally been higher than those in the other three quarters in the same fiscal year. The trend of higher fourth quarter net sales is attributable to calendar year-end business purchases and holiday period purchases made by customers. Additionally, gross profit in the fourth quarter of each year has historically been favorably impacted by attractive year-end product buying opportunities which have often resulted in higher purchase discounts. Net sales in the third quarter of 1995 were positively impacted by the release of Microsoft Windows 95. However, gross and operating margins were lower in the third quarter of 1995 due to the significant volume of Microsoft Windows 95 sales, which had lower than average gross margins. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth and cash needs largely through income from operations and borrowings (primarily from Ingram Industries), as well as from trade and supplier credit. Cash provided by operating activities increased to $118.6 million in the first half of 1996 from $14.7 million in the first half of 1995. The significant increase in cash provided by operating activities was partially due to higher net income and a greater reduction of trade accounts receivable. Net cash used for financing activities increased to $95.1 million from $21.5 million in the first halves of 1996 and 1995, respectively, as a result of higher repayments on borrowings from Ingram Industries and the $20.0 million distribution to Ingram Industries, both in the first half of 1996. Net cash used by operating activities was $251.3 million, $87.1 million, and $41.7 million in 1995, 1994, and 1993, respectively. The significant increase in cash used by operating activities in 1995 over 1994 was due to the increased levels of inventory which accounted for a use of $580.1 million in 1995 as compared to $345.5 million in 1994 and an increase in accounts receivable which accounted for a use of $320.2 million in 1995 as compared to $232.3 million in 1994. Cash provided by accounts payable of $543.8 million in 1995 and $411.0 million in 1994 partially offset the use related to inventory and accounts receivable. The increase in the difference between inventory levels and accounts payable in 1995 as compared to 1994 was primarily due to the launch of Microsoft Windows 95. 26 31 Net cash used by investing activities of $48.8 million, $42.6 million, and $40.7 million in 1995, 1994, and 1993, respectively, was due to the Company's expansion of warehouse and other facilities in each year and the acquisitions of operations in four European countries in 1994 and the acquisition of operations in three countries in Europe and in Mexico in 1993. Net cash provided by financing activities was $298.3 million, $143.3 million, and $101.4 million in 1995, 1994, and 1993, respectively. The increase in each period was primarily provided by an increase in borrowings from Ingram Industries. The Company's sources of capital have primarily been borrowings from Ingram Industries. As of June 29, 1996, the Company had total debt outstanding of $768.8 million, including $560.8 million due to Ingram Industries. The Company has a commitment from NationsBank of Texas N.A. and The Bank of Nova Scotia with respect to the $1 billion Credit Facility, and the Company expects to enter into a formal agreement prior to the closing of this offering. The Credit Facility is expected to be effective as of the closing of this offering, and will contain standard provisions for agreements of its type. Concurrently with the Split-Off, the Company will assume certain indebtedness of Ingram Industries, including $192.9 million of Ingram Industries' private placement notes, and Ingram Industries' accounts receivable securitization program, in partial satisfaction of amounts due to Ingram Industries. The Company will repay the remaining intercompany indebtedness with borrowings under the Credit Facility. Certain of the net proceeds from this offering will be used to repay outstanding revolving indebtedness related to amounts drawn by certain of the Company's subsidiaries as participants in Ingram Industries' existing unsecured credit facility. The remainder of the net proceeds from this offering will be used to repay a portion of the borrowings under the Credit Facility. See "Use of Proceeds." The aggregate amount of long-term debt outstanding after the Split-Off, and before application of the proceeds from this offering, will be substantially similar to the long-term debt and debt due to Ingram Industries immediately prior to the Split-Off, except as adjusted for the accounts receivable securitization program to be assumed by the Company. Effective February 1993, the Company entered into an agreement with Ingram Industries whereby the Company sold all of its domestic trade accounts receivable to Ingram Industries on an ongoing basis. Ingram Industries transferred certain trade accounts receivable from the Company and other Ingram Industries affiliates to a trust which sold certificates representing undivided interests in the total pool of trade receivables without recourse. As of June 29, 1996, Ingram Industries had sold $160 million of fixed rate certificates and a variable rate certificate, under which $93 million was outstanding. Ingram Industries' arrangement with the trust extended to December 31, 1997, renewable biannually under an evergreen provision up to a maximum term of 20 years. As a result of the Split-Off, in partial satisfaction of amounts due to Ingram Industries, the Ingram Industries accounts receivable securitization program will be assumed by the Company, which will be the sole seller of receivables. Under the amended program, certain of the Company's domestic receivables will no longer be transferred to the trust. The Company believes the amended program will contain sufficient trade accounts receivable to support the outstanding fixed rate certificates and an unspecified amount of the variable rate certificates. Assumption of the securitization program results in a $160 million reduction of trade accounts receivable and due to Ingram Industries. See Note 4 of Notes to Consolidated Financial Statements. The Company and its foreign subsidiaries have uncommitted lines of credit and short-term overdraft facilities in various currencies which aggregated $103.5 million as of June 29, 1996. These facilities are used principally for working capital and bear interest at market rates. See Note 6 of Notes to Consolidated Financial Statements. The Company believes that the net proceeds from the sale of the Common Stock offered hereby, together with net cash provided by operating activities, supplemented as necessary with funds available under credit arrangements (including the Credit Facility), will provide sufficient resources to meet its present and future working capital requirements and other cash needs for at least the next 12 months, or earlier if the Company were to engage in any corporate transactions not currently anticipated, in which event the Company anticipates that additional debt or equity financing would be required. The Company presently expects to spend approximately $90 million in each of 1996 and 1997 for capital expenditures due to the continued expansion of its business. 27 32 ASSET MANAGEMENT The Company maintains sufficient quantities of product inventories to achieve high order fill rates. The Company believes that the risks associated with slow moving and obsolete inventory are substantially mitigated by protection and stock return privileges provided by suppliers. In the event of a supplier price reduction, the Company generally receives a credit for products in its inventory. In addition, the Company has the right to return a certain percentage of purchases, subject to certain limitations. Historically, price protection, stock return privileges, and inventory management procedures have helped to reduce the risk of decline in the value of inventory. The Company's risk of decline in the value of inventory could be greater outside the United States, where agreements with suppliers are more restrictive with regard to price protection and the Company's ability to return unsold inventory. The Company establishes reserves for estimated losses due to obsolete inventory in the normal course of business. Historically, the Company has not experienced losses due to obsolete inventory materially in excess of established inventory reserves. Inventory levels may vary from period to period, due in part to the addition of new suppliers or new lines with current suppliers and large cash purchases of inventory due to advantageous terms offered by suppliers. See "Risk Factors -- Risk of Inventory Losses." The Company offers various credit terms to qualifying customers as well as prepay, credit card, and COD terms. The Company closely monitors customers' creditworthiness through its on-line computer system which contains detailed information on each customer's payment history and other relevant information. In addition, the Company participates in a national credit association which exchanges credit rating information on customers of association members. In most markets, the Company utilizes various levels of credit insurance to allow sales expansion and control credit risks. The Company establishes reserves for estimated credit losses in the normal course of business. Historically, the Company has not experienced credit losses materially in excess of established credit loss reserves. CHANGES IN ACCOUNTING STANDARDS The Company will adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of " ("FAS 121") in 1996. The Company does not expect the adoption of FAS 121 to have a material effect on its financial condition or results of operations. The Company will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123") in 1996. As permitted by FAS 123, the Company will continue to measure compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Therefore, the adoption of FAS 123 will have no impact on the Company's financial condition or results of operations. 28 33 BUSINESS OVERVIEW Ingram Micro is the leading wholesale distributor of microcomputer products worldwide. The Company markets microcomputer hardware, networking equipment, and software products to more than 100,000 reseller customers in approximately 120 countries in three principal market sectors: the VAR sector, consisting of value-added resellers, systems integrators, network integrators, application VARs, and original equipment manufacturers; the Commercial sector, consisting of corporate resellers, direct marketers, independent dealers, and owner-operated chains; and the Consumer sector, consisting of consumer electronics stores, computer superstores, mass merchants, office product superstores, software-only stores, and warehouse clubs. As a wholesale distributor, the Company markets its products to each of these types of resellers as opposed to marketing directly to end-user customers. The Company conducts business with most of the leading resellers of microcomputer products around the world, including, in the United States, Ameridata, CDW Computer Centers, CompuCom, CompUSA, Computer City, Electronic Data Systems, En Pointe Technologies, Entex Information Services, Micro Warehouse, Sam's Club, Staples, and Vanstar. The Company's international reseller customers include Complet Data A/S, Consultores en Diagnostico Organizacional y de Sistemas, DSG Retail Ltd., 06 Software Centre Europe, B.V., GE Capital Technologies, Jump Ordenadores, Maxima S.A., Norsk Datasenter, Owell Svenska AB, SNI Siemens Nixdorf Infosys AG, and TC Sistema SPA. Ingram Micro offers one-stop shopping to its reseller customers by providing a comprehensive inventory of more than 36,000 products from over 1,100 suppliers, including most of the microcomputer industry's leading hardware manufacturers, networking equipment suppliers, and software publishers. The Company's broad product offerings include: desktop and notebook PCs, servers, and workstations; mass storage devices; CD-ROM drives; monitors; printers; scanners; modems; networking hubs, routers, and switches; network interface cards; business application software; entertainment software; and computer supplies. The Company's suppliers include Apple Computer, Cisco Systems, Compaq Computer, Creative Labs, Hewlett-Packard, IBM, Intel, Microsoft, NEC, Novell, Quantum, 3Com, Toshiba, and U.S. Robotics. Ingram Micro distributes microcomputer products through warehouses in eight strategic locations in the continental United States and 21 international warehouses located in Canada, Mexico, most countries of the European Union, Norway, Malaysia and Singapore. The Company believes that it is the market share leader in the United States, Canada, and Mexico, and the second largest full-line distributor in Europe. In 1995, approximately 31% of the Company's net sales were derived from operations outside the United States. The Export Division fulfills orders from U.S. exporters and from foreign customers in countries where the Company does not operate a distribution subsidiary, including much of Latin America, the Middle East, Africa, Australia, and parts of Europe and Asia. The Company participates in the master reseller business in the United States through Ingram Alliance. The Company's principal objective is to enhance its position as the preeminent wholesale distributor of microcomputer products worldwide. The Company is focused on providing a broad range of products and services, quick and efficient order fulfillment, and consistent on-time and accurate delivery to its reseller customers around the world. The Company believes that IMpulse provides a competitive advantage through real-time worldwide information access and processing capabilities. This on-line information system, coupled with the Company's exacting operating procedures in telesales, credit support, customer service, purchasing, technical support, and warehouse operations, enables the Company to provide its reseller customers with superior service in an efficient and low cost manner. In addition, to enhance sales and to support its suppliers and reseller customers, the Company provides a wide range of value-added services, such as technical training, order fulfillment, tailored financing programs, systems configuration, and marketing programs. The Company has grown rapidly over the past five years, with net sales and net income increasing to $8.6 billion and $84.3 million, respectively, in 1995 from $2.0 billion and $30.2 million, respectively, in 1991, representing compound annual growth rates of 43.8% and 29.3%, respectively. For the twenty-six weeks ended June 29, 1996, the Company's net sales and net income increased 48.2% and 42.6%, respectively, as compared 29 34 to the net sales and net income levels achieved in the twenty-six weeks ended July 1, 1995. The Company's growth during these periods reflects substantial expansion in its existing domestic and international operations, resulting from the addition of new customers, increased sales to the existing customer base, the addition of new product categories and suppliers, the establishment of Ingram Alliance, and the successful integration of ten acquisitions worldwide. Because of intense price competition in the microcomputer products wholesale distribution industry, the Company's margins have historically been narrow and are expected in the future to continue to be narrow. In addition, the Company is highly leveraged and has relied heavily on debt financing for its increasing working capital needs in connection with the expansion of its business. See "Risk Factors -- Narrow Margins" and "-- Capital Intensive Nature of Business; High Degree of Leverage." THE INDUSTRY The worldwide microcomputer products distribution industry generally consists of suppliers, which sell directly to wholesalers, resellers, and end-users; wholesale distributors, which sell to resellers; and resellers, which sell to other resellers and directly to end-users. A variety of reseller categories exists, including corporate resellers, VARs, systems integrators, original equipment manufacturers, direct marketers, independent dealers, owner-operated chains, franchise chains, and computer retailers. Different types of resellers are defined and distinguished by the end-user market they serve, such as large corporate accounts, small and medium-sized businesses, or home users, and by the level of value they add to the basic products they sell. Wholesale distributors generally sell only to resellers and purchase a wide range of products in bulk directly from manufacturers. Different wholesale distribution models have evolved in particular countries and geographies depending on the characteristics of the local reseller environment, as well as other factors specific to a particular country or region. The United States, for example, is distinguished by the presence of master resellers, or aggregators, which are functionally similar to wholesale distributors, but which focus on selling relatively few product lines -- typically high volume, brand name hardware systems -- to a network of franchised dealers and affiliates. The growth of the microcomputer products wholesale distribution industry continues to exceed that of the microcomputer industry as a whole. Faced with the pressures of declining product prices and the increasing costs of selling direct to a large and diverse group of resellers, suppliers are increasingly relying upon wholesale distribution channels for a greater proportion of their sales. To minimize costs and focus on their core capabilities in manufacturing, product development, and marketing, many suppliers are also outsourcing an increasing portion of certain functions such as distribution, service, technical support, and final assembly to the wholesale distribution channel. Growing product complexity, shorter product life cycles, and an increasing number of microcomputer products due to the emergence of open systems architectures and the recognition of certain industry standards have led resellers to depend on wholesale distributors for more of their product, marketing, and technical support needs. In addition, resellers are relying to an increasing extent on wholesale distributors for inventory management and credit to avoid stocking large inventories and maintaining credit lines to finance their working capital needs. The Company believes that new opportunities for growth in the microcomputer products wholesale distribution industry will emerge as new product categories, such as computer telephone integration ("CTI") and the digital video disc format, arise from the ongoing convergence of computing, communications, and consumer electronics. International markets, which represent over half of the microcomputer industry's sales, are characterized by a more fragmented wholesale distribution channel than in the United States. Increasingly, suppliers and resellers pursuing global growth are seeking wholesale distributors with international sales and support capabilities. In addition, the microcomputer products industry in international markets is less mature and growing more rapidly than in the United States, and as such, international growth opportunities for microcomputer wholesaler distributors are significant. The evolution of open sourcing during the past several years is a phenomenon specific to the U.S. microcomputer products wholesale distribution market. Historically, branded computer systems from large suppliers such as Apple Computer, Compaq Computer, Hewlett-Packard, and IBM were sold in the United States only through authorized master resellers. Under this single sourcing model, resellers were required to purchase these products exclusively from one master reseller. Over the past few years, competitive pressures 30 35 have led some of the major computer suppliers to authorize second sourcing, in which resellers may purchase a supplier's product from a source other than their primary master reseller, subject to certain restrictive terms and conditions (such as higher prices or the elimination of floor planning subsidies). More recently, certain computer manufacturers have authorized open sourcing, a model under which resellers can purchase the supplier's product from any source on equal terms and conditions. The trend toward open sourcing has blurred the distinction between wholesale distributors and master resellers, which are increasingly able to serve the same reseller customers, whereas previously master resellers had a captive reseller customer base. The Company believes that continued movement towards second sourcing and open sourcing puts the largest and most efficient distributors of microcomputer products, which provide the highest value through superior service and pricing, in the best position to compete for reseller customers. The dynamics of the microcomputer products wholesale distribution business favor the largest distributors which have access to financing and are able to achieve economies of scale, breadth of geographic coverage, and the strongest vendor relationships. Consequently, the distributors with these characteristics are tending to take share from smaller distributors as the industry undergoes a process of consolidation. The need for wholesale distributors to implement high volume/low cost operations on a worldwide basis is continuing to grow due to ongoing price competition, the increasing demand for value-added services, the trend toward open sourcing, and the increasing globalization of the microcomputer products industry. In summary, the microcomputer wholesale distribution industry is growing rapidly while simultaneously consolidating, creating an industry environment in which market share leadership and cost efficiency are of paramount importance. BUSINESS STRATEGY The Company is the preeminent worldwide wholesale distributor of microcomputer products and services and believes that it has developed the capabilities and scale of operations critical for long-term success in the microcomputer products distribution industry. The Company's strategy of offering a full line of products and services provides reseller customers with one-stop shopping. The Company generally is able to purchase products in large quantities and to avail itself of special purchase opportunities from a broad range of suppliers. This allows the Company to take advantage of various discounts from its suppliers, which in turn enables the Company to provide competitive pricing to its reseller customers. The Company's international market presence provides suppliers with access to a broad base of geographically dispersed resellers, serviced by the Company's extensive network of distribution centers and support offices. The Company's size has permitted it to attract highly qualified associates and increase investment in personnel development and training. Also, the Company benefits from being able to make large investments in information systems, warehousing systems, and infrastructure. Further, the Company is able to spread the costs of these investments across its worldwide operations. The Company is pursuing a number of strategies to further enhance its leadership position within the microcomputer marketplace. These include: EXPAND WORLDWIDE MARKET COVERAGE. Ingram Micro is committed to extending its already extensive worldwide market coverage through internal growth in all domestic and international markets in which it currently participates. In addition, the Company intends to pursue acquisitions, joint ventures, and strategic relationships outside the United States in order to take advantage of growth opportunities and to leverage its strong systems, infrastructure, and international management skills. The Company believes that its skills in warehouse operations, purchasing, sales, credit management, marketing, and technical support enable it to expand effectively and quickly into new markets. The Company integrates acquired operations by incorporating its management philosophies and exacting operating procedures, implementing its IMpulse information system, applying its functional expertise, and training personnel on the Ingram Micro business model. Based upon these capabilities, the Company believes it is in the best position to serve global resellers, which are increasingly seeking a single source for microcomputer products and services. 31 36 By providing greater worldwide market coverage, Ingram Micro also increases the scale of its business, which results in more cost economies. In addition, as it increases its global reach, the Company diversifies its business across different markets, reducing its exposure to individual market downturns. The Company has grown its international operations principally through acquisitions and currently has fully integrated operations in 15 countries outside the United States: Canada, Mexico, most countries of the European Union, Norway, Malaysia, and Singapore. The Company believes that it is the market share leader in the United States, Canada, and Mexico, and the second largest full-line distributor in Europe. The Company's objective is to achieve the number one market share in each of the markets in which it operates. Ingram Micro will continue to focus on expansion of its operations through acquisitions, joint ventures, and strategic relationships in order to take advantage of significant growth opportunities around the world, both in established and developing markets. EXPLOIT INFORMATION SYSTEMS LEADERSHIP. Ingram Micro continually invests in its information systems which are crucial in supporting the Company's growth and its ability to maintain high service and performance levels. The Company has developed a scalable, full-featured information system, IMpulse, which the Company believes is critical to its ability to deliver worldwide, real-time information to both suppliers and reseller customers. IMpulse is a single, standardized information system, used across all markets worldwide, that has been customized to suit local market requirements. The Company believes that it is the only full-line wholesale distributor of microcomputer products in the world with such a centralized global system. IMpulse allows the Company's telesales representatives to deliver real-time information on product pricing, inventory, availability, and order status to reseller customers. Telesales representatives utilize the Company's Sales Adjusted Gross Profit ("SAGP") pricing system to make informed pricing decisions for each order through access to specific product and order related costs. Considering the industry's narrow margins, the Company's ability to make thousands of informed pricing decisions daily represents a competitive advantage. In addition, the Company has a number of supporting systems, including its Decision Support System ("DSS"), a multidimensional sales and profitability analysis application. The Company continuously seeks to make system modifications to provide greater capability and flexibility to the Company's individual business units and markets. The Company intends to continue to develop and expand the use of its Customer Information Services ("CIS"), which packages the full range of Ingram Micro's electronic services into a single solution. CIS is designed to improve the information flow from supplier to distributor to reseller to end-user in order to conduct business in a cost-effective manner. It addresses the dynamic requirements of various customer markets by offering a core group of services through a number of different electronic media. By using CIS, resellers can place orders directly, without the assistance of a telesales representative. The Company plans further expansion in electronic links with reseller customers and suppliers to provide better access to the Company's extensive database for pricing, product availability, and technical information. The Company will continue to invest in the enhancement and expansion of its systems to create additional applications and functionality. PROVIDE SUPERIOR EXECUTION FOR RESELLER CUSTOMERS. Ingram Micro continually refines its systems and processes to provide superior execution and service to reseller customers. The Company believes that the level of service achieved with its systems and processes is a competitive advantage and has been a principal contributor to its success to date. Providing superior execution involves, among other factors, rapid response to customer calls, quick access to relevant product information, high order fill rates, and on-time, accurate shipments. The Company's information systems enable telesales representatives to provide reseller customers with real-time inventory and pricing information. Ingram Micro strives to maintain high order fill rates by keeping extensive supplies of product in its 29 distribution centers worldwide. In the United States and Canada, the Company has implemented control systems and processes referred to as Bulletproof Shipping, which include stock-keeping unit ("SKU") bar coding for all products and on-line quality assurance methods. As a result of this program, substantially all orders in the United States received by 5:00 p.m. are shipped on the same day, with highly accurate shipping performance. 32 37 Ingram Micro will continue to invest in the development of systems and processes to improve execution. In the United States, the Company is currently implementing CTI technology, which will provide automatic caller identification, onscreen call waiting, and abandoned call management capabilities to telesales and customer service associates. Also in the United States, the recently installed POWER system will improve response time to reseller customers' product returns and other customer service requests. To support future customer requirements, the Company continues to expand and upgrade its distribution network. For example, a new warehouse is under construction in Millington, Tennessee. In Canada, a new returns center will be added near Toronto, Ontario. The Company is implementing formal systems for evaluating and tracking key performance metrics such as responsiveness to customers, process accuracy, order processing cycle time, and order fulfillment efficiency. Ingram Micro will use this customer satisfaction monitoring system to identify potential areas of improvement as part of the Company's focus on providing superior service. DELIVER WORLD-CLASS VALUE-ADDED SERVICES TO SUPPLIERS AND RESELLERS. Ingram Micro is committed to providing a diverse range of value-added wholesaling and "for fee" services to its supplier and reseller customers. Together, these services are intended to link reseller customers and suppliers to Ingram Micro as a one-stop provider of microcomputer products and related services, while meeting demand by suppliers and resellers to outsource non-core business activities and thereby lower their operating costs. The Company's value-added wholesaling services include final assembly and configuration of products, technical education programs, pre- and post-sale technical support, order fulfillment, and product demo evaluation. In addition to these value-added wholesaling services, the Company offers a variety of "for fee" services for its reseller customers and suppliers. These services include: contract configuration, contract fulfillment, contract warehousing, contract telesales, contract credit/accounts receivable management, contract inventory management, and contract technical support for customers. The Company is focused on identifying and developing services that directly meet reseller customer and supplier needs. MAINTAIN LOW COST LEADERSHIP THROUGH CONTINUOUS IMPROVEMENTS IN SYSTEMS AND PROCESSES. The microcomputer products industry is characterized by intense competition and narrow margins, and as a result, achieving economies of scale and controlling operating expenses are critical to achieving and maintaining profitable growth. Over the last five years, the Company has been successful in reducing SG&A expenses (including expenses allocated from Ingram Industries) as a percentage of net sales, from 5.8% in 1991 to 4.8% in 1995. The Company has embarked on a number of programs that are designed to continue to reduce operating expenses as a percentage of net sales. Many U.S. developed programs continue to be adapted for implementation in the Company's international operations. These programs include: (i) the use of advanced inventory processes and techniques to reduce the number of shipments from multiple warehouses to fulfill a single order; (ii) the use of proprietary warehouse productivity programs, such as Bulletproof Shipping and Pick Assignment; (iii) the enhancement of associates' productivity through the use of technology such as CTI, and the expanded use of multimedia workstations for functions such as Telesales and Customer Service; and (iv) the electronic automation of the ordering and information delivery process through CIS to decrease the number of non-order telesales calls. See "-- Information Systems." The Company believes that the continued development of the IMpulse system and related distribution processes represents an opportunity for the Company to leverage operating costs across additional areas of the Company's operations. DEVELOP HUMAN RESOURCES FOR EXCELLENCE AND TO SUPPORT FUTURE GROWTH. Ingram Micro's growth to date is a result of the talent, dedication, and teamwork of its associates. Future growth and success will be substantially dependent upon the retention and development of existing associates, as well as the recruitment of superior talent. 33 38 The Company has invested in a number of programs and systems designed to assist in the development and retention of its associates. The Company recently formed its Leadership Institute to provide training on a global basis in areas such as personal leadership and basic business fundamentals. In addition, the Company provides specific functional training for associates through Company programs such as the Sales, Purchasing, and Marketing Academies. Transferring functional skills and implementing cross-training programs across all Ingram Micro locations have proven to be important factors in the Company's growth and international expansion. In conjunction with these programs, the Company intends to expand its human resource systems to provide enhanced career planning, training support, applicant tracking, and benefits administration. Also, the Company continues to seek top quality associates worldwide through local, professional, and college recruiting programs. CUSTOMERS Ingram Micro sells to more than 100,000 reseller customers in approximately 120 countries worldwide. No single customer accounted for more than 3% of Ingram Micro's net sales in 1993, 1994, 1995, or the first half of 1996. The Company conducts business with most of the leading resellers of microcomputer products around the world, including, in the United States, Ameridata, CDW Computer Centers, CompuCom, CompUSA, Computer City, Electronic Data Systems, En Pointe Technologies, Entex Information Services, Micro Warehouse, Sam's Club, Staples, and Vanstar. The Company's international reseller customers include Complet Data A/S, Consultores en Diagnostico Organizacional y de Sistemas, DSG Retail Ltd., 06 Software Centre Europe, B.V., GE Capital Technologies, Jump Ordenadores, Maxima S.A., Norsk Datasenter, Owell Svenska AB, SNI Siemens Nixdorf Infosys AG, and TC Sistema SPA. Ingram Micro is firmly committed to maintaining a strong customer focus in all of the markets it serves. To best meet this key business objective, the Company is organized along the lines of the three market sectors it serves: VAR, Commercial, and Consumer. This organization permits the Company to identify and address the varying and often unique requirements of each customer group, as opposed to applying a uniform approach to distinctly different reseller channels. This organization model is most fully developed in the United States and Canada, and is described as follows: - VAR sector. VARs develop computer solutions for their customers by adding tangible value to a microcomputer product. These computer solutions range from tailored software development to systems integration that meet specific customer needs. Systems integrators, network integrators, application VARs, and original equipment manufacturers ("OEMs") are classified in this sector. In 1995, this sector contributed over 27% of Ingram Micro's U.S. net sales (inclusive of Ingram Alliance and the Export Division). - Commercial sector. The Commercial sector includes chain/independent dealers, corporate resellers, and direct marketers that sell a variety of computer products. This sector continues to be Ingram Micro's largest channel and contributed over 53% of the Company's 1995 U.S. net sales. - Consumer sector. The Consumer sector includes computer superstores, office product superstores, mass merchants, consumer electronics stores, and warehouse clubs. In 1995, over 17% of the Company's U.S. net sales came from this sector. In addition to focusing on the VAR, Commercial, and Consumer market sectors, the Company also has specialized strategic business units ("SBUs") designed to provide additional focused marketing and support for specific product categories or within specific markets. These product-focused SBUs address the needs of resellers and suppliers for in-depth support of particular product categories. These SBUs include the Technical Products Division, the Macintosh and Apple Computer Division, the Enterprise Computing Division, and the Mass Storage Division. The Company's market-focused SBUs, which include the Consumer Markets Division, the Education Division, and the Government Division, are designed to meet the needs of resellers and VARs who have chosen to concentrate on a particular customer market. 34 39 Customer organization along the VAR, Commercial, and Consumer market sectors has been implemented to varying degrees throughout the Company's worldwide operations and may not be as well defined as in the United States and Canada. Specific market circumstances vary from country to country. In some markets, a few large resellers dominate; in others, the customer base is more diversified. SALES AND MARKETING Ingram Micro's telesales department is comprised of approximately 1,400 telesales representatives worldwide, of whom more than 800 representatives are located in the United States. These telesales representatives assist resellers with product specifications, system configuration, new product/service introductions, pricing, and availability. The two main United States telesales centers are located in Santa Ana, California and Buffalo, New York and are supported by an extensive national field sales organization. Currently, Ingram Micro has more than 130 field sales representatives worldwide, including more than 50 in the United States. In addition to customer organization along the VAR, Commercial, and Consumer market sectors, the Company utilizes a variety of product-focused groups specializing in specific product types. Specialists in processors, mass storage, networks, and other product categories promote sales growth and facilitate customer contacts for their particular product group. Ingram Micro also offers a variety of marketing programs tailored to meet specific supplier and reseller customer needs. Services provided by the Company's in-house marketing services group include advertising, direct mail campaigns, market research, retail programs, sales promotions, training, and assistance with trade shows and other events. In Canada, Ingram Micro has been organized along customer sector lines to render more specialized service to each customer sector. Additionally, a Montreal telesales center was opened in 1995 specifically to cover the French-speaking market. The Corporate Reseller Division has 13 dedicated field sales representatives to focus efforts on increasing penetration and protecting market share. The VAR accounts have received increasing coverage from field sales representatives, now one for each geographic region, along with dedicated telesales operations in Vancouver and Montreal. Retail customers served by the Consumer Markets Division benefit from usage of the electronic ordering systems and manufacturer/customer symposiums tailored specifically to the Consumer sector. The Company offers a myriad of marketing programs targeted at the respective customer markets and are similar to the United States programs that offer a graduated level of services based on monthly purchase volume. In Europe, Ingram Micro relies more heavily on telesales to cover its customer base than in the United States and Canada. In addition, the Company maintains a relatively small field sales organization to serve larger customers in each country. Many of the country operations have Technical Products Divisions that employ dedicated technical sales representatives. The European operation is expanding the presence of other product-specific divisions such as the Mass Storage Division and the Macintosh Division. Ingram Micro employs many of the same marketing tools in Europe as in the United States and Canada, including product guides, catalogues, and showcases used to promote selected manufacturers' product lines. In Mexico, the sales team is comprised of both field sales representatives and telesales representatives serving Mexico City, Merida, Guadalajara, Puebla, Monterrey, Leon, and Hermosillo. Complementing this sales group are marketing associates assigned to key supplier product lines. To best meet the individualized needs of its increasingly diverse customer group, the Company is in the process of realigning its sales and marketing workforce along VAR, Commercial, and Consumer sectors throughout the branch network. This is anticipated to be a strategic advantage as the trend toward greater customer focus on particular markets continues to evolve in Mexico. Ingram Micro's Asia Pacific sales force is responsible for growing the Company's sales in Singapore, Malaysia, Indonesia, The Philippines, Thailand, India, and Hong Kong. Marketing support for this sales effort is based on product line, but will eventually be aligned along VAR, Commercial, and Consumer sectors. The Company's Export Division is supported by a team of sales representatives located in Miami, Florida and Santa Ana, California. The Miami office covers the Caribbean, Puerto Rico, Ecuador, Colombia, 35 40 Venezuela, Peru, Chile, Argentina, Uruguay, and Brazil, while the Santa Ana Export representatives sell and market Ingram Micro products and services to Japan, the Middle East, and Australia. A satellite export sales office was opened in Tokyo during the third quarter of 1995 to provide greater focus on the Japanese market. The Belgian Export office, which is part of the Company's European operations, serves Africa and areas of Europe where Ingram Micro does not have an in-country sales and distribution operation. PRODUCTS AND SUPPLIERS Ingram Micro has the largest inventory of products in the industry, distributing and marketing more than 36,000 products from the industry's premier microcomputer hardware manufacturers, networking equipment suppliers, and software publishers worldwide. Product assortments vary by market, and the relative importance of manufacturers to Ingram Micro varies from country to country. On a worldwide basis, the Company's sales mix is more heavily weighted toward hardware products and networking equipment than software products. Net sales of software products have decreased as a percentage of total net sales in recent years due to a number of factors, including bundling of software with microcomputers; sales growth in Ingram Alliance, which is a hardware-only business; declines in software prices; and the emergence of alternative means of software distribution, such as site licenses and electronic distribution. The Company believes that this is a trend that applies to the microcomputer products distribution industry as a whole, and the Company expects it to continue. See "Risk Factors -- Rapid Technological Change; Alternate Means of Software Distribution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." In the United States, Ingram Micro's suppliers include almost all of the leading microcomputer hardware manufacturers, networking equipment manufacturers, and software publishers such as Apple Computer, Cisco Systems, Compaq Computer, Creative Labs, Hewlett-Packard, IBM, Intel, Microsoft, NEC, Novell, Quantum, 3Com, Toshiba, and U.S. Robotics. Internationally, Ingram Micro has secured distribution agreements with most of the leading suppliers, and products are added to the Company's mix in response to local market demands. New products are continually evaluated and added to the Company's product mix upon meeting Ingram Micro's business and technical standards. The Company evaluates on average 160 products monthly. Each Ingram Micro entity has its own procedure for assessing new products based on local market characteristics, but all follow general guidelines utilizing certain business and technical criteria including market size, demand, perceived value, industry positioning, support required, ease of set-up, packaging quality, and error handling procedures. The Company proactively pursues products representing the leading edge of technology. The Company's suppliers generally warrant the products distributed by the Company and allow the Company to return defective products, including those that have been returned to the Company by its customers. The Company does not independently warrant the products it distributes. The Company's business, like that of other wholesale distributors, is subject to the risk that the value of its inventory will be affected adversely by suppliers' price reductions or by technological changes affecting the usefulness or desirability of the products comprising the inventory. It is the policy of most suppliers of microcomputer products to protect distributors, such as the Company, who purchase directly from such suppliers, from the loss in value of inventory due to technological change or the supplier's price reductions. Although the Company has written distribution agreements with many of its suppliers, these agreements usually provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries in which Ingram Micro is permitted to distribute the products. The agreements are also generally short term, subject to periodic renewal, and often contain provisions permitting termination by either party without cause upon relatively short notice. Under the terms of many distribution agreements, suppliers will credit the distributor for declines in inventory value resulting from the supplier's price reductions if the distributor complies with certain conditions. In addition, under many such agreements, the distributor has the right to return for credit or exchange for other products a portion of those inventory items purchased, within a designated period of time. A supplier who elects to terminate a distribution agreement generally will repurchase from the distributor the supplier's products carried in the distributor's inventory. While the industry practices discussed above are sometimes not embodied in written agreements and do not protect the 36 41 Company in all cases from declines in inventory value, management believes that these practices provide a significant level of protection from such declines. No assurance can be given, however, that such practices will continue or that they will adequately protect the Company against declines in inventory value. The Company's risk of inventory loss could be greater outside the United States, where agreements with suppliers are more restrictive with regard to price protection and the Company's ability to return unsold inventory. The Company establishes reserves for estimated losses due to obsolete inventory in the normal course of business. Historically, the Company has not experienced losses due to obsolete inventory materially in excess of established inventory reserves. See "Risk Factors -- Product Supply; Dependence on Key Suppliers." VALUE-ADDED SERVICES The Company believes that there is a trend among wholesale distributors of microcomputer products to increase available services for suppliers and customers, and the Company is committed to being in the forefront of this trend. Ingram Micro offers a myriad of programs and services to its supplier and reseller customers as an integral part of its wholesaling efforts. The Company categorizes these services into value-added wholesale distribution and "for fee" services. Together, these services are intended to link reseller customers and suppliers to Ingram Micro as a one-stop provider of microcomputer products and related services, while meeting demand by suppliers and resellers to outsource non-core business activities and thereby lower their operating costs. The Company's value-added wholesaling services are an important complement to its distribution activities and include final assembly and configuration of products, technical education programs, pre- and post-sale technical support, order fulfillment, and product demo evaluation. Ingram Micro offers a selection of "for fee" services which reseller customers and suppliers may avail themselves of, independent of product purchase transactions. Many of the value-added wholesaling services are also included in this set of "for fee" services, which include: contract configuration, contract fulfillment, contract warehousing, contract telesales, contract credit/accounts receivable management, contract inventory management, and contract technical support for reseller customers and end-users. Management remains focused on adding more value-added "for fee" services to meet reseller customer and supplier needs. Ingram Micro's value-added services for its reseller customers and suppliers include: - System Configuration. Final assembly and configuration of microcomputer products for suppliers and reseller customers. - Order Fulfillment. Fulfillment of end-user orders on behalf of suppliers and reseller customers. This may include order-taking, configuration, shipping, and collection. - Electronic Services. Various electronic ordering and information delivery media integrated under the Company's CIS program which enable suppliers and reseller customers to interface directly with the Company's database. - Technical Support. Pre- and post-sale technical support for reseller customers. - Tailored Marketing Services. A range of offerings including trade show and symposium development, promotional advertising, end-user briefings, and joint sales calls performed by Ingram Micro Sales and Marketing staff for the benefit of reseller customers and suppliers. - Financial Services. Includes accounts receivable financing, a purchase order program, and credit insurance provided or arranged by Ingram Financial Services Company for reseller customers. - Inventory Management. A variety of services conducted for reseller customers that includes contract warehousing, inventory tracking by serial number, and other services. - Telesales. Telesales performed by the Company for suppliers and reseller customers. - Warehousing. Leasing of warehouse space to suppliers and reseller customers. 37 42 - Credit/Accounts Receivable Management. Providing reseller customers with assistance in account collection, credit inquiries, and similar matters. - Technical Education. Various computer-based and self-study training programs, some leading to certification from suppliers. - Warranty and Repair. Comprehensive warranty coverage on end-user systems. This service is sub-contracted by Ingram Micro to third-party repair businesses for reseller customers. All of these services are currently available in the Company's U.S. operations. The degree of implementation of these value-added services in Ingram Micro's international operations varies depending on particular market circumstances. Although the Company believes that value-added services are important as a complement to its core business, such services do not, and are not in the future expected to, generate a material percentage of the Company's net sales. In addition, such value-added services do not, and are not in the future expected to, require a material portion of the Company's resources. INGRAM ALLIANCE Ingram Micro entered the master reseller (also known as "aggregation") business in late 1994 with the launch of Ingram Alliance. Ingram Alliance is designed to offer resellers access to the industry's leading hardware manufacturers at competitive prices by utilizing a lower cost business model that depends upon a higher average order size, lower product returns percentage, and supplier-paid financing. See "Risk Factors -- Narrow Margins" and "-- Risks Associated with Ingram Alliance." The Company believes that it has been able to leverage its leading traditional wholesale distribution business in the United States to establish its master reseller business. Over 95% of Ingram Alliance's sales are funded by floor plan financing companies. The Company typically receives payment from these financing institutions within three business days from the date of the sale, allowing Ingram Alliance to operate at much lower relative working capital levels than the Company's wholesale distribution business. Such floor plan financing is typically subsidized for Ingram Alliance's reseller customers by its suppliers. Since its inception, Ingram Alliance has experienced rapid growth. In 1995, Ingram Alliance achieved net sales in excess of $700 million, and it currently has 12 suppliers and more than 800 reseller customers. Ingram Alliance's success has, to a large degree, been attributable to its ability to leverage Ingram Micro's distribution infrastructure and capitalize on strong supplier relationships. To support additional growth, Ingram Alliance remains committed to further developing relations with key suppliers. These efforts are largely driven by joint supplier/distributor sales calls, proposal and bid development programs, and tailored marketing campaigns carried out by Ingram Alliance supplier program teams. Ingram Alliance pursues an integrated sales and marketing strategy to gain new customers and grow its business. A fully-dedicated telesales team is in place, which in conjunction with the Company's field sales representatives aims to cultivate important relationships with reseller customers. Further, Ingram Alliance provides a wide range of high quality "for fee" value-added services for its customers including technical training and certification, warranty and repair, fulfillment, technical support, contract warehousing, and configuration services. Special promotional activities and creative financing packages are additional incentives for resellers to do business with Ingram Alliance. INFORMATION SYSTEMS The Company's information system, IMpulse, is central to its ability to provide superior execution to its customers, and as such, the Company believes that it represents an important competitive advantage. See "Risk Factors -- Dependence on Information Systems." Ingram Micro's systems are primarily mainframe-based in order to provide the high level of scalability and performance required to manage such a large and complex business operation. IMpulse is a single, standardized, real-time information system and operating environment, used across all of the Company's 38 43 worldwide operations. It has been customized as necessary for use in every country in which the Company operates and has the capability to handle multiple languages and currencies. On a daily basis, the Company's systems typically handle 12 million on-line transactions, 26,000 orders, and 37,000 shipments. The Company has designed IMpulse as a scalable system that has the capability to support increased transaction volume. The overall on-line response time for the Company's network of over 8,000 user stations (terminals, printers, personal computers, and radio frequency hand held terminals) is less than one-half second. Worldwide, Ingram Micro's centralized processing system supports more than 40 operational functions including receiving, order processing, shipping, inventory management, and accounting. At the core of the IMpulse system is on-line, real-time distribution software to which considerable enhancements and modifications have been made to support the Company's growth and its low cost business model. The Company makes extensive use of advanced telecommunications technologies with customer service-enhancing features, such as Automatic Call Distribution to route customer calls to the telesales representatives. The Telesales Department relies on its Sales Wizard system for on-line, real-time tracking of all customer calls and for status reports on sales statistics such as number of customer calls, customer call intentions, and total sales generated. IMpulse allows the Company's telesales representatives to deliver real-time information on product pricing, inventory, availability, and order status to reseller customers. The SAGP pricing system enables telesales representatives to make informed pricing decisions through access to specific product and order related costs for each order. Considering the industry's narrow margins, these pricing decisions are particularly important, and the Company believes that its ability to make thousands of informed pricing decisions daily represents a competitive advantage. In the United States, the Company is in the process of implementing CTI technology, which will provide the telesales and customer service representatives with Automatic Number Identification capability and advanced telecommunications features such as on-screen call waiting and automatic call return, thereby reducing the time required to process customer orders and customer service requests. To complement Ingram Micro's telesales, customer service, and technical support capabilities, IMpulse supports CIS, which integrates all of the Company's electronic services into a single solution. CIS offers a number of different electronic media through which customers can conduct business with the Company, such as the Customer Automated Purchasing System ("CAPS"), Electronic Data Interchange ("EDI"), the Bulletin Board Service, and the Ingram Micro Web site. The Company's latest additions to CIS are its Internet-based Electronic Catalog and Manufacturer Information Library. The Electronic Catalog provides reseller customers with real-time access to product pricing and availability, with the capability to search by product category, name, or manufacturer. The Manufacturer Information Library is a comprehensive multi-manufacturer database of timely and accurate product, sales, marketing, and technical information, which is updated nightly for new information. Ingram Micro believes it is the first microcomputer wholesale distributor to offer electronic access to real-time product pricing, availability, and information on the World Wide Web. All of Ingram Micro's CIS offerings are constantly being reviewed for enhancement. For instance, a faster local network intranet solution to access the Manufacturer Information Library is currently being tested, and ordering and configuration capabilities through the Internet are under consideration. The Company's warehouse operations use extensive bar-coding technology and radio frequency technology for receiving and shipping, and real-time links to UPS and FedEx for freight processing and shipment tracking. The Customer Service Department uses the POWER System for on-line documentation and faster processing of customer product returns. To ensure that adequate inventory levels are maintained, the Company's buyers depend on the Purchasing system to track inventory on a continual basis. Many other features of IMpulse help to expedite the order processing cycle and reduce operating costs for the Company as well as its reseller customers and suppliers. To support and augment the Company's mainframe-based systems, the Company utilizes a number of client-server applications. Examples are the Marketing On-line Management System, a software application that provides management, accountability, and financial controls for over 6,000 marketing projects; APImage, an application that facilitates imaging of invoices and related documents in the Accounts Payable department, substantially reducing paper processing and improving document work flow; and DSS, a data warehousing 39 44 application that enables multidimensional sales and profitability analysis. In the United States, over 330 associates across all functions have access to 75 million lines of data through DSS. DSS is used for, among other tasks, pricing decisions and analysis of profitability by customer market and product category. DSS is currently being implemented in Canada and the U.K., with plans to add other international locations thereafter. The Company has also begun to deploy other PC-based tools for both the United States and international locations, including workstations in Telesales and Purchasing to assist with product acquisition and pricing decisions. The Company employs various security measures and backup systems designed to protect against unauthorized use or failure of its information systems. Access to the Company's information systems is controlled through the use of passwords and additional security measures are taken with respect to especially sensitive information. The Company has a five year contract with Sungard Recovery Services for disaster recovery and twice per year performs a complete systems test, including applications and database integrity. In addition, the Company has back-up power sources for emergency power and also has the capability to automatically reroute incoming calls, such as from its Santa Ana (West Coast sales) facility to its Buffalo (East Coast sales) facility. The Company has not in the past experienced significant failures or downtime of IMpulse or any of its other information systems, but any such failure or significant downtime could prevent the Company from taking customer orders, printing product pick-lists, and/or shipping product and could prevent customers from accessing price and product availability information from the Company. See "Risk Factors -- Dependence on Information Systems." Over 350 experienced information technology professionals support the daily maintenance and continuous development of the Company's systems. OPERATIONS ORDER ENTRY The order entry process begins with the entry of a customer account number by a telesales representative. With this input, IMpulse automatically displays the customer's name, address, credit terms, financing arrangements, and preferred shipping method. The telesales representative assists the customer on-line with product lookups, real-time inventory availability, price inquiries, and status of previous orders. As an order is entered, key information is filled in by the system, such as product description, price, availability, and adjusted gross margin. The closest warehouse to the customer with available product is automatically determined, and the corresponding product quantity is reserved. The system totals the order and automatically checks the customer's credit status. The order is released for processing, unless credit limits are exceeded or the order falls outside acceptable profit levels. In the latter case, the order is put on hold and immediately elevated for review by credit or sales management. Reseller customers can also conduct business electronically through the Company's CIS offerings such as CAPS, EDI, and IM On Line. By using CIS, resellers can access the Company's database and place orders directly without the assistance of a telesales representative. See "-- Information Systems." SHIPPING In most of Ingram Micro's operations, the Company's objective is to ship substantially all orders received by 5:00 p.m. on the same day. In Canada, France, Belgium, the U.K. and the Netherlands, the cut-off time for same day shipment is 6:00 p.m. When an order is released, it is immediately available for processing in the designated warehouse. IMpulse ensures cost efficient order processing through a system called Pick Assignment which determines pick lists based on the warehouse location of items ordered. In the distribution centers, Ingram Micro relies on a sophisticated bar code reading system and a flexible automated package handling system for picking, packing, and shipping products accurately and cost effectively. In addition, IMpulse provides on-line shipping, manifesting, freight costing, invoicing and package tracking information. The Company's warehouse inventories are maintained automatically by IMpulse which updates stock levels and feeds this information to the purchasing system for restocking as soon as an order is received. On-line quality assurance done during receipt of inbound product and prior to the shipment of orders ensures the 40 45 integrity of warehouse stock inventory and the accuracy of shipments to customers. See "Risk Factors -- Dependence on Independent Shipping Companies." PURCHASING To monitor product inventory, the purchasing staff, numbering over 260 worldwide, uses the IMpulse system inventory reports, which provide product inventory levels, six months' sales history, month-to-date, and year-to-date sales statistics by SKU and by warehouse location. Buyers carefully analyze current and future inventory positions and profitability potential. Several factors, such as inventory carrying cost, payment terms, purchase rebates, volume discounts, and marketing funds are considered in negotiating deals with suppliers. Buyers enter purchase orders into the IMpulse system, indicating the SKU number, the quantity to be ordered, and the warehouse locations to which the order should be shipped. Cost information and supplier terms and conditions are automatically entered on the purchase order; and can be modified if different terms have been negotiated. The IMpulse system automatically generates purchase orders for each inventory warehouse location and transmits these orders directly to the suppliers via EDI or facsimile. See "Risk Factors -- Risk of Declines in Inventory Value." A number of purchasing programs have been developed to exploit opportunities unique to certain of the Company's operations. In Europe, the country managers work together as a group to obtain the best available supplier terms. The European "Inventory Sharing" program, when fully implemented, will allow sales personnel in one market to order products that are out of stock or otherwise unavailable in the local country from another European Ingram Micro business unit. Benefits of this program include lower inventory costs, better inventory turnover, and improved margins. In Canada, the U.S. Direct Fulfillment Program allows the fulfillment of individual Canadian orders from the United States as necessary. See "-- Geographic Tactics -- Canada" and "-- Europe." GEOGRAPHIC TACTICS Ingram Micro operates worldwide with a set of common, global strategies. Recognizing the varying requirements of the Company's different geographic markets, the Company has developed specific tactics to address local market conditions. However, the Company's non-U.S. operations are subject to certain additional risks. See "Risk Factors -- Exposure to Foreign Markets; Currency Risk." UNITED STATES In the United States, the Company has undertaken a number of key initiatives to enhance its position in the wholesale microcomputer marketplace: - In an effort to capture an increased share of the VAR sector, the Company will seek to convey to the market its superior ability to supply basic wholesaling services to VARs, as well as its breadth of product offerings to support vertical VAR customer sets. The Premier VAR Plus program has been developed as the prime marketing vehicle for all VAR programs and services. This program provides VARs with graduated levels of business services based on monthly purchase volume. Such services include a dedicated technical sales force, end-user leads, technology seminars, and marketing symposiums. - As a cornerstone of the Company's VAR efforts, the Enterprise Computing Division continues to expand its penetration in markets for high-end technical products such as UNIX, document imaging, and networking equipment. This will be accomplished by developing programs which institute a Company-wide commitment to the UNIX VAR market, providing a sophisticated sales force experienced in complex networking technology solutions, partnering with key suppliers of high-end technical products, and leveraging the Company's core competencies in electronic ordering and configuration. - In order to increase its share of the Consumer sector, the Company maintains a team of sales account managers and business development specialists dedicated to the Consumer account base. The aim of 41 46 the Consumer Markets Division is to provide a variety of value-added services including inventory mix management, store personnel training, marketing programs, and administration of supplier programs. CANADA While the Company's Canadian operation closely mirrors the U.S. operation, initiatives unique to the Canadian operating environment have been developed and are described below: - The U.S. Direct Fulfillment Program has been instituted in Canada to take advantage of its proximity to the United States. Through this program, Canadian customers are currently able to receive products directly from the Chicago distribution center. The expanded use of the U.S. Direct Fulfillment Program will allow for greater breadth of SKUs and manufacturers represented in the Canadian marketplace. - As part of its overall strategy to grow share in the retail market, the Canadian operation employs Dealer Development Representatives as a special service to retail customers. These representatives visit resellers to provide product education, display set-up assistance, and provide other similar on-site services. In addition, the Company fields on-site credit representatives to facilitate processing of financial service applications of its retail customers. EUROPE One of the Company's key objectives is to become the market share leader in Europe. The Company entered Europe in 1989 with an acquisition in Belgium. See "Risk Factors -- Acquisitions." Through a series of small acquisitions, it has rapidly grown to a pan-European presence with aggregate net sales of $1.8 billion in 1995, covering 11 countries: Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Norway, Sweden, Spain, and the United Kingdom. The Company believes that it has the second largest market share position in Europe and that it has a strong base for future growth and increased profitability. Particular areas of focus in Europe include: - The Company will seek to enhance gross margin in the European operation through increased emphasis on high-end and higher margin technical product sales and the implementation of the SAGP system. - A program unique to Ingram Micro is Inventory Sharing. This program allows sales personnel in one European market to order products that are out of stock or otherwise unavailable in the local country from another Ingram Micro business unit. The billing is done in the local currency with all value-added taxes, tax reporting, and similar functions managed automatically by the IMpulse system. Inventory sharing allows the Company to expand its sales base without an expansion of inventory investment or individual country expansion of stock product assortment. Benefits of the program include lower inventory costs, better inventory turnover, and improved gross margin. An important initiative is to add more country operations to the inventory sharing program and to enhance the program through coordinated purchasing among several countries. - Continued cost reduction, as a percentage of net sales, and cost control are important for boosting profitability in the European operation. The Company aims to further reduce expense ratios of the individual business units through increased sales volume, the continued development and refinement of operations and management processes, and the increasing use of selected U.S. and Canadian business programs. MEXICO/ASIA PACIFIC Mexico. Ingram Dicom, a 70%-owned subsidiary of Ingram Micro, is the leading wholesale distributor of microcomputer products in Mexico. Ingram Dicom offers over 6,000 products to more than 5,900 reseller customers in Mexico. In 1995, over 85% of Ingram Dicom's net sales came from 1,100 resellers who primarily service the country's major banks and businesses. Additionally, Ingram Dicom also sells to a small but growing VAR client base and to mass merchant retailers (e.g., Sam's Club, Sanborn's, Price Club). 42 47 As the local high technology market becomes more sophisticated, Ingram Dicom intends to add higher volume, more specialized technical (e.g., UNIX, networking) products to its inventory. Other important initiatives include adding a wider selection of technical education courses, extending CAPS electronic ordering throughout the entire Ingram Dicom operation, and offering a broader range of financing options for reseller customers. The Company will also continue to negotiate supplier terms and conditions aimed at limiting the Company's exposure to foreign currency fluctuations. Asia Pacific. Ingram Micro's Asia Pacific operations, supported by its Singapore office and warehouse, focus on serving the Singapore, Malaysia, Indonesia, Philippines, Thailand, India, and Hong Kong markets. Over 800 customers are currently served from the Singapore base, with approximately 64% of these customers concentrated in the local Singapore market. The Company has recently acquired a distributor in Malaysia. In building a solid regional Asia Pacific business, the Company intends to leverage its systems capability, financial strength, management experience, and excellent relationships with key suppliers. The initial aim of the Asia Pacific strategy is to recruit new suppliers and reseller customers while further adding experienced managers in key functional areas of the business. The Company is currently exploring the possibility of establishing additional operations through joint ventures or acquisitions. See "Risk Factors -- Acquisitions." EXPORT MARKETS Ingram Micro's Export Division continues to expand in international markets where the Company does not have a stand-alone, in-country presence. The Miami, Santa Ana, and Belgium offices serve more than 4,700 resellers in over 100 countries. Key strategic objectives for the Export Division include increasing sales and market share in each of the regions it serves primarily by providing a broad product assortment, further cultivating key supplier relationships, and expanding reseller service offerings. The Company will continue to position itself as a global distributor of microcomputer products providing resellers in all markets access to the Company's vast selection of products via its extensive network of international and U.S. warehouses. COMPETITION The Company operates in a highly competitive environment, both in the United States and internationally. The microcomputer products distribution industry is characterized by intense competition, based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and service, and availability of technical and product information. The Company believes it competes favorably with respect to each of these factors. As price points have declined, the Company believes that value-added services capabilities (such as configuration, innovative financing programs, order fulfillment, contract telesales, and contract warehousing) will become more important competitive factors. The Company entered the master reseller business through Ingram Alliance in late 1994. See "-- Ingram Alliance." The Company competes with other master resellers, which sell to groups of affiliated franchisees and third-party dealers. Many of the Company's competitors in the master reseller business are more experienced and have more established contacts with affiliated resellers, third-party dealers, or suppliers, which may provide them with a competitive advantage over the Company. The Company is constantly seeking to expand its business into areas closely related to its core microcomputer products distribution business. As the Company enters new business areas, it may encounter increased competition from current competitors and/or from new competitors, some of which may be current customers of the Company. For example, the Company intends to distribute media in the new digital video disc format and may compete with traditional music and printed media distributors. In addition, certain services the Company provides may directly compete with those provided by the Company's reseller customers. There can be no assurance that increased competition and adverse reaction from customers resulting from the Company's expansion into new business areas will not have a material adverse effect on the Company's business, financial condition, or results of operations. See "Risk Factors -- Intense Competition." 43 48 Ingram Micro's primary competitors include large United States-based international distributors such as Merisel, Tech Data, and Arrow Electronics (a worldwide industrial electronics distributor), as well as national distributors such as AmeriQuest Technologies (majority owned by Computer 2000), Handleman, Navarre, and Avnet. Ingram Alliance's principal competitors include such master resellers as Intelligent Electronics, MicroAge, Datago, InaCom, and recent entrant Tech Data Elect, a division of Tech Data. Ingram Micro competes internationally with a variety of national and regional distributors. European competitors include international distributors such as Computer 2000 (owned by German conglomerate Viag AG), Merisel, and Softmart/Tech Data, and several local and regional distributors, including Actebis, Scribona, and Microtech. In Canada, Ingram Micro competes with Merisel, Globelle, Beamscope, and Tech Data. Ingram Dicom is the leading distributor in Mexico, competing with such companies as MPS, Merisel, Intertec, and Dataflux. In the Asia Pacific market, Ingram Micro faces both regional and local competitors, of whom the largest is Tech Pacific, a division of First Pacific Holdings, which operates in more than five Asia Pacific markets. Ingram Micro also competes with hardware manufacturers and software publishers that sell directly to reseller customers and end-users. FACILITIES Ingram Micro's worldwide executive headquarters, as well as its West Coast sales and support offices, are located in Santa Ana, California. The Company also maintains an East Coast operations center in Buffalo, New York. A new United States distribution center in Millington, Tennessee is expected to be completed in April 1997, adding 600,000 square feet to the Company's warehouse capacity. This distribution center will be strategically located near several major transportation hubs and is expected to benefit from lower regional labor costs. The U.S. network of distribution centers permits Ingram Micro to keep an extensive supply of product close to its reseller customers, which enables the Company to provide substantially all of its U.S. reseller customers with one- or two-day ground delivery. The principal properties of the Company consist of the following:
APPROXIMATE LOCATION PRINCIPAL USE FLOOR AREA IN SQ. FT. - ------------------------------ ----------------------------------------- --------------------- UNITED STATES Santa Ana, CA................. Executive offices 389,245 Buffalo, NY................... Offices 175,000 Nashville, TN................. Data Processing Center 11,782 Millington, TN................ Distribution Center (under construction) 600,000 Chicago/Buffalo Grove, IL..... Distribution Centers 394,359 Fullerton, CA................. Distribution Center 273,760 Harrisburg, PA................ Distribution Center 230,000 Memphis, TN................... Distribution Center 160,000 Fremont, CA................... Distribution Center 141,540 Carrollton, TX................ Distribution Center 121,654 Atlanta, GA................... Distribution Center 83,049 Miami, FL..................... Distribution Center, Offices 52,080 Santa Ana, CA................. Returns Center, Offices 114,500 Fremont, CA................... Freight Consolidation Center 58,435 EUROPE Brussels, Belgium............. Offices 33,600 Birkerod, Denmark............. Offices 22,281 Taastrup, Denmark............. Distribution Center 21,699 Lesquin, France............... Offices 27,356
44 49
APPROXIMATE LOCATION PRINCIPAL USE FLOOR AREA IN SQ. FT. - ------------------------------ ----------------------------------------- --------------------- Paris, France................. Offices 2,476 Roncq, France................. Distribution Center 96,000 Ottobrunn, Germany............ Offices 32,221 Kirchheim, Germany............ Distribution Center 75,904 Milan, Italy.................. Offices 17,114 Milan, Italy.................. Distribution Center 44,669 Rome, Italy................... Offices, Distribution Center 10,225 Utrecht, Netherlands.......... Offices 30,999 Vianen, Netherlands........... Distribution Center 61,149 Oslo, Norway.................. Offices, Distribution Center 32,087 Madrid, Spain................. Offices 2,476 Barcelona, Spain.............. Offices, Distribution Center 58,387 Kista, Sweden................. Offices 26,371 Sollentuna, Sweden............ Distribution Center 43,126 Milton Keynes, U.K............ Offices, Distribution Center 189,983 CANADA Toronto, Ontario.............. Offices, Distribution Center 250,000 Vancouver, B.C................ Offices, Distribution Center 87,148 Montreal, Quebec.............. Offices 12,000 MEXICO Mexico City, D.F.............. Offices, Distribution Center 65,695 Puebla, Puebla................ Offices, Distribution Center 11,679 Leon, Guanajuato.............. Offices, Distribution Center 11,206 Guadalajara, Jalisco.......... Offices, Distribution Center 9,967 Merida, Yucatan............... Offices, Distribution Center 6,437 Monterrey, Nuevo Leon......... Offices, Distribution Center 6,039 Hermosillo, Sonora............ Offices, Distribution Center 5,156 ASIA Singapore..................... Offices, Distribution Center 20,989 Kuala Lumpur, Malaysia........ Offices, Distribution Center 6,000 Tokyo, Japan.................. Offices 720
All of the Company's facilities, with the exception of the Brussels office and the distribution centers in Chicago and Roncq, France are leased. These leases have varying terms. The Company does not anticipate any material difficulty in renewing any of its leases as they expire or securing replacement facilities, in each case on commercially reasonable terms. TRADEMARKS AND SERVICE MARKS The Company holds various trademarks and service marks, including, among others, "Ingram Micro," "IMpulse," the Ingram Micro logo, "Partnership America," and "Leading the Way in Worldwide Distribution." Certain of these marks are registered, or are in the process of being registered, in the United States and various foreign countries. Even though the Company's marks may not be registered in every country where the Company conducts business, in many cases the Company has acquired rights in those marks because of its continued use of them. Management believes that the value of the Company's marks is increasing with the development of its business but that the business of the Company as a whole is not materially dependent on such marks. 45 50 EMPLOYEES As of June 29, 1996, the Company had approximately 8,119 associates located as follows: United States -- 5,151, Europe -- 1,762, Canada -- 754, Mexico -- 387, and Asia-Pacific -- 65. Ingram Micro believes that its success depends on the skill and dedication of its associates. The Company strives to attract, develop, and retain outstanding personnel. None of the Company's associates in the United States, Europe, Canada, Malaysia, and Singapore are represented by unions. In Mexico, Ingram Dicom has collective bargaining agreements with one of the national unions. The Company considers its employee relations to be good. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject. 46 51 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information with respect to each person who is an executive officer or director of the Company:
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD - ------------------------ --- ----------------------------------------- -------------------------- Martha R. Ingram(2)(3) 61 Chairman of the Board of Directors May 1996 - Present Chairman of the Board of Directors, June 1995 - Present Ingram Industries Director, Ingram Industries 1981 - Present Chief Executive Officer, Ingram Apr. 1996 - Present Industries Director of Public Affairs, Ingram 1979 - June 1995 Industries John R. Ingram(2)(4) 35 Acting Chief Executive Officer May 1996 - Present Director Dec. 1994 - Present Co-President, Ingram Industries Jan. 1996 - Present President, Ingram Book Company Jan. 1995 - Present Vice President, Purchasing, Ingram Micro Jan. 1994 - Dec. 1994 Europe Vice President, Management Services, July 1993 - Dec. 1993 Ingram Micro Europe Director of Management Services, Ingram Jan. 1993 - June 1993 Micro Europe Director of Purchasing Apr. 1991 - Dec. 1992 Jeffrey R. Rodek 43 President; Chief Operating Officer; Dec. 1994 - Present Director Senior Vice President, Americas and July 1991 - Sept. 1994 Caribbean, Federal Express, an overnight courier firm Senior Vice President, Central Support Dec. 1989 - July 1991 Services, Federal Express David R. Dukes(5) 52 Vice Chairman Apr. 1996 - Present Co-Chairman Jan. 1992 - Apr. 1996 Chief Executive Officer, Ingram Alliance Jan. 1994 - Present Chief Operating Officer Sept. 1989 - Dec. 1993 Director Sept. 1989 - Present President Sept. 1989 - Dec. 1991 Sanat K. Dutta 47 Executive Vice President Aug. 1994 - Present Senior Vice President, Operations May 1988 - Aug. 1994 John Wm. Winkelhaus, II 46 Executive Vice President; President, Jan. 1996 - Present Ingram Micro Europe Senior Vice President, Ingram Micro Feb. 1992 - Dec. 1995 Europe Senior Vice President, Sales Apr. 1989 - Jan. 1992 Michael J. Grainger 44 Chief Financial Officer May 1996 - Present Vice President and Controller, Ingram July 1990 - Present Industries James E. Anderson, Jr. 48 Senior Vice President, Secretary, and Jan. 1996 - Present General Counsel Vice President, Secretary, and General Sept. 1991 - Present Counsel, Ingram Industries Partner, Dearborn & Ewing, a law firm Jan. 1986 - Sept. 1991 Douglas R. Antone 43 Senior Vice President; President, Ingram June 1994 - Present Alliance Senior Vice President, Worldwide Sales Nov. 1993 - May 1994 and Marketing, Borland International, a software development company Senior Vice President, Worldwide Sales, July 1990 - Nov. 1993 Borland International Larry L. Elchesen 46 Senior Vice President June 1994 - Present President, Ingram Micro Canada May 1989 - Present
47 52
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD - ------------------------ --- ----------------------------------------- ---------------------------- Philip D. Ellett 42 Senior Vice President; General Manager, Jan. 1996 - Present U.S. Consumer Markets Division President, Gates/Arrow, an electronics Aug. 1994 - Dec. 1995 distributor President and Chief Executive Officer, Oct. 1991 - Aug. 1994 Gates/F.A. Distributing, Inc. President and Chief Operating Officer, Oct. 1990 - Oct. 1991 Gates/F.A. Distributing, Inc. David M. Finley 55 Senior Vice President, Human Resources July 1996 - Present Senior Vice President, Human Resources, May 1995 - July 1996 Budget Rent a Car, a car rental company Vice President, Human Resources, The Jan. 1977 - May 1995 Southland Corporation, a convenience retail company Robert Furtado 40 Senior Vice President, Operations Aug. 1994 - Present Vice President, Operations July 1989 - Aug. 1994 Robert Grambo 32 Senior Vice President, Telesales Oct. 1995 - Present Vice President, Sales Apr. 1994 - Sept. 1995 Vice President, Product Marketing Apr. 1993 - Mar. 1994 President, Bloc Publishing Corp., a Apr. 1992 - Apr. 1993 software publishing firm Senior Director, Purchasing, Ingram Micro Jan. 1990 - Apr. 1992 Ronald K. Hardaway 52 Senior Vice President; Chief Financial Jan. 1992 - Present Officer, Ingram Micro U.S. Senior Vice President and Controller June 1990 - Jan. 1992 Gregory J. Hawkins 41 Senior Vice President, Sales Oct. 1995 - Present Vice President, Sales Jan. 1993 - Oct. 1995 Vice President, Major Accounts Aug. 1992 - Jan. 1993 Director, Major Accounts, Consumer June 1992 - Aug. 1992 Markets Director, Marketing Jan. 1991 - June 1992 James M. Kelly 60 Senior Vice President, Management Feb. 1991 - Present Information Systems David W. Rutledge 43 Senior Vice President, Asia Pacific, Jan. 1996 - Present Latin America and Export Markets Senior Vice President, Administration Sept. 1991 - Dec. 1995 Vice President, Secretary, and General Jan. 1986 - Sept. 1991 Counsel, Ingram Industries David B. Ingram(2) 33 Director May 1996 - Present Chairman and President, Ingram Mar. 1996 - Present Entertainment President and Chief Operating Officer, Aug. 1994 - Mar. 1996 Ingram Entertainment Vice President, Major Accounts, Ingram Nov. 1993 - Aug. 1994 Entertainment Assistant Vice President, Sales, Ingram June 1992 - Nov. 1993 Entertainment Director, Sales, Ingram Entertainment July 1991 - June 1992 Philip M. Pfeffer 51 Director 1986 - Present President and Chief Operating Officer, May 1996 - Present Random House Inc., a publishing company Executive Vice President, Ingram Dec. 1981 - Mar. 1996 Industries Chairman and Chief Executive Officer, Dec. 1981 - Dec. 1995 Ingram Distribution Group Inc. Chairman, Ingram Micro Holdings Inc. Apr. 1989 - Oct. 1995
- --------------- (1) The first position and any other positions not given a separate corporate identification are with the Company. (2) Martha R. Ingram is the mother of David B. Ingram and John R. Ingram. There are no other family relationships among the above individuals. (3) Martha R. Ingram is a director of Baxter International Inc., First American Corporation, and Weyerhaeuser Co. (4) Pending appointment of a new Chief Executive Officer, John R. Ingram has been appointed Acting Chief Executive Officer and is devoting substantially all of his time to the Company's affairs. (5) David R. Dukes is a director of National Education Corporation. 48 53 BOARD OF DIRECTORS The Board of Directors currently consists of Mrs. Ingram and Messrs. John R. Ingram, Rodek, Dukes, David B. Ingram, and Pfeffer. The Company's Certificate of Incorporation provides for a Board of Directors of up to eight individuals. So long as the Ingram Family Stockholders and their permitted transferees (as defined in the Board Representation Agreement) own in excess of 25,000,000 shares of the outstanding Common Equity, the Board Representation Agreement will provide for the designation of (i) not more than three directors designated by the Ingram Family Stockholders, (ii) one director designated by the Chief Executive Officer of the Company, and (iii) four additional directors ("Independent Directors") who are not members of the Ingram family or executive officers or employees of the Company. Directors designated by the Ingram Family Stockholders may include Martha R. Ingram, any of her legal descendants, or any of their respective spouses. See "The Split-Off -- The Exchange." Although the identity of the directors has not been determined, it is expected that three additional independent directors will be designated as soon as practicable after the closing of this offering. COMMITTEES. The Board Representation Agreement provides for the formation of certain committees of the Board of Directors. The bylaws of the Company will be amended to specifically provide for four committees: an Audit Committee, a Compensation Committee, an Executive Committee, and a Nominating Committee. The Audit Committee will consist of at least three directors, and a majority of the members of the Audit Committee will be Independent Directors. The functions of the Audit Committee will be to recommend annually to the Board of Directors the appointment of the independent auditors of the Company, discuss and review in advance the scope and the fees of the annual audit and review the results thereof with the independent auditors, review and approve non-audit services of the independent auditors, review compliance with existing major accounting and financial reporting policies of the Company, review the adequacy of the financial organization of the Company, and review management's procedures and policies relating to the adequacy of the Company's internal accounting controls and compliance with applicable laws relating to accounting practices. The Compensation Committee will consist of three directors, one of whom will be a director designated by the Ingram Family Stockholders and two of whom will be Independent Directors. The functions of the Compensation Committee will be to review and approve annual salaries, bonuses, and grants of stock options pursuant to the 1996 Plan for all executive officers and key members of the Company's management staff and to review and approve the terms and conditions of all employee benefit plans or changes thereto. The Executive Committee will consist of three directors, one of whom will be a director designated by the Ingram Family Stockholders, one of whom will be the director designated by the Chief Executive Officer of the Company, and one of whom will be an Independent Director. The Executive Committee may approve management decisions requiring the immediate attention of the Board of Directors during the period of time between each regularly scheduled meeting of the Board. The Executive Committee will not have authority to approve any of the following items, all of which require the approval of the Board: (i) any action that would require the approval of the holders of a majority of the stock held by certain of the Ingram Family Stockholders or that would require approval of the holders of a majority of the Common Equity under applicable law or under the Certificate of Incorporation or Bylaws of the Company; (ii) any acquisition with a total aggregate consideration in excess of 2% of the Company's stockholders' equity; (iii) any action outside the ordinary course of business of the Company; or (iv) any other action involving a material shift in policy or business strategy for the Board. The Nominating Committee will consist of three directors, two of whom will be directors designated by the Ingram Family Stockholders, and one of whom will be the director designated by the Chief Executive Officer of the Company. The function of the Nominating Committee will be to recommend to the full Board of Directors nominees for election as directors of the Company and to elect members of committees of the Board of Directors. COMPENSATION OF DIRECTORS. Directors of the Company do not currently receive a salary or an annual retainer for their services. The Company expects that following this offering, directors who are not employees of the Company will be paid an annual retainer, plus reimbursement for expenses incurred in attending 49 54 meetings of the Board of Directors and committees thereof. In addition, it is contemplated that such directors will receive options to purchase Common Equity. The specific terms and conditions of such compensation have not yet been decided. Directors who are also employees of the Company will not receive any additional compensation for serving on the Board of Directors. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table provides information relating to compensation for the year ended December 30, 1995 for the Company's former Chief Executive Officer and the other four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") for services rendered by each Named Executive Officer during the year ended December 30, 1995. A portion of this compensation was paid by Ingram Industries and was included as a factor in the determination of intercompany charges paid by the Company to Ingram Industries.
LONG-TERM COMPENSATION --------------- AWARDS --------------- ALL ANNUAL COMPENSATION SECURITIES OTHER -------------------------- UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION(S) YEAR(1) SALARY($)(2) BONUS($)(3) OPTIONS/SARS(#) ($)(4) - ----------------------------------- ------- ------------ ----------- --------------- ------------ Linwood A. (Chip) Lacy, Jr.(5)..... 1995 $558,000 $ 414,057 -- $ 28,617 Former Chief Executive Officer and Former Chairman of the Board of Directors Jeffrey R. Rodek................... 1995 392,820 267,089 240,258(6) 163,649 President, Chief Operating Officer, and Director David R. Dukes..................... 1995 260,130 205,611 -- 10,607 Vice Chairman of the Company, Chief Executive Officer of Ingram Alliance, and Director Sanat K. Dutta..................... 1995 263,500 213,593 -- 12,365 Executive Vice President John Wm. Winkelhaus, II............ 1995 250,000 130,441 -- 124,287 Executive Vice President and President, Ingram Micro Europe
- --------------- (1) Under rules promulgated by the Securities and Exchange Commission, since the Company was not a reporting company during the three immediately preceding fiscal years, only the information with respect to the most recent completed fiscal year is reported in the Summary Compensation Table. (2) Includes amounts deferred under qualified and nonqualified defined contribution compensation plans and pretax insurance premium amounts. (3) Reflects amounts paid in 1996 in respect of the fiscal year ended December 30, 1995. (4) Includes the following amounts: Mr. Lacy (group term life insurance, $3,600; employer thrift plan contributions, $20,625; relocation, $4,392); Mr. Rodek (group term life insurance, $1,632; employer thrift plan contributions, $11,631; relocation, $150,386); Mr. Dukes (group term life insurance, $1,152; employer thrift plan contributions, $9,455); Mr. Dutta (group term life insurance, $2,784; employer thrift plan contributions, $9,581); and Mr. Winkelhaus (group term life insurance, $1,006; employer thrift plan contributions, $6,211; and expatriate compensatory payments, $117,070). (5) Mr. Lacy was an employee of Ingram Industries at all times during 1995. All amounts shown for Mr. Lacy were paid by Ingram Industries, and a portion of such amounts is reflected in the Company's consolidated statement of income under charges allocated from Ingram Industries. (6) Represents options exercisable for 175,000 shares of Ingram Industries common stock, which will be converted into options exercisable for 240,258 shares of Common Stock in connection with the Split-Off. 50 55 STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table provides information relating to stock options granted to the Named Executive Officers for the year ended December 30, 1995.
INDIVIDUAL GRANTS(1) POTENTIAL ------------------------------------------------- REALIZABLE % OF TOTAL VALUE AT ASSUMED NUMBER OF OPTIONS/SARS ANNUAL RATES OF SECURITIES GRANTED TO STOCK PRICE UNDERLYING EMPLOYEES OF EXERCISE APPRECIATION FOR OPTIONS/ THE COMPANY OR BASE OPTION TERM SARS IN FISCAL PRICE EXPIRATION ------------------- NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($) - ---------------------------------- ---------- ------------ -------- ---------- -------- -------- Linwood A. (Chip) Lacy, Jr. ...... -- -- -- -- -- -- Jeffrey R. Rodek(2)............... 240,258 22.95% $ 2.85 1/1/03 $326,532 $782,100 David R. Dukes.................... -- -- -- -- -- -- Sanat K. Dutta.................... -- -- -- -- -- -- John Wm. Winkelhaus, II........... -- -- -- -- -- --
- --------------- (1) The Company has, since December 30, 1995, granted certain options to purchase Class B Common Stock, including options to purchase 150,000, 35,000, 40,000, and 40,000 shares, respectively, to Messrs. Rodek, Dukes, Dutta, and Winkelhaus. Additionally, options to purchase Common Stock are expected to be granted to certain of the Named Executive Officers concurrently with the closing of this offering at the initial public offering price set forth on the cover page of this Prospectus. See "-- 1996 Plan -- Options." (2) Represents options exercisable for 175,000 shares of Ingram Industries common stock, which will be converted into options exercisable for 240,258 shares of Common Stock in connection with the Split-Off. Mr. Rodek's options vest according to the following schedule: 34,324 shares on January 1, 1997, 60,064 shares on January 1, 1998, 60,064 shares on January 1, 1999, 60,064 shares on January 1, 2000, and 25,742 shares on January 1, 2001. STOCK OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS/SAR VALUES. The following table provides information relating to stock options and ISUs exercised by the Named Executive Officers during the year ended December 30, 1995, as well as the number and value of securities underlying unexercised stock options held by the Named Executive Officers as of December 30, 1995.
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED SHARES UNEXERCISED IN-THE-MONEY ACQUIRED OPTIONS/SARS OPTIONS/SARS ON AT YEAR END AT YEAR END EXERCISE VALUE ------------------- ---------------- DURING REALIZED EXERCISABLE/ EXERCISABLE/ NAME 1995(1)(2) ($)(3) UNEXERCISABLE(2) UNEXERCISABLE - ------------------------------ --------- ---------- ------------------- ---------------- Linwood A. (Chip) Lacy, Jr. .. 1,613,158(4) $2,917,808 46,875/372,315(5) $87,656/$554,749(5) Jeffrey R. Rodek.............. -- -- 0/274,580 0/214,400 David R. Dukes................ -- 518,063 30,032/278,184 41,097/570,335 Sanat K. Dutta................ -- -- 0/258,105 0/455,656 John Wm. Winkelhaus, II....... -- 278,600 0/244,376 0/450,216
- --------------- (1) Excludes Ingram Industries ISUs held by Messrs. Lacy, Dukes, and Winkelhaus that matured in 1995 and were settled in cash. (2) Reflects the conversion of shares of Ingram Industries common stock, or options exercisable for shares of Ingram Industries common stock, into shares of Class B Common Stock, or options exercisable for shares of Common Stock, in connection with the Split-Off. (3) Includes $830,408, $518,063, and $278,600 paid to Messrs. Lacy, Dukes, and Winkelhaus, respectively, in connection with the settlement of ISUs. (4) 1,544,513 of such shares were acquired from the E. Bronson Ingram Charitable 8% Remainder Unitrust and were deemed to be acquired from the Company. (5) Excludes options exercisable for 12,731/101,121 shares of Ingram Industries common stock with a value of $74,858/$540,997. 51 56 PENSION PLAN None of the Named Executive Officers other than Mr. Lacy participates in the tax-qualified Ingram Retirement Plan and the non-qualified Ingram Supplemental Executive Retirement Plan (the "Retirement Plans") sponsored by Ingram Industries. At the time he left the Company, Mr. Lacy had earned one year of credited service under the Retirement Plans. Mr. Lacy's benefit from the Retirement Plans will be in the form of a deferred annuity. At age 65, his life only annuities would be $178.70 per month from the Ingram Retirement Plan and $539.70 per month from the Ingram Supplemental Executive Retirement Plan. It is anticipated that the Company will establish a qualified plan similar to the Ingram Industries qualified plan. None of the Named Executive Officers will participate in the Company's qualified retirement plan. EMPLOYMENT AGREEMENTS In December 1994, the Company entered into an agreement with Mr. Rodek pursuant to which he agreed to serve as President and Chief Operating Officer of the Company and as a member of the Company's Board of Directors. The agreement provides for a base salary, participation in the Company's Executive Incentive Bonus Plan, and participation in the Company's health and benefit programs. Mr. Rodek will receive a severance benefit equal to his annual base salary if the Company terminates his employment without cause prior to January 1, 1998. In April 1988, the Company entered into an agreement with Mr. Dutta pursuant to which he agreed to serve as Senior Vice President, Operations. The agreement provides for a base salary, participation in the Company's Executive Incentive Bonus Plan, and participation in the Company's health and benefit programs. Mr. Dutta will receive a severance benefit of nine months' base salary if he is terminated without cause or 12 months' base salary if he is involuntarily terminated or has a substantial change in title or reduction of salary within 12 months of a change in control (as defined in the agreement). In April 1992, the Company entered into an agreement with Mr. Winkelhaus pursuant to which he agreed to serve as Senior Vice President, Ingram Micro Europe. The agreement provides for a base salary, a housing cost and goods and services differential, participation in the Company's Executive Incentive Bonus Plan, and participation in the Company's health and benefit programs. Mr. Lacy resigned as Chairman and Chief Executive Officer of the Company effective May 31, 1996. Pursuant to an agreement (the "Severance Agreement"), Mr. Lacy resigned from all positions with the Company, and resigned from all positions with Ingram Industries and its other subsidiaries, except that My. Lacy will remain a director of Ingram Industries until December 31, 1997, unless earlier removed in accordance with the bylaws of Ingram Industries. In addition, Mr. Lacy has agreed to serve as a director of the Company, if so requested by Ingram Industries, until December 31, 1997. Pursuant to the Severance Agreement, Mr. Lacy has agreed to cooperate with the Company and Ingram Industries in connection with the consummation of the Split-Off and this offering. Mr. Lacy has also agreed not to use or disclose confidential information relating to the Company. Furthermore, Mr. Lacy has agreed that until November 30, 1998, he will not compete with the Company or solicit for hire any person who was or becomes an employee of the Company between December 1, 1995 and June 1, 1998. Mr. Lacy has also agreed to similar restrictions with respect to the businesses of Ingram Industries and its other subsidiaries. The Company will pay Mr. Lacy one year's salary at the level in effect as of the date of his resignation, and has paid Mr. Lacy $272,000, his earned bonus for the first five months of 1996. In addition, the Severance Agreement provides for the continuation of certain health and life insurance benefits for a period of 12 months from the date thereof. Mr. Lacy will also receive certain payments from Ingram Industries. The shares of Ingram Industries common stock owned by Mr. Lacy will be converted into shares of Class B Common Stock in connection with the Exchange. These shares have been placed in an escrow account, although Mr. Lacy will be permitted to sell such shares, subject to applicable tax and securities laws, provided that the after-tax proceeds of such sales remain in the escrow account. If at any time prior to 52 57 December 1, 1998, Mr. Lacy breaches the terms and conditions of the Severance Agreement, the Company shall have the right to be reimbursed for its damages from this escrow account. Furthermore, Ingram Industries and the Company may suspend any payments or obligations otherwise owed to Mr. Lacy. If not earlier released due to the death of Mr. Lacy or a Change of Control (as defined therein), fifty percent of the escrow account will be released on June 1, 1998 and the remainder on December 1, 1998. KEY EMPLOYEE STOCK PURCHASE PLAN As of April 30, 1996, the Board of Directors of the Company adopted, and Ingram Industries, as the sole stockholder of the Company, approved, the Key Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Company has reserved 4,000,000 shares of Class B Common Stock to cover awards under the Stock Purchase Plan. Employee Offering. In the second quarter of 1996, the Company offered (the "Employee Offering") 2,775,000 shares of its Class B Common Stock, of which 2,510,400 shares were purchased, in reliance upon Regulation D and Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), for $17,572,800, to certain of its officers. Such shares are subject to vesting, certain restrictions on transfer, and repurchase by the Company upon termination of employment. Restricted Stock Grants. The Company also made grants pursuant to the Stock Purchase Plan of an aggregate of 107,000 restricted shares of Class B Common Stock to certain officers and employees of the Company, which shares will vest 25% on April 1, 1998 and each year thereafter through 2001. Prior to vesting, such shares are subject to forfeiture to the Company, with no consideration paid to the holder thereof, upon termination of the holder's employment. 1996 PLAN As of April 30, 1996, the Board of Directors of the Company adopted, and Ingram Industries, as the sole stockholder of the Company, approved, the 1996 Equity Incentive Plan (the "1996 Plan"). The Company currently intends to amend the 1996 Plan, primarily to change the allowable vesting schedule for options granted under the 1996 Plan and to permit options to be granted to purchase shares of Common Stock instead of Class B Common Stock. Options granted prior to the closing of this offering will continue to be governed by the 1996 Plan as in effect prior to the amendment of the 1996 Plan concurrently with the closing of this offering. The purpose of the 1996 Plan is to attract and retain key personnel and to enhance their interest in the Company's continued success. The 1996 Plan is administered by the Board of Directors of the Company or a committee appointed thereby (the "Committee"). The Committee has broad discretion, subject to contractual restrictions affecting the Company, as to the specific terms and conditions of each award and any rules applicable thereto, including but not limited to the effect thereon of the death, retirement, or other termination of employment of the participant. The 1996 Plan permits the granting of (i) stock options that qualify as "Incentive Stock Options" under the U.S. Internal Revenue Code of 1986, as amended (the "Code"), (ii) options other than Incentive Stock Options ("Nonqualified Stock Options"), (iii) SARs granted either alone or in tandem with other awards under the 1996 Plan, (iv) restricted stock and restricted stock units, (v) performance awards, and (vi) other stock-based awards. The Company has reserved approximately 5,200,000 shares of Common Stock and approximately 4,800,000 shares of Class B Common Stock to cover awards under the 1996 Plan. The Board of Directors may amend, alter, or terminate the 1996 Plan at any time, provided that stockholder approval generally must be obtained for any change that would require stockholder approval under Rule 16b-3 under the Exchange Act or any other regulatory or tax requirement that the Board deems desirable to comply with or obtain relief under and subject to the requirement that no rights under an outstanding award may be impaired by such action without the consent of the holder thereof. The Committee may amend or modify the terms of any outstanding award but only with the consent of the participant if such amendment 53 58 would impair his rights. In the event of certain corporate transactions or events affecting the shares or the structure of the Company, the Committee may make certain adjustments as set forth in the 1996 Plan. The 1996 Plan is not subject to any provision of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and is not qualified under Section 401(a) of the Code. Options. On June 25, 1996, the Company granted options to purchase an aggregate of approximately 4,800,000 shares of Class B Common Stock under the 1996 Plan to all full-time employees of the Company who had at such time been continuously employed by the Company since January 1, 1996, as well as to certain employees of the Company, at the director level and above, who began employment with the Company at a later date. The exercise price of these options is $7.00 per share. These options, which are Incentive Stock Options to the extent permitted under the terms of the 1996 Plan and the Code, will vest as follows: (i) for officers of the Company, in four equal annual installments commencing on April 1, 1998, and (ii) for non-officers, in five equal annual installments commencing on April 1, 1997, in each case subject to continued employment with the Company. Concurrently with the closing of this offering, it is expected that the Board of Directors will grant options under the 1996 Plan to purchase approximately 800,000 shares of Common Stock to certain executive officers and employees of the Company, of which options to purchase , , , and shares of Common Stock, respectively, will be granted to Messrs. Rodek, Dukes, Dutta, and Winkelhaus. The exercise price of these options will be equal to the initial public offering price set forth on the cover page of this Prospectus. These options will vest over a fixed term, subject to continued employment with the Company; however, such options will vest earlier if the Company achieves certain performance criteria. EXECUTIVE INCENTIVE BONUS PLAN All officers of the Company are eligible to participate in the Company's Executive Incentive Bonus Plan (the "Bonus Plan"). Pursuant to the Bonus Plan, officers receive bonus payments based on the Company's meeting or exceeding budgeted results, as well as individual achievement of previously agreed upon goals. ROLLOVER PLAN; INCENTIVE STOCK UNITS In connection with the Split-Off, Ingram Industries options held by the Company's employees and certain other Ingram Industries options and SARs will be converted to Ingram Micro options ("Rollover Stock Options") to purchase shares of Common Stock. In addition, holders of approximately 300,000 Ingram Industries ISUs will have the option to exchange a portion of their ISUs for Rollover Stock Options. See "The Split-Off -- The Exchange." Upon conversion, assuming all eligible ISUs are exchanged, approximately 11,000,000 Rollover Stock Options will be outstanding, with exercise prices ranging from $0.66 to $3.32 per share. See "The Split-Off -- The Exchange." The majority of these options will be fully vested by the year 2000 and expire no later than ten years from the date of grant. These vested options generally become exercisable, if otherwise vested, upon the earlier of (i) nine months after the Split-Off or (ii) a public offering of the shares, in each case subject to the optionee's continued employment with any of the Company, Ingram Industries, or Ingram Entertainment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of the Company does not currently maintain a separate compensation committee. Historically, base compensation of officers of the Company, and Mr. Lacy's compensation under the Bonus Plan, has been determined by the Executive Compensation Committee of the Ingram Industries board of directors, which in 1995 consisted of E. Bronson Ingram, until his resignation from the Board in May, and Messrs. Lacy and Pfeffer. Mr. Lacy did not participate in the determination of his compensation. Compensation under the Bonus Plan for all officers of the Company other than Mr. Lacy was determined by the entire Board of Directors of the Company. 54 59 EMPLOYEE AND PRIORITY OFFERS EMPLOYEE DIRECTED OFFER Up to 500,000 shares of Common Stock offered in this offering (the "Employee Shares") have been reserved for certain employees of the Company (the "Employee Directed Offer"). Each such employee may apply to purchase a number of shares of Common Stock within a specified range at the initial public offering price set forth on the cover page of this Prospectus and on the same terms and conditions as the shares being offered to the general public. Any purchasers who are affiliates of the Company will represent that any purchases are being made for investment purposes only. In the event that the demand for Employee Shares exceeds the number of shares of Common Stock available under the Employee Directed Offer, the maximum number of Employee Shares available to each individual will be reduced to the extent necessary so that the total subscriptions equal the number of available Employee Shares. Any application for a number of shares that is less than the employee's new maximum individual application size will be unaffected thereby. PRIORITY OFFER Up to 1,500,000 of the shares of Common Stock offered in this offering (the "Priority Shares") have been reserved pursuant to a priority allocation offer (the "Priority Offer"). The Priority Offer is being made to certain customers and vendors of the Company, as well as to certain other individuals, including certain employees of Ingram Industries and Ingram Entertainment. Each such person may apply to purchase a number of shares of Common Stock within a range based on certain individual factors relating to such person at the initial public offering price set forth on the cover page of this Prospectus and on the same terms and conditions as the shares being offered to the general public. Any purchasers who are affiliates of the Company will represent that any purchases are being made for investment purposes only. In the event that the demand for Priority Shares exceeds the number of shares of Common Stock available under the Priority Offer, the maximum number of Priority Shares available to each individual will be reduced to the extent necessary so that the total subscriptions equal the number of available Priority Shares. Any application for a number of shares that is less than the applicant's new maximum individual application size will be unaffected thereby. CERTAIN TRANSACTIONS Historically, Ingram Industries has provided certain administrative services to the Company. The Company is allocated a portion of the costs of these administrative services. This allocation totaled $1.6 million, $2.4 million, $3.5 million, and $2.1 million in 1993, 1994, 1995, and the first half of 1996, respectively. In connection with the Split-Off, the Company will enter into the Transitional Service Agreements with Ingram Industries relating to the continued provision of certain administrative services. The Company believes that the terms of the Transitional Service Agreements will be on a basis at least as favorable as those that would be obtained from third parties on an arm's length basis. The Transitional Service Agreements generally terminate on December 31, 1996, although payroll services under the Transitional Service Agreements will be provided through December 31, 1997. After such termination, the Company will be required to provide such services internally or find a third-party provider of such services. Additionally, Ingram Industries has provided a large portion of the debt financing required by the Company in connection with its expansion. As of December 31, 1994, December 30, 1995, and June 29, 1996, $449.4 million, $673.8 million, and $560.8 million, respectively, was outstanding to Ingram Industries. Interest on such debt has been charged based on Ingram Industries' domestic weighted average cost of funds. See Note 6 of Notes to Consolidated Financial Statements. In connection with the Split-Off, substantially all of the debt facilities of Ingram Industries guaranteed by the Company will be assumed by the Company in satisfaction of amounts due to Ingram Industries. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 55 60 The Company leases certain office space near Buffalo, New York from a partnership owned by certain members of the Ingram family. The lease agreement expires January 31, 2013 and requires annual rental payments of approximately $1.6 million. The Company subleases its facilities in Santa Ana, California and Harrisburg, Pennsylvania from Ingram Industries pursuant to a sublease which expires March 1, 2007. The sublease agreement requires annual rental payments of approximately $2.1 million. In connection with the Split-Off, it is anticipated that the Company will enter into a direct lease agreement with the present lessor to Ingram Industries under terms and conditions similar to the sublease. The Company's lease for its distribution center in Millington, Tennessee is guaranteed by Ingram Industries. This guarantee provides for the release of Ingram Industries' guarantee upon satisfaction by the Company of certain financial requirements specified in the guarantee including consummation of an initial public offering of at least $300 million. Certain of the Company's other leases are guaranteed by Ingram Industries. The Company anticipates that such guarantees will be released in connection with the Split-Off. The Company extended a loan during 1995 to one of its senior executive officers. This loan has been repaid in full. The largest aggregate amount outstanding at any time during 1995 was $450,000. This loan bore interest at the intercompany rate of interest paid by the Company to Ingram Industries. In connection with the Split-Off, it is expected that agreements relating to board representation and registration rights with respect to Common Stock held by the Ingram Family Stockholders (including shares of Common Stock issued upon conversion of Class B Common Stock) will be entered into by the Company and the Ingram Family Stockholders. See "The Split-Off." THE SPLIT-OFF Concurrently with the closing of this offering, Ingram Industries will consummate the Split-Off. The consummation of the Split-Off is a non-waiveable condition to the closing of this offering. The following is a summary of certain of the material terms of the Split-Off. THE EXCHANGE Concurrently with the closing of this offering, it is contemplated that Ingram Industries will consummate the Exchange, under an Exchange Agreement (the "Exchange Agreement"), pursuant to which the existing stockholders of Ingram Industries may exchange a specified number of their shares of Ingram Industries common stock for shares of Class B Common Stock of the Company and/or common stock of Ingram Entertainment of equivalent value to the shares of Ingram Industries so exchanged. See "Principal Stockholders." If all eligible stockholders were to exchange all of their shares of Ingram Industries common stock eligible to be exchanged, they would receive 107,251,352 shares of Class B Common Stock. The exchange values were determined by the board of directors of Ingram Industries, which relied in part on an opinion of a financial advisor to the effect that the Exchange was fair to all involved parties. In the Exchange Agreement, the Company covenants that, during the two-year period following the Exchange, it will not (i) liquidate, merge, or consolidate with any other person, or sell, exchange, distribute, or dispose of any material asset other than in the ordinary course of business, (ii) with certain limited exceptions, redeem or reacquire any of its capital stock transferred in the Exchange, (iii) cease to conduct the principal active trade or business conducted by it during the five years immediately preceding the Exchange, or (iv) otherwise take any actions inconsistent with the facts and representations set forth in the private letter ruling from the U.S. Internal Revenue Service (the "IRS") regarding certain federal income tax consequences of the Reorganization and Exchange, in each case unless it first obtains an opinion from recognized tax counsel or a ruling from the IRS that such action will not affect the qualification of the transactions contemplated by the Exchange Agreement for tax-free treatment. All such covenants were necessary to obtain the private letter ruling from the IRS. Certain outstanding Ingram Industries options and SARs will be converted to, and certain Ingram Industries ISUs may be exchanged for, Rollover Stock Options. The exchange values for these options, SARs, and ISUs are primarily based on the exchange value for the underlying common stock. The option, SAR, and ISU exchange values were determined by the board of directors of Ingram Industries in accordance with the 56 61 respective plans under which they were issued. If all eligible ISUs are exchanged, the total number of Rollover Stock Options outstanding would be exercisable for approximately 11,000,000 shares of Common Stock. See "Management -- Rollover Plan; Incentive Stock Units." The Company and the Ingram Family Stockholders are expected to enter into the Board Representation Agreement. So long as the Ingram Family Stockholders and their permitted transferees (as defined in the Board Representation Agreement) own in excess of 25,000,000 shares of the outstanding Common Equity, the Board Representation Agreement will provide for the designation of (i) not more than three directors designated by the Ingram Family Stockholders, (ii) one director designated by the Chief Executive Officer of the Company, and (iii) four additional Independent Directors (collectively, the "Designated Nominees"). The Ingram Family Stockholders will be required to vote their shares of Common Equity for the election of the Designated Nominees. In addition, certain types of corporate transactions, including transactions involving the potential sale or merger of the Company; the issuance of additional equity, warrants, or options; acquisitions involving aggregate consideration in excess of 10% of the Company's stockholders' equity; any guarantee of indebtedness of an entity other than a subsidiary of the Company exceeding 5% of the Company's stockholders' equity; and the incurrence of indebtedness in a transaction which could reasonably be expected to reduce the Company's investment rating (i) lower than one grade below the rating in effect immediately following this offering or (ii) below investment grade, may not be entered into without the written approval of at least a majority of the voting power held by certain of the Ingram Family Stockholders, acting in their sole discretion. The Board Representation Agreement will terminate on the date on which the Ingram Family Stockholders and their permitted transferees collectively cease to beneficially own at least 25,000,000 shares of the Common Equity of the Company (as such number may be equitably adjusted to reflect stock splits, stock dividends, recapitalization, and other transactions in the capital stock of the Company). All decisions for the Ingram Family Stockholders that are trusts or foundations will be made by members of the Ingram family, who are trustees thereof. The Ingram Family Stockholders and the other stockholders of Ingram Industries who will receive shares of Class B Common Stock in the Exchange will enter into a registration rights agreement (the "Registration Rights Agreement") which grants the E. Bronson Ingram QTIP Marital Trust (the "QTIP Trust") demand registration rights following the closing of this offering. Such demand registration rights may be exercised with respect to all or any portion (subject to certain minimum thresholds) of the shares of Class B Common Stock owned by the QTIP Trust, one or more of the other Ingram Family Stockholders and certain of their permitted transferees on up to three occasions during the 84-month period following the closing of this offering; provided that the Company shall not be obligated to effect (i) any registration requested by the QTIP Trust unless the QTIP Trust has furnished the Company with an opinion of counsel to the effect that such registration and any subsequent sale will not affect the tax-free nature of the Split-Off or (ii) more than one demand registration during any 12-month period. The Registration Rights Agreement also grants one demand registration right to members of the Ingram family (which may only be exercised during the 84-month period following the closing of this offering) and one demand registration right to certain minority stockholders of the Company if a change of control of the Company occurs following the closing of this offering but prior to the second anniversary of the Split-Off Date. The minority stockholders will not be entitled to this registration right if they were offered the opportunity to participate in the change of control transaction. The Registration Rights Agreement restricts the exercise by any party thereto of a demand registration right, and provides that the Company will not grant any registration rights to any other person that are more favorable than those granted pursuant to the Registration Rights Agreement or that provide for the exercise of demand registration rights sooner than three months following a public offering in which such person was entitled to include its shares, unless the number of shares requested to be included in such public offering exceeded 125% of the number of shares actually included. 57 62 In addition, the Registration Rights Agreement provides that the parties thereto shall be entitled to unlimited "piggyback" registration rights in connection with any proposed registration of equity securities by the Company (with certain specified exceptions) during the 84-month period following the completion of this offering. Employees who received shares in the Employee Offering, and persons who have exercised Rollover Stock Options, are bound by the provisions of the Registration Rights Agreement as if such employees were parties thereto, and are entitled to the "piggyback" registration rights provided therein, with respect to the portion of their shares of Class B Common Stock that is no longer subject to restrictions. The Registration Rights Agreement contains provisions regarding reduction of the size of an offering that has been determined by the underwriters to have exceeded its maximum potential size and contains certain customary provisions, including those relating to holdback arrangements, registration procedures, indemnification, contribution and payment of fees and expenses. Pursuant to an agreement (the "Thrift Plan Liquidity Agreement") with the Ingram Thrift Plan (the "Thrift Plan"), which will receive 10,007,000 shares of Class B Common Stock in the Split-Off, during each of the 90-day periods following the closing of this offering and the first anniversary of the closing of this offering, the Company may elect to file a registration statement under the Securities Act covering such number of shares as are required to be sold by the Thrift Plan in order to comply with the requirements of ERISA or are necessary to fund distributions to Thrift Plan participants ("Registrable Securities"). If a registration statement covering the Registrable Securities has not become effective during either such 90-day period, the Thrift Plan may elect to sell any of such Registrable Securities to the Company during the 90-day period thereafter at the then-current fair market value of the Common Stock; provided that the Company's obligation in any fiscal year to purchase shares not required to fund distributions by the Thrift Plan will be limited to the lesser of $10,000,000 or 3% of the Company's stockholders' equity as of the beginning of such fiscal year. In addition, the Thrift Plan may elect to sell to the Company one time each calendar month, such number of shares as are necessary to fund distributions to Thrift Plan participants, except during such periods when the Company has notified the Thrift Plan of the filing of a registration statement covering Registrable Securities or when such a registration statement is effective. Of the 10,007,000 shares of Class B Common Stock to be received by the Thrift Plan, 9,207,000 shares will be subject to a lock-up agreement in connection with this offering. See "Shares Eligible for Future Sale" and "Underwriters." THE REORGANIZATION The Company is currently a subsidiary of Ingram Industries, a company controlled by the Ingram Family Stockholders. Ingram Industries is engaged in various businesses in addition to that of the Company, including inland marine transportation; the production and transport of specification commercial sand; insurance; and the distribution of books, prerecorded video cassettes, laser discs, video games, and spoken-word audio cassettes. It is contemplated that the businesses of the Company, Ingram Industries, and Ingram Entertainment (each, an "Ingram Company") and their respective subsidiaries will be reorganized as described below. Concurrently with the Split-Off, the Company will assume certain indebtedness of Ingram Industries, in partial satisfaction of amounts due to Ingram Industries. The Company will repay the remaining intercompany indebtedness with borrowings under the Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Pursuant to a reorganization agreement (the "Reorganization Agreement"), it is contemplated that each Ingram Company will agree to retain or assume, at the time of the Reorganization, certain liabilities and obligations, including the following: (i) liabilities and obligations incurred by such Ingram Company (other than certain general corporate level liabilities of Ingram Industries) with respect to periods ending on or prior to the closing of the Reorganization, other than liabilities or obligations arising as a result of any intentional act which is tortious or as a result of any illegal act (each, a "Designated Action") committed by (x) a corporate officer of Ingram Industries (except for actions that are believed by such person to be in furtherance of his duties as an officer or employee of the Company, Ingram Entertainment, or their respective subsidiaries, or the other subsidiaries or business operating units of Ingram Industries), (y) any other employee of Ingram 58 63 Industries whose responsibilities are not primarily associated with the Company, Ingram Entertainment, or their respective subsidiaries, or the other subsidiaries or business operating units of Ingram Industries or (z) an employee (other than general corporate level employees of Ingram Industries) of any other Ingram Company; (ii) liabilities and obligations (other than general corporate level liabilities of Ingram Industries) incurred by any other Ingram Company with respect to periods ending on or prior to the closing of the Reorganization as a result of any Designated Action committed by an employee of any such Ingram Company or certain subsidiaries or business operating units of such Ingram Company; (iii) in the case of Ingram Industries, certain general corporate level liabilities and obligations up to an aggregate of $100,000 incurred by Ingram Industries with respect to certain periods ending on or prior to the closing of the Reorganization and recorded under Ingram Industries' internal accounting system as "home office" liabilities, to the extent that such liabilities and obligations are extraordinary in nature and arise out of the ordinary course of business and were not accrued on Ingram Industries' year end 1995 balance sheet; (iv) specified liabilities and obligations related to certain asset dispositions and the settlement of certain claims; and (v) liabilities and obligations incurred by such Ingram Company with respect to periods beginning after the closing of the Reorganization. In addition, certain contingent assets or liabilities, as well as fees and costs incurred in connection with the Split-Off, will be shared 23.01% by Ingram Industries, 72.84% by the Company, and 4.15% by Ingram Entertainment; provided that the Company will not be liable except to the extent that the Company's share of such contingent liabilities, fees or costs (net of any contingent assets) exceeds, in the aggregate, $20,778,000. These contingent liabilities include (i) liabilities and obligations arising as a result of any Designated Action committed by a corporate officer of Ingram Industries (except for actions that are believed by such person to be in furtherance of his duties as an officer or employee of the Company, Ingram Entertainment, or their respective subsidiaries or other designated affiliates, or the other subsidiaries or designated affiliates of Ingram Industries), or any other employee of Ingram Industries whose responsibilities are not primarily associated with the Company, Ingram Entertainment, or their respective subsidiaries, or the other subsidiaries or business operating units of Ingram Industries; (ii) certain general corporate level liabilities and obligations, if the aggregate of such liabilities and obligations incurred by Ingram Industries exceeds $100,000, incurred by Ingram Industries with respect to periods ending on or prior to the closing of the Reorganization and recorded under Ingram Industries' internal accounting system as "home office" liabilities, to the extent that such liabilities and obligations are extraordinary and non-recurring in nature and arise out of the ordinary course of business and were not accrued on Ingram Industries' 1995 balance sheet; (iii) certain liabilities and obligations incurred by Ingram Industries in respect of specified individuals pursuant to certain deferred compensation plans of Ingram Industries; and (iv) assets, liabilities, and obligations arising in connection with certain specified asset dispositions. The Company is not currently aware of any such contingent liabilities, fees or costs that will require any further payment by the Company, but there can be no assurance that any payment, which could be material, will not be required in the future. Pursuant to the Reorganization Agreement, each Ingram Company will agree to conduct its business, from the date of the Reorganization Agreement until the closing of the Reorganization, in the ordinary course of business consistent with past practice. The Reorganization Agreement provides that at or prior to the closing of the Reorganization, the Company and Ingram Entertainment will enter into bank repurchase agreements with respect to securities of the Company or Ingram Entertainment, respectively, received in connection with the Exchange Agreement in exchange for shares of Ingram Industries common stock currently held as collateral for certain loans made to stockholders of Ingram Industries. Pursuant to the Reorganization Agreement, it is expected that each Ingram Company will agree to indemnify each other Ingram Company from any and all damage, loss, liability, and expense incurred as a result of any breach by such party of any covenant or agreement pursuant to the Reorganization Agreement or the failure by such party to perform its obligations with respect to any liability retained or assumed by such party pursuant to the Reorganization Agreement. The Ingram Companies are also expected to enter into an employee benefits transfer and assumption agreement (the "Employee Benefits Agreement"). The Employee Benefits Agreement will provide for the allocation of employee benefit assets and liabilities generally on a pro rata basis in respect of each Ingram 59 64 Company's current and former employees. Each Ingram Company will indemnify the other parties with respect to such party's benefit-related assumed or retained assets and liabilities. In connection with the Reorganization, it is also contemplated that the Ingram Companies will enter into a tax sharing and tax services agreement (the "Tax Sharing Agreement"). Under the Tax Sharing Agreement, the Company will agree that it will be liable for (i) its allocable share of the consolidated federal income tax liability and any consolidated state income tax liability for the year that includes the Split-Off and (ii) generally, 72.84% of any adjustment in excess of reserves already established by Ingram Industries for past federal or state income tax liabilities of Ingram Industries, Ingram Entertainment, or the Company. Subject to certain consultation rights and certain limited rights on the part of the Company to consent to a settlement, Ingram Industries will have the right to control any audit or proceeding relating to the Company for periods ending prior to the Split-Off. The Company will share in any refunds received in respect of the carryback of any future tax losses or credits it may suffer or receive. In addition, Ingram Industries and Ingram Entertainment will each agree that, upon the exercise by one of its employees of an option granted in connection with the Exchange, it will pay the Company an amount equal to the tax benefit, if any, received from any compensation deduction in respect of such exercise. Furthermore, if the Split-Off fails to qualify for tax-free treatment as a result of a breach by one of the Ingram Companies of specified representations or covenants contained in the Exchange Agreement, any resulting deficiency shall be borne by such breaching Ingram Company. In addition, until 1999, the Company will provide data processing services to Ingram Industries and Ingram Entertainment for a fee to be determined. The Ingram Companies will also enter into the Transitional Service Agreements relating to the continued provision of certain administrative services (including cash management, insurance, employee benefits, and payroll administration). The Transitional Service Agreements are expected to be on terms comparable to those that would be obtained from third parties on an arms' length basis. CONDITIONS TO THE SPLIT-OFF The Split-Off is subject to the satisfaction or waiver of certain conditions including, without limitation, (i) receipt of a private letter ruling from the IRS satisfactory to Ingram Industries and certain of the Ingram Family Stockholders as to the tax-free nature of the Split-Off and a determination by the board of directors of Ingram Industries and the Ingram Family Stockholders that nothing has come to their attention that causes them to conclude that significant questions exist as to the validity of the ruling as applied to the Reorganization or the Exchange; (ii) the absence of any law, judgment, injunction, order or decree which prohibits consummation of the Split-Off; (iii) the effectiveness of certain ancillary agreements; (iv) receipt of required regulatory approvals and third-party consents; (v) consummation of the scheduled refinancing and assumption of debt; and (vi) settlement of intercompany receivables and payables. The Exchange Agreement may be terminated by the board of directors of Ingram Industries at any time prior to the closing of the Split- Off. 60 65 PRINCIPAL STOCKHOLDERS The following table sets forth certain information, as of July 31, 1996, as adjusted for (i) the Split-Off and (ii) the issuance of the Common Stock offered hereby as if such transactions had occurred on July 31, 1996, with respect to the beneficial ownership of each class of the Common Equity by (a) each person known by the Company to own beneficially more than five percent of the outstanding shares of either class of the Common Equity; (b) each director; (c) each of the Named Executive Officers; and (d) all executive officers and directors of the Company as a group. See "Management" and "Certain Transactions."
CLASS B COMMON STOCK COMMON STOCK COMMON EQUITY ------------------------- ---------------------- ------------- SHARES SHARES PERCENTAGE BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE OF TOTAL NAME OWNED OF CLASS OWNED OF CLASS VOTING POWER - -------------------------------- ---------- ---------- ------- ---------- ------------- E. Bronson Ingram QTIP Marital Trust(1)(2)................... 69,099,259 62.9% -- -- 61.8% Ingram Thrift Plan(1)........... 10,007,000 9.1 -- -- 8.9 David B. Ingram(1)(2)........... 77,509,290(3) 70.5 13,750(4) * 69.3 Robin Ingram Patton(1)(2)....... 74,579,833(3) 67.9 -- -- 66.7 Orrin H. Ingram(1)(2)........... 74,599,526(3) 67.9 56,250(4) * 66.7 Linwood A. (Chip) Lacy, Jr...... 1,390,062 1.3 110,500(4) * 1.3 John R. Ingram(2)............... 74,608,790(3) 67.9 29,500(4) * 66.7 Jeffrey R. Rodek................ 285,000 * -- -- * David R. Dukes.................. 65,000 * 73,279(4) * * Sanat K. Dutta.................. 85,000 * 37,412(4) * * John Wm. Winkelhaus, II......... 85,000 * 42,560(4) * * Martha R. Ingram(2)............. 83,370,444(3) 75.9 -- -- 74.5 Philip M. Pfeffer............... 2,206,826(3) 2.0 21,250(4) * 2.0 All executive officers and directors as a group (20 persons)(2)(5)............ 91,465,313(3) 83.2 553,405(4) * 81.8
- --------------- * Less than one percent. (1) The address for the indicated parties is: c/o Ingram Industries Inc., One Belle Meade Place, 4400 Harding Road, Nashville, Tennessee 37205. (2) David B. Ingram, Robin Ingram Patton, Orrin H. Ingram, John R. Ingram, and Martha R. Ingram are trustees of the QTIP Trust, and accordingly could each be deemed to be the beneficial owner of the shares held by the QTIP Trust. (3) Includes 76,418,370, 74,199,505, 72,728,146, 73,987,607, 81,332,442, 234,384, and 84,235,988 shares, for David B. Ingram, Robin Ingram Patton, Orrin H. Ingram, John R. Ingram, Martha R. Ingram, Mr. Pfeffer, and all executive officers and directors as a group, respectively, which shares are held by various trusts or foundations of which these individuals are trustees. Such individuals could each be deemed to be the beneficial owner of the shares held by such trusts of which he or she is a trustee. (4) All such figures represent Rollover Stock Options exercisable within 60 days of the date of the table for shares of Common Stock. (5) Does not include shares beneficially owned by Mr. Lacy, the Company's former Chief Executive Officer and former Chairman of the Board of Directors. 61 66 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 265,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 20,000,000 shares will be issued and outstanding upon the closing of this offering (assuming no exercise of the U.S. Underwriters' over-allotment option), and 135,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 109,868,752 shares will be issued and outstanding upon the closing of this offering. In addition, the Company's Certificate of Incorporation (the "Certificate of Incorporation") authorizes the issuance by the Company of up to 1,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), on terms determined by the Company's Board of Directors. The following description is a summary of the capital stock of the Company and is subject to and qualified in its entirety by reference to the provisions of the Certificate of Incorporation and the Bylaws (the "Bylaws") of the Company, which are included as exhibits to the Registration Statement of which this Prospectus forms a part. COMMON EQUITY The shares of Common Stock and Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights, as described below. VOTING RIGHTS. Each share of Common Stock entitles the holder to one vote on each matter submitted to a vote of the Company's stockholders, including the election of directors, and each share of Class B Common Stock entitles the holder to ten votes on each such matter. Except as required by applicable law, holders of the Common Stock and Class B Common Stock vote together as a single class on all matters submitted to a vote of the stockholders of the Company. There is no cumulative voting. See "Risk Factors -- Control by Ingram Family Stockholders." For so long as there are any shares of Class B Common Stock outstanding, any action that may be taken at a meeting of the stockholders may be taken by written consent in lieu of a meeting if the Company receives consents signed by stockholders having the minimum number of votes that would be necessary to approve the action at a meeting at which all shares entitled to vote on the matter were present and voted. This could permit certain holders of Class B Common Stock to take action regarding certain matters without providing other stockholders the opportunity to voice dissenting views or raise other matters. The right to take such action by written consent of stockholders will expire at such time as all outstanding shares of Class B Common Stock cease to be outstanding. DIVIDENDS, DISTRIBUTIONS AND STOCK SPLITS. Holders of Common Stock and Class B Common Stock are entitled to receive dividends at the same rate if, as, and when such dividends are declared by the Board of Directors out of assets legally available therefor after payment of dividends required to be paid on shares of Preferred Stock, if any. In the case of dividends or distributions payable in Common Stock or Class B Common Stock, only shares of Common Stock will be distributed with respect to the Common Stock and only shares of Class B Common Stock will be distributed with respect to the Class B Common Stock. In the case of dividends or other distributions consisting of other voting shares of the Company, the Company will declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that the voting rights of each such security paid to the holders of the Common Stock shall be one-tenth of the voting rights of each such security paid to the holders of Class B Common Stock, and such security paid to the holders of Class B Common Stock shall convert into the security paid to the holders of the Common Stock upon the same terms and conditions applicable to the Class B Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of the Company, the Company will provide that such convertible or exchangeable securities and the underlying securities be identical in all respects, except that the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the Common Stock shall be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of Class B Common Stock, and such underlying securities paid to the holders of Class B Common Stock shall convert into the security paid to the holders of the Common Stock upon the same terms and conditions applicable to the Class B Common Stock. 62 67 Neither the Common Stock nor the Class B Common Stock may be subdivided or combined in any manner unless the other class is subdivided or combined in the same proportion. CONVERSION. The Common Stock has no conversion rights. The Class B Common Stock is convertible into Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Common Stock for each share of Class B Common Stock converted. Each share of Class B Common Stock will also automatically convert into one share of Common Stock upon the earliest to occur of (i) the fifth anniversary of the closing of the Split-Off; (ii) the sale or transfer of such share of Class B Common Stock (a) by a holder that is a party to the Board Representation Agreement to any person that is not an affiliate, spouse or descendant of such holder, their estates or trusts for their benefit or any other party to the Exchange Agreement or (b) by any other holder, to a holder that is not the spouse or descendant of such holder or their estates or trusts for the benefit thereof; and (iii) the date on which the number of shares of Class B Common Stock then outstanding is less than 25% of the aggregate number of shares of Common Equity then outstanding. LIQUIDATION. In the event of any dissolution, liquidation, or winding up of the affairs of the Company, whether voluntary or involuntary, after payment of the debts and other liabilities of the Company and making provision for the holders of Preferred Stock, if any, the remaining assets of the Company will be distributed ratably among the holders of the Common Stock and the Class B Common Stock, treated as a single class. MERGERS AND OTHER BUSINESS COMBINATIONS. Upon a merger, combination, or other similar transaction of the Company in which shares of Common Equity are exchanged for or changed into other stock or securities, cash and/or any other property, holders of each class of Common Equity will be entitled to receive an equal per share amount of stock, securities, cash, and/or any other property, as the case may be, into which or for which each share of any other class of Common Equity is exchanged or changed; provided that in any transaction in which shares of capital stock are distributed, such shares so exchanged for or changed into may differ as to voting rights and certain conversion rights to the extent and only to the extent that the voting rights and certain conversion rights of Common Stock and Class B Common Stock differ at that time. OTHER PROVISIONS. The holders of the Common Stock and Class B Common Stock are not entitled to preemptive rights. There are no redemption provisions or sinking fund provisions applicable to the Common Stock or the Class B Common Stock. PREFERRED STOCK The Board of Directors is authorized, subject to any limitations prescribed by the DGCL, or the rules of any quotation system or national securities exchange on which stock of the Company may be quoted or listed, to provide for the issuance of shares of Preferred Stock in one or more series; to establish from time to time the number of shares to be included in each such series; to fix the rights, powers, preferences, and privileges of the shares of each series and any qualifications and restrictions thereon; and, to the extent permitted by the DGCL, to increase or decrease the number of shares of such series, without any further vote or action by the stockholders. Depending upon the terms of the Preferred Stock established by the Board of Directors, any or all series of Preferred Stock could have preference over the Common Stock with respect to dividends and other distributions and upon liquidation of the Company or could have voting or conversion rights that could adversely affect the holders of the outstanding Common Stock. The Company has no present plans to issue any shares of Preferred Stock. LIMITATION OF LIABILITY; INDEMNIFICATION As permitted by the DGCL, the Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL (which currently provides that such liability may be so limited, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL, relating to prohibited dividends or distributions or 63 68 the repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit). Each person who is or was a party to any action by reason of the fact that such person is or was a director or officer of the Company shall be indemnified and held harmless by the Company to the fullest extent permitted by the DGCL. This right to indemnification also includes the right to have paid by the Company the expenses incurred in connection with any such proceeding in advance of its final disposition, to the fullest extent permitted by the DGCL. In addition, the Company may, by action of the Board of Directors, provide indemnification to such other employees and agents of the Company to such extent as the Board of Directors determines to be appropriate under the DGCL. As a result of this provision, the Company and its stockholders may be unable to obtain monetary damages from a director for breach of his duty of care. Although stockholders may continue to seek injunctive or other equitable relief for an alleged breach of fiduciary duty by a director, stockholders may not have any effective remedy against the challenged conduct if equitable remedies are unavailable. The Company also reserves the right to purchase and maintain directors' and officers' liability insurance. OTHER CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS It is anticipated that the Bylaws will be amended, prior to the closing of this offering, to implement certain provisions of the Board Representation Agreement. The following discussion describes the Bylaws, as contemplated to be in effect as of the closing of this offering. The Bylaws provide that a majority of the total number of directors shall constitute a quorum for the transaction of business. The Board of Directors may act by unanimous written consent. Annual meetings of stockholders shall be held to elect the Board of Directors and transact such other business as may be properly brought before the meeting. Special meetings of stockholders may be called by the chairman and shall be called by the secretary on the written request of stockholders having 10% of the voting power of the Company. The stockholders may act by written consent in lieu of a meeting of stockholders until such time as all shares of Class B Common Stock cease to be outstanding. The Certificate of Incorporation may be amended with the approval of the Board of Directors (by the vote required as described above), and for so long as any shares of Class B Common Stock remain outstanding, in addition to any vote required by law, any such amendment also requires the approval of the holders of a majority of the Company's outstanding voting power and a majority of the members of the Board of Directors. The Bylaws may be amended with the approval of three-quarters of the entire Board of Directors or by the holders of 75% of the Company's voting power present and entitled to vote at any annual or special meeting of stockholders at which a quorum is present. The number of directors which shall constitute the whole Board of Directors shall be fixed by resolution of the Board of Directors. The number of directors shall in no event be less than five nor more than eight. The size of the initial Board is fixed at six members, but will be increased to eight in accordance with the Board Representation Agreement. The directors shall be elected at the annual meeting of the stockholders, except for filling vacancies. Directors may be removed with the approval of the holders of a majority of the Company's voting power present and entitled to vote at a meeting of stockholders. Vacancies and newly created directorships on the Board of Directors resulting from any increase in the number of directors may be filled by a majority of the directors then in office, although less than a quorum, a sole remaining director, or the holders of a majority of the voting power present and entitled to vote at a meeting of stockholders. So long as the Ingram Family Stockholders and their permitted transferees own at least 25,000,000 shares of the Common Equity, the Bylaws will provide for the appointment of the Designated Nominees. The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, shall constitute a quorum for stockholder action at any meeting. 64 69 SECTION 203 OF THE DGCL After this offering, the Company will be subject to Section 203 of the DGCL which, subject to certain exceptions, prohibits a Delaware corporation from engaging in a business combination (as defined therein) with an "interested stockholder" (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of the Company or any person affiliated with such person) for a period of three years following the date that such stockholder became an interested stockholder, unless (i) prior to such date the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation at the time the transaction commenced (excluding for purposes of determining the number of shares outstanding those shares owned (a) by directors who are also officers of the corporation and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) on or subsequent to such date the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. TRANSFER AGENT The Company will appoint a transfer agent and registrar for the Common Stock prior to the closing of this offering. 65 70 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of this offering, the Company will have outstanding an aggregate of 20,000,000 shares of Common Stock, (23,000,000 if the U.S. Underwriters' over-allotment option is exercised in full) and 109,868,752 shares of Class B Common Stock. Of the total outstanding shares of Common Equity, only the shares of Common Stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act (which sales would be subject to certain volume limitations and other restrictions described below). The remaining shares of Common Equity held by existing stockholders upon completion of this offering will be "restricted securities" as that term is defined in Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least two years (including, if the shares are transferred, the holding period of any prior owner except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of such class of the Common Equity (approximately 1,098,688 shares immediately after this offering) or (ii) generally, the average weekly trading volume in such class of the Common Stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale, and subject to certain other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, would be entitled to sell such shares under Rule 144(k) without regard to the volume and other requirements described above. Shares of Common Equity that would otherwise be deemed "restricted securities" could be sold at any time through an effective registration statement relating to such shares of Common Equity. Of the 109,868,752 shares of Class B Common Stock outstanding as of the closing of this offering, 2,617,400 shares were acquired in July 1996 pursuant to the Employee Offering and the concurrent grant of restricted stock awards, and 107,251,352 shares will have been acquired pursuant to the Split-Off. Under current law, absent registration or an exemption from registration other than Rule 144, (a) the 2,617,400 shares of Class B Common Stock sold in the Employee Offering in July 1996 (or granted concurrently therewith) would be eligible for sale upon the later of (i) July 1998 and (ii) for those shares pledged to secure purchase money loans for such shares, two years after the release of such pledge, and (b) 107,251,352 shares of Class B Common Stock would be eligible for sale two years from the effective date of the Split-Off. Of the 107,251,352 shares of Class B Common Stock to be received in the Split-Off, all but 3,844,632 of such shares will be subject to the lock-up agreements described below. In addition, the 2,617,400 shares of Class B Common Stock issued in July 1996 are subject to contractual vesting restrictions, which restrictions begin to lapse in April 1998. Pursuant to the Registration Rights Agreement, the QTIP Trust, which after the Split-Off will hold 69,099,259 shares of Class B Common Stock, has certain demand registration rights with respect to all or any portion (subject to certain minimum thresholds) of the shares of Class B Common Stock owned by the QTIP Trust, one or more of the other Ingram Family Stockholders and certain of their permitted transferees on up to three occasions during the 84-month period following the closing of this offering; provided that the Company shall not be obligated to effect (i) any registration requested by the QTIP Trust unless the QTIP Trust has furnished the Company with an opinion of counsel to the effect that such registration and any subsequent sale will not affect the tax-free nature of the Split-Off or (ii) more than one demand registration during any 12-month period. The Registration Rights Agreement also grants one demand registration right to members of the Ingram family holding shares of Class B Common Stock (which may only be exercised within the 84-month period following the closing of this offering) and one demand registration right to certain minority stockholders of the Company, if a change of control of the Company occurs following the closing of this offering but prior to the second anniversary of the Split-Off Date. The minority stockholders will not be entitled to this registration right if they were offered the opportunity to participate in the change of control transaction. 66 71 In addition, the Registration Rights Agreement provides that the recipients of Class B Common Stock received in the Split-Off will be entitled to unlimited "piggyback" registration rights in connection with any proposed registration of equity securities by the Company (with certain specified exceptions) during the 84-month period following the closing of this offering. Employees who received shares in the Employee Offering, holders of restricted stock granted at the time of the Employee Offering, and persons who have exercised Rollover Stock Options, are bound by the provisions of the Registration Rights Agreement as if such employees were parties thereto, and are entitled to the "piggyback" registration rights provided therein, with respect to the portion of their shares of Common Equity that is no longer subject to restrictions. Pursuant to the Thrift Plan Liquidity Agreement, the Thrift Plan has certain rights to require the Company to purchase a portion of its shares of Class B Common Stock if the Company does not arrange for the registration of such shares. Of the 10,007,000 shares of Class B Common Stock held by the Thrift Plan, 9,207,000 shares will be subject to the lock-up agreements described below. The Company intends to file registration statements under the Securities Act covering shares of Common Stock issuable upon exercise of options granted under the Company's 1996 Plan and Rollover Plan. Such registration statements are expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under such registration statements will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with the Company or the lock-up agreements described below. Immediately following the closing of this offering, there will be outstanding options exercisable for approximately 16,600,000 shares of Common Equity. Of such options, approximately 2,600,000 Rollover Stock Options will be exercisable immediately after the closing of this offering for shares of Common Stock and an additional approximately 1,200,000 Rollover Stock Options will become exercisable on or prior to April 1, 1997, although a portion of the shares issuable upon exercise of such Rollover Stock Options will be subject to the lock-up agreements described below. In addition, on April 1, 1997, options granted to non-officers of the Company pursuant to the 1996 Plan will become exercisable for approximately 700,000 shares of Class B Common Stock, none of which will be subject to the lock-up agreements described below. See "Management -- 1996 Plan." See "Management -- 1996 Plan -- Options" and "-- Rollover Plan; Incentive Stock Units." The Company and its directors and executive officers, and certain existing stockholders of the Company, have agreed, subject to certain exceptions, not to offer, sell, contract to sell or otherwise dispose of any Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated has informed the Company that it has no present intention to consent to any such transactions. See "Underwriters." Prior to this offering, there has not been any public market for either class of the Common Equity. No prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Sales of substantial additional amounts of Common Equity in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock. 67 72 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following is a discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of Common Stock by a "Non-U.S. Holder." A "Non-U.S. Holder" is a person or entity that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership, or a non-resident fiduciary of a foreign estate or trust. This discussion is based on the Code, and administrative interpretations as of the date hereof, all of which are subject to change, including changes with retroactive effect. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to Non-U.S. Holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Proposed United States Treasury Regulations were issued on April 15, 1996 (the "Proposed Regulations") which, if adopted, would affect the United States taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed Regulations are generally proposed to be effective with respect to dividends paid after December 31, 1997, subject to certain transition rules. The discussion below is not intended to be a complete discussion of the provisions of the Proposed Regulations, and prospective investors are urged to consult their tax advisors with respect to the effect the Proposed Regulations would have if adopted. Prospective holders should consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of Common Stock, including the consequences under U.S. federal law as well as under the laws of any state, local or foreign jurisdiction. DIVIDENDS Subject to the discussion below, dividends paid to a Non-U.S. Holder of Common Stock generally will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. For purposes of determining whether tax is to be withheld at a 30% rate or at a reduced rate as specified by an income tax treaty, the Company ordinarily will presume that dividends paid to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. Under the Proposed Regulations, to obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder would generally be required to provide a Form W-8 certifying such Non-U.S. Holder's entitlement to benefits under a treaty. The Proposed Regulations would also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated as paid to the entity or those holding an interest in that entity. There will be no withholding tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States if the Non-U.S. Holder files a valid Form 4224 (or, if and when the Proposed Regulations become effective, a Form W-8) stating that the dividends are so connected. Instead, the effectively connected dividends will be subject to regular U.S. income tax in the same manner as if the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional "branch profits tax" which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) of the non-U.S. corporation's effectively connected earnings and profits, subject to certain adjustments. Generally, the Company must report to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. Dividends paid to a Non-U.S. Holder at an address within the United States may be subject to backup withholding imposed at a rate of 31% if the Non-U.S. Holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and certain other information. The Proposed Regulations would, if adopted, alter the foregoing rules in certain respects, including by providing certain 68 73 presumptions under which a Non-U.S. Holder would be subject to backup withholding in the absence of the certification from the holder as to non-U.S. status, regardless of whether dividends are paid to a U.S. or non-U.S. address. GAIN ON DISPOSITION OF COMMON STOCK A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of Common Stock unless (i) the gain is effectively connected with a trade or business of such holder in the United States, (ii) in the case of certain Non-U.S. Holders who are non-resident alien individuals and hold the Common Stock as a capital asset, such individual is present in the United States for 183 or more days in the taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code regarding the taxation of U.S. expatriates, or (iv) the Company is or has been a "U.S. real property holding corporation" within the meaning of Section 897(c)(2) of the Code at any time within the shorter of the five-year period preceding such disposition or such holder's holding period. The Company is not, and does not anticipate becoming, a U.S. real property holding corporation. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF COMMON STOCK Under current United States federal income tax law, information reporting and backup withholding imposed at a rate of 31% will apply to the proceeds of a disposition of Common Stock paid to or through a U.S. office of a broker unless the disposing holder certifies as to its non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds if the payment is made outside the United States through a non-U.S. office of a non-U.S. broker. However, U.S. information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds outside the United States if (A) the payment is made through an office outside the United States of a broker that is either (i) a U.S. person, (ii) a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States or (iii) a "controlled foreign corporation" for U.S. federal income tax purposes and (B) the broker fails to maintain documentary evidence that the holder is a Non-U.S. Holder and that certain conditions are met, or that the holder otherwise is entitled to an exemption. The Proposed Regulations would, if adopted, alter the foregoing rules in certain respects. Among other things, the Proposed Regulations would provide certain presumptions under which a Non-U.S. Holder would be subject to backup withholding in the absence of certification from the holder as to non-U.S. status. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS. FEDERAL ESTATE TAX An individual Non-U.S. Holder who is treated as the owner of, or has made certain lifetime transfers of, an interest in the Common Stock will be required to include the value thereof in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise. 69 74 UNDERWRITERS Under the terms and subject to the conditions in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters named below, for whom Morgan Stanley & Co. Incorporated, The Robinson-Humphrey Company, Inc., Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC, and J.C. Bradford & Co. are serving as U.S. Representatives, and the International Underwriters named below, for whom Morgan Stanley & Co. International Limited, The Robinson-Humphrey Company, Inc., Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC, and J.C. Bradford & Co. are serving as International Representatives, have severally agreed to purchase, and the Company has agreed to sell to them severally, the respective number of shares of Common Stock set forth opposite the name of each Underwriters below:
NUMBER OF NAME SHARES ------------------- ---------- U.S. Underwriters: Morgan Stanley & Co. Incorporated.............................. The Robinson-Humphrey Company, Inc............................. Alex. Brown & Sons Incorporated................................ Hambrecht & Quist LLC.......................................... J.C. Bradford & Co. ........................................... ---------- Subtotal.................................................... 16,000,000 ---------- International Underwriters: Morgan Stanley & Co. International Limited..................... The Robinson-Humphrey Company, Inc............................. Alex. Brown & Sons Incorporated................................ Hambrecht & Quist LLC.......................................... J.C. Bradford & Co. ........................................... ---------- Subtotal.................................................... 4,000,000 ---------- Total.................................................. 20,000,000 ==========
The U.S. Underwriters and the International Underwriters are collectively referred to as the "Underwriters." The U.S. Representatives and the International Representatives are collectively referred to as the "Representatives." The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. 70 75 Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions set forth below, (a) it is not purchasing any U.S. Shares (as defined below) for the account of anyone other than a United States or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or distribute any prospectus outside the United States and Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions set forth below, (a) it is not purchasing any International Shares (as defined below) for the account of any United States or Canadian Person and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. With respect to any of The Robinson-Humphrey Company, Inc., Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC, and J.C. Bradford & Co., the foregoing representations or agreements (i) made by it in its capacity as a U.S. Underwriter shall apply only to shares of Common Stock purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in its capacity as an International Underwriter shall apply only to shares of Common Stock purchased by it in its capacity as an International Underwriter, and (iii) shall not restrict its ability to distribute any prospectus relating to the shares of Common Stock to any person. The foregoing limitations do not apply to stabilization transactions or to certain transactions specified in the Agreement Between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters are referred to herein as the "U.S. Shares" and the "International Shares," respectively. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price of any shares so sold shall be the Price to Public set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares of Common Stock, directly or indirectly, in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any shares of Common Stock a notice stating in substance that, by purchasing such shares of Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such shares of Common Stock in Canada or to, or for the benefit of, any resident of Canada in contravention of the securities laws of Canada or any province or territory thereof and that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such shares of Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that (i) it has not offered or sold and during the period of six months after the date hereof will not offer or sell any shares of Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing, or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of Public Offers of Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Regulations with respect to anything done by it in 71 76 relation to the shares of Common Stock offered hereby in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the offer of the shares of Common Stock, other than any document which consists of, or is part of, listing particulars, supplementary listing particulars, or any other document required or permitted to be published by listing rules under Article IV of the Financial Services Act 1986, if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the shares of Common Stock acquired in connection with this offering, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan. Each International Underwriter has further agreed to send to any dealer who purchases from it any of the shares of Common Stock a notice stating in substance that such dealer may not offer or sell any of such shares, directly or indirectly, in Japan or to or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan, and that such dealer must send to any other dealer to whom it sells any of such shares of Common Stock a notice to the foregoing effect. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the price to public set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the price to public. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Representatives. Pursuant to the Underwriting Agreement, the Company has granted to the U.S. Underwriters an option, exercisable for 30 days from the date hereof, to purchase up to 3,000,000 additional shares of Common Stock at the price to public set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, incurred in the sale of the shares of Common Stock offered hereby. To the extent that such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares to be purchased and offered by such U.S. Underwriter in the above table bears to the total number of initial shares to be purchased by the U.S. Underwriters. Application has been made to list the Common Stock on the New York Stock Exchange subject to official notice of issuance. The Underwriters intend to sell shares of the Common Stock to a minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the distribution requirements of such listing. At the Company's request, the Underwriters have reserved for sale, at the price to public set forth on the cover page hereof, up to 2,000,000 shares offered hereby for directors, officers, employees, business associates, and related persons of the Company and its subsidiaries. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. See "Employee and Priority Offers." The Company and its directors and executive officers, and certain stockholders of the Company, have agreed that they will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other 72 77 securities, in cash or otherwise, for a period of 180 days after the date of this Prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated, other than (i) the sale to the Underwriters of any shares of Common Stock pursuant to the Underwriting Agreement, (ii) the grant of options or issuance of stock upon the exercise of outstanding stock options pursuant to the Company's stock option plans or (iii) an exception for the Thrift Plan allowing for the sale of up to 800,000 shares. See "Shares Eligible for Future Sale." Morgan Stanley & Co. Incorporated has informed the Company that it has no present intention to provide a waiver from the 180-day lock-up period for the Company and its directors, executive officers and stockholders who have agreed to such lock-ups. The Representatives have informed the Company that the Underwriters do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Common Stock offered by them. The Company and the Underwriters have agreed in the Underwriting Agreement to indemnify each other against certain liabilities, including liabilities under the Securities Act. From time to time each of Morgan Stanley & Co. Incorporated, The Robinson-Humphrey Company, Inc., and J.C. Bradford & Co. has provided, and continues to provide, investment banking services to Ingram Industries and the Company. PRICING OF OFFERING Prior to this offering, there has been no public market for the shares of Common Stock of the Company. Consequently, the initial public offering price will be determined by negotiations between the Company and the Representatives. Among the factors considered in determining the initial public offering price will be the Company's record of operations, the Company's current financial condition and future prospects, the experience of its management, the economics of the industry in general, the general condition of the equity securities market, and the market prices of similar securities of companies considered comparable to the Company. There can be no assurance that a regular trading market for the shares of Common Stock will develop after this offering or, if developed, that a public trading market can be sustained. There can be no assurance that the prices at which the Common Stock will sell in the public market after this offering will not be lower than the price at which it is issued by the Underwriters in this offering. LEGAL MATTERS Certain legal matters with respect to the Common Stock offered hereby will be passed upon for the Company by Davis Polk & Wardwell, New York, New York and for the Underwriters by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. EXPERTS The consolidated financial statements as of December 31, 1994 and December 30, 1995 and for each of the three fiscal years in the period ended December 30, 1995 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION Prior to this offering, the Company has not been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (together with any amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended, with respect to the shares of Common Stock being offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain items of which are omitted as permitted by the Rules and Regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein are not necessarily complete, and in each instance in which a copy of such contract or other document has been filed as an exhibit to the Registration Statement, reference is made to such copy and each such statement is qualified in all respects by such reference. 73 78 As a result of this offering, the Company will be subject to the informational requirements of the Exchange Act, and, in accordance therewith, will file reports and other information with the Commission. A copy of the Registration Statement, the exhibits and schedules forming a part thereof and the reports and other information filed by the Company in accordance with the Exchange Act may be inspected without charge at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the Commission. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. 74 79 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.)
PAGE ---- Report of Independent Accountants..................................................... F-2 Consolidated Balance Sheet as of December 31, 1994, December 30, 1995 and June 29, 1996 (unaudited).................................................................... F-3 Consolidated Statement of Income for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 and the twenty-six weeks ended July 1, 1995 and June 29, 1996 (unaudited).................................................................... F-4 Consolidated Statement of Stockholder's Equity for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 and the twenty-six weeks ended June 29, 1996 (unaudited)......................................................................... F-5 Consolidated Statement of Cash Flows for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 and the twenty-six weeks ended July 1, 1995 and June 29, 1996 (unaudited).................................................................... F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 80 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Ingram Micro Inc. Finalization of the capital structure described in the first paragraph of Note 12 to the financial statements has not been consummated at August 22, 1996. When it has been consummated, which is expected to be prior to the effectiveness of this Registration Statement, we will be in position to furnish the following report: "In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of stockholder's equity and of cash flows present fairly, in all material respects, the financial position of Ingram Micro Inc. (a wholly-owned subsidiary of Ingram Industries Inc.) and its subsidiaries at December 31, 1994 and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PRICE WATERHOUSE LLP Nashville, Tennessee February 29, 1996, except Note 12 as to which the date is June 25, 1996 F-2 81 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL PERIOD END ------------------------- JUNE 29, 1994 1995 1996 ---------- ---------- ---------- (UNAUDITED) ASSETS Current assets: Cash.............................................. $ 58,369 $ 56,916 $ 45,172 Trade accounts receivable (less allowances of $25,668 in 1994, $30,791 in 1995 and $35,193 in 1996)........................................... 745,910 1,071,275 1,013,386 Inventories....................................... 995,880 1,582,922 1,333,651 Other current assets.............................. 68,717 88,503 91,987 ---------- ---------- ---------- Total current assets......................... 1,868,876 2,799,616 2,484,196 Property and equipment, net.......................... 58,285 89,126 107,175 Goodwill, net........................................ 33,481 29,871 28,573 Other................................................ 13,647 22,285 21,477 ---------- ---------- ---------- Total assets................................. $1,974,289 $2,940,898 $2,641,421 ========== ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.................................. $1,100,598 $1,652,073 $1,395,296 Accrued expenses.................................. 94,505 121,572 130,700 Current maturities of long-term debt.............. 10,724 6,332 12,044 ---------- ---------- ---------- Total current liabilities.................... 1,205,827 1,779,977 1,538,040 Long-term debt.................................... 92,204 170,424 195,890 Due to Ingram Industries.......................... 449,355 673,792 560,847 Other............................................. 3,434 5,697 5,130 ---------- ---------- ---------- Total liabilities............................ 1,750,820 2,629,890 2,299,907 Minority interest.................................... 2,125 213 2,713 Commitments and contingencies (Note 8) Stockholder's equity: Class A Common Stock, $.01 par value, 265,000,000 shares authorized; no shares issued and outstanding..................................... -- -- -- Class B Common Stock, $.01 par value, 135,000,000 shares authorized; 107,251,352 shares issued and outstanding..................................... 1,073 1,073 1,073 Additional paid in capital........................ 22,427 22,427 22,427 Retained earnings................................. 197,815 282,122 312,762 Cumulative translation adjustment................. 29 5,173 2,539 ---------- ---------- ---------- Total stockholder's equity................... 221,344 310,795 338,801 ---------- ---------- ---------- Total liabilities and stockholder's equity... $1,974,289 $2,940,898 $2,641,421 ========== ========== ==========
See accompanying notes to these consolidated financial statements. F-3 82 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
TWENTY-SIX WEEKS ENDED FISCAL YEAR --------------------------- ------------------------------------------- JULY 1, JUNE 29, 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Net sales............... $ 4,044,169 $ 5,830,199 $ 8,616,867 $ 3,739,145 $ 5,543,167 Cost of sales........... 3,714,527 5,391,224 8,011,181 3,467,838 5,166,134 ----------- ----------- ----------- ----------- ----------- Gross profit............ 329,642 438,975 605,686 271,307 377,033 Expenses: Selling, general and administrative..... 225,047 296,330 415,344 190,924 252,652 Charges allocated from Ingram Industries.. 1,567 2,355 3,461 1,678 2,143 Non-cash compensation charge............. 7,802 ----------- ----------- ----------- ----------- ----------- 226,614 298,685 418,805 192,602 262,597 ----------- ----------- ----------- ----------- ----------- Income from operations............ 103,028 140,290 186,881 78,705 114,436 Other (income) expense: Interest income....... (407) (937) (3,479) (2,425) (761) Interest expense...... 5,003 8,744 13,451 6,024 7,526 Interest expense charged by Ingram Industries......... 16,089 24,189 32,606 14,875 21,172 Net foreign currency exchange loss...... 111 6,873 7,751 4,598 392 Other................. (623) 716 1,936 1,412 1,610 ----------- ----------- ----------- ----------- ----------- 20,173 39,585 52,265 24,484 29,939 ----------- ----------- ----------- ----------- ----------- Income before income taxes and minority interest.............. 82,855 100,705 134,616 54,221 84,497 Provision for income taxes................. 31,660 39,604 53,143 21,402 33,856 ----------- ----------- ----------- ----------- ----------- Income before minority interest.............. 51,195 61,101 81,473 32,819 50,641 Minority interest....... 840 (2,243) (2,834) (2,701) 1 ----------- ----------- ----------- ----------- ----------- Net income.............. $ 50,355 $ 63,344 $ 84,307 $ 35,520 $ 50,640 ========== ========== ========== ========== ========== Earnings per share...... $ 0.42 $ 0.53 $ 0.70 $ 0.29 $ 0.42 ========== ========== ========== ========== ==========
See accompanying notes to these consolidated financial statements. F-4 83 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CLASS A CLASS B COMMON STOCK COMMON STOCK ADDITIONAL CUMULATIVE ------------------- -------------------- PAID IN RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL ---------- ------ ----------- ------ ---------- -------- ----------- -------- JANUARY 2, 1993................. 107,251,352 $1,073 $ 22,427 $84,116 $ 1,802 $109,418 Translation adjustment.......... (4,314) (4,314) Net income...................... 50,355 50,355 ---------- ------ ----------- ------ ------- -------- ------ -------- JANUARY 1, 1994................. 107,251,352 1,073 22,427 134,471 (2,512) 155,459 Translation adjustment.......... 2,541 2,541 Net income...................... 63,344 63,344 ---------- ------ ----------- ------ ------- -------- ------ -------- DECEMBER 31, 1994............... 107,251,352 1,073 22,427 197,815 29 221,344 Translation adjustment.......... 5,144 5,144 Net income...................... 84,307 84,307 ---------- ------ ----------- ------ ------- -------- ------ -------- DECEMBER 30, 1995............... 107,251,352 1,073 22,427 282,122 5,173 310,795 Distribution to Ingram Industries (unaudited)........ (20,000 ) (20,000) Translation adjustment (unaudited)................... (2,634) (2,634) Net income (unaudited).......... 50,640 50,640 ---------- ------ ----------- ------ ------- -------- ------ -------- JUNE 29, 1996 (UNAUDITED)....... 107,251,352 $1,073 $ 22,427 $312,762 $ 2,539 $338,801 ========== ====== =========== ====== ======= ======== ====== ========
See accompanying notes to these consolidated financial statements. F-5 84 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
TWENTY-SIX WEEKS ENDED FISCAL YEAR ------------------- ------------------------------ JULY 1, JUNE 29, 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- (UNAUDITED) CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net income................................ $ 50,355 $ 63,344 $ 84,307 $ 35,520 $ 50,640 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.......... 12,918 18,675 25,394 11,632 15,700 Deferred income taxes.................. (5,719) (4,668) (8,632) (5,721) (2,190) Minority interest...................... 840 (2,243) (2,834) (2,701) 1 Non-cash compensation charge........... 7,802 Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable.............. (161,097) (232,268) (320,177) (10,796) 49,804 Inventories............................ (143,738) (345,511) (580,116) 22,160 242,256 Other current assets................... (2,881) (12,846) (15,877) (4,250) 16 Accounts payable....................... 184,787 411,012 543,822 (35,479) (247,848) Accrued expenses....................... 22,830 17,452 22,828 4,327 2,443 -------- -------- -------- -------- -------- Cash provided (used) by operating activities........................... (41,705) (87,053) (251,285) 14,692 118,624 CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Purchase of property and equipment........ (21,311) (31,286) (52,985) (25,745) (33,026) Acquisitions, net of cash acquired........ (21,447) (15,088) Other..................................... 2,062 3,765 4,188 555 (1,394) -------- -------- -------- -------- -------- Cash used by investing activities...... (40,696) (42,609) (48,797) (25,190) (34,420) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Increase (decrease) in borrowings from Ingram Industries...................... 83,635 103,580 224,437 (66,804) (112,945) Proceeds (repayment) of debt.............. 1,410 (4,930) (838) 223 943 Net borrowings under revolving credit facility............................... 16,388 44,636 74,666 45,103 34,505 Distribution to Ingram Industries......... (20,000) Minority interest investment.............. 2,400 -------- -------- -------- -------- -------- Cash provided (used) by financing activities........................... 101,433 143,286 298,265 (21,478) (95,097) Effect of exchange rate changes on cash..... 84 354 364 603 (851) -------- -------- -------- -------- -------- Increase (decrease) in cash................. 19,116 13,978 (1,453) (31,373) (11,744) Cash, beginning of year..................... 25,275 44,391 58,369 58,369 56,916 -------- -------- -------- -------- -------- Cash, end of period or year................. $ 44,391 $ 58,369 $ 56,916 $ 26,996 $ 45,172 ======== ======== ======== ======== ======== Supplementary disclosure of cash flow information: CASH PAYMENTS DURING THE PERIOD: Interest.................................. $ 20,738 $ 32,528 $ 45,164 $ 20,243 $ 28,945 Income taxes.............................. 34,906 47,152 54,506 22,509 37,817 Cash payments include payments made to Ingram Industries for interest and U.S. income taxes
See accompanying notes to these consolidated financial statements. F-6 85 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION Ingram Micro Inc. (the "Company" or "Ingram Micro"), formerly Ingram Micro Holdings Inc. (refer to Note 12), is primarily engaged in wholesale distribution and marketing of microcomputer hardware and software products. The Company conducts the majority of its operations in North America and Europe. The Company is a wholly-owned subsidiary of Ingram Industries Inc. ("Ingram Industries"). In September 1995, Ingram Industries announced its intention to reorganize into three separate companies in a tax-free reorganization. As part of the reorganization, Ingram Industries will split-off the Company. The plan of reorganization is subject to, among other things, receipt of a satisfactory tax ruling from the Internal Revenue Service. The plan contemplates that certain of the Ingram Industries shareholders will exchange all or some of their shares of Ingram Industries for the outstanding shares of the Company held by Ingram Industries. The reorganization and exchange are referred to herein as the "Split-Off." The accompanying consolidated financial statements have been prepared as if the Company had operated as an independent stand alone entity for all periods presented except the Company generally has not had significant borrowings in North America other than amounts due Ingram Industries. Refer to Notes 6 and 10 regarding related party transactions. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The Company's significant accounting policies which conform to generally accepted accounting principles applied on a consistent basis between years, are described below: Basis of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Fiscal Year The fiscal year of the Company is a 52 or 53 week period ending on the Saturday nearest to December 31. All references herein to "1993," "1994" and "1995" represent the 52 week fiscal years ended January 1, 1994, December 31, 1994 and December 30, 1995, respectively. Accounting Estimates 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 at the date of the financial statements, disclosure of contingent liabilities at financial statement date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash Outstanding checks of $119,627 in 1994 and $72,868 in 1995 are included in accounts payable. Revenue Recognition Revenue is recognized at the time of product shipment. The Company, under specified conditions, permits its customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition of revenue. F-7 86 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Vendor Programs Funds received from vendors for price protection, product rebates, marketing or training programs are recorded net of direct costs as adjustments to product costs, reduction of selling, general and administrative expenses or revenue according to the nature of the program. The Company does not provide warranty coverage of its product sales. However, to maintain customer relations, the Company facilitates domestic vendor warranty policies by accepting for exchange, with the Company's prior approval, most defective products within 90 days of invoicing. Defective products received by the Company are subsequently returned to the vendor for credit or replacement. The Company generated approximately 17% of its sales in fiscal 1993, 18% in 1994 and 23% in 1995 from products purchased from two vendors. Inventories Inventories are stated at the lower of average cost or market. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life: Leasehold improvements....................................... 3-12 years Distribution equipment....................................... 5-7 years Computer equipment........................................... 2-5 years

Maintenance, repairs and minor renewals are charged to expense as incurred. Additions, major renewals and betterments to property and equipment are capitalized. Realization of carrying value is assessed periodically. Goodwill Goodwill is amortized on a straight-line basis over periods ranging from five to twenty years. Accumulated amortization was $9,846 at December 31, 1994 and $13,576 at December 30, 1995. The Company evaluates the recoverability of goodwill and reviews the amortization periods on an annual basis. Recoverability is measured on the basis of anticipated undiscounted cash flows from operations. At December 31, 1994 and December 30, 1995, no impairment was indicated. Income Taxes The temporary differences between the financial reporting basis and the income tax basis of the Company's assets and liabilities are provided in accordance with Statement of Financial Accounting Standards No. 109. Foreign Currency Translation Financial statements of foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for results of foreign operations. Translation adjustments are recorded as a separate component of stockholder's equity when the local currency is the functional currency. Translation adjustments are recorded in income F-8 87 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) when the U.S. dollar is the functional currency. The U.S. dollar is the functional currency for the Company's subsidiaries in Mexico and Singapore. Financial Instruments The carrying amounts of cash, accounts receivable, accounts payable and other accrued expenses approximate fair value because of the short maturity of these items. The carrying amounts of intercompany payables and debt issued pursuant to bank credit agreements approximate fair value because interest rates on these instruments approximate current market interest rates. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable and derivative financial instruments. Credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across geographic areas. The Company sells its products primarily in the United States, Europe, Canada and Mexico. The Company performs ongoing credit evaluations of its customers' financial condition, utilizes flooring arrangements with third party financing companies, obtains credit insurance in certain locations and requires collateral in certain circumstances. The Company maintains an allowance for potential credit losses. Derivative Financial Instruments The Company operates internationally with distribution facilities in various locations around the world. The Company uses derivative financial instruments to reduce its exposure to fluctuations in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items being hedged. The majority of the Company's derivative financial instruments have terms of 90 days or less. The Company currently does not use derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives. Derivative financial instruments are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related asset or liability being hedged. Gains and losses resulting from effective hedges of existing assets, liabilities or firm commitments are deferred and recognized when the offsetting gain and losses are recognized on the related hedged items. Written foreign currency options are used to mitigate currency risk in conjunction with purchased options. Gains or losses on written foreign currency options are adjusted to market value at the end of each accounting period and have not been material to date. The notional amount of forward exchange contracts and options is the amount of foreign currency bought or sold at maturity. The notional amount of currency interest rate swaps is the underlying principal and currency amounts used in determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of the Company's involvement in the various types and uses of derivative financial instruments and are not a measure of the Company's exposure to credit or market risks through its use of derivatives. The estimated fair value of derivative financial instruments represents the amount required to enter into like off-setting contracts with similar remaining maturities based on quoted market prices. Credit exposure is limited to the amounts, if any, by which the counterparties' obligations under the contracts exceed the obligations of the Company to the counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions and other contract provisions. F-9 88 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Derivative financial instruments comprise the following:
1994 1995 ----------------------- ----------------------- NOTIONAL ESTIMATED NOTIONAL ESTIMATED AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE -------- ---------- -------- ---------- Foreign exchange forward contracts....... $ 44,586 $ (384) $109,218 $ (1,971) Purchased foreign currency options....... 55,979 699 75,928 485 Written foreign currency options ........ 77,298 (25) 121,183 (615) Currency interest rate swaps............. 9,823 (543) 25,655 (1,056)
Employee Benefits The Company participates in Ingram Industries' defined contribution plan covering substantially all U.S. employees. The plan permits eligible employees to make contributions up to certain limits and receive employer matching at stipulated percentages. The Company's contributions charged to expense were $716 in fiscal 1993, $764 in 1994 and $1,399 in 1995. As a result of the Split-Off described in Note 1, the Company will establish its own employee benefit plans. Earnings Per Share Historical earnings per share data reflects the Company's capital structure as a result of the formation of the Delaware corporation in preparation for the Split-Off described in Notes 1 and 12. Earnings per share is determined based on the number of shares the Company is expected to have after the Split-Off (107,251,352) in addition to all dilutive common stock and common stock equivalent shares issued within 12 months of the public offering. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins and Staff policy, such shares are treated as if they were outstanding for all periods presented using the treasury stock method (13,302,151). The number of common shares used to compute the earnings per share amounts for each of the three fiscal years in the period ended December 30, 1995 and the twenty-six weeks ended July 1, 1995 and June 29, 1996 was 120,553,503. Supplementary Earnings Per Share Supplementary per share data (unaudited) is presented to give effect to the repayment of certain indebtedness assumed by the Company in satisfaction of amounts due to Ingram Industries. Net income is adjusted by $13,378 and $6,225 for 1995 and the twenty-six weeks ended June 29, 1996, respectively, to reflect the reduction in interest expense (net of tax) related to the indebtedness assumed by the Company. The weighted average shares outstanding used to calculate supplementary pro forma earnings per share are based on weighted average shares outstanding at December 30, 1995 and June 29, 1996, respectively, as adjusted for 20,000,000 shares of Class A Common Stock being sold in the offering and 2,510,400 shares of Class B Common Stock sold in the Employee Offering (see Note 12) to repay certain indebtedness of the Company. Unaudited supplementary pro forma earnings per share for the fiscal periods ended December 30, 1995 and June 29, 1996 is $0.69 and $0.40, respectively. F-10 89 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Interim Financial Information The accompanying interim financial statements have been prepared without audit, and certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures herein are adequate to make information presented not misleading. These statements should be read in conjunction with the Company's financial statements for the year ended December 30, 1995. The results of operations for the three month period is not necessarily indicative of results for the full year. In the opinion of management, the accompanying interim financial statements contain all adjustments of a normal and recurring nature necessary for a fair presentation of the Company's financial position as of June 29, 1996, its results of operations for the twenty-six weeks ended July 1, 1995 and June 29, 1996, and its cash flows for the twenty-six weeks ended July 1, 1995 and June 29, 1996. NOTE 3 -- ACQUISITIONS The Company acquired 70% of the stock of Distribuidora de Computo, S.A. de C.V. ("Dicom"), in January 1993, for $9,327 cash and amounts payable to the sellers of $2,475. Dicom is located in Mexico and is engaged in wholesale distribution. The assets acquired were $32,383 and liabilities assumed were $21,468. The Company also acquired four separate wholesale distributors in Germany, the United Kingdom, Belgium and the Netherlands in 1993. The combined consideration for the assets or common stock purchased was $12,120 cash and $2,364 of notes payable to sellers. The acquired companies had assets of $10,810 and liabilities of $80. In April and August 1994, the Company acquired two separate wholesale distributors (Keylan S.A. and Datateam Sverige AB) with operations in Spain, Sweden, Denmark and Norway. The combined consideration paid was $15,088 cash and $5,279 of notes payable to the sellers. The acquired companies had assets of $48,748 and liabilities of $35,034. The acquisitions described above have been accounted for using the purchase method of accounting. The purchase price has been allocated to the assets purchased and liabilities assumed based on fair values at the date of acquisition. The excess of the purchase price over fair value of net assets acquired in 1993 was $7,916 and in 1994 was $6,653 and was recorded as goodwill. The operating results of these acquired businesses have been included in the consolidated statement of income from the date of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not significant. NOTE 4 -- ACCOUNTS RECEIVABLE Effective February 1993, the Company entered into an arrangement with Ingram Industries whereby the Company sells all of its domestic trade accounts receivable to Ingram Industries on an ongoing basis ($665,325 at December 30, 1995). Ingram Industries transfers certain trade accounts receivable from the Company and other Ingram Industries affiliates to a trust which sells certificates representing undivided interests in the total pool of trade receivables without recourse. Ingram Industries' arrangement with the trust extends to December 31, 1997 and renews biannually under an evergreen provision up to a maximum term of twenty years. At December 31, 1994 and December 30, 1995, the accounts receivable and due to Ingram Industries amounts in the Company's consolidated balance sheet have not been reduced to reflect the sale of such receivables. As a result of the Split-Off described in Note 1, it is anticipated that Ingram Industries' accounts receivable securitization agreement will be assumed by the Company. F-11 90 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5 -- PROPERTY AND EQUIPMENT Property and equipment consists of the following:
FISCAL PERIOD END --------------------- JUNE 29, 1994 1995 1996 -------- -------- --------- (UNAUDITED) Land............................................... $ 2,274 $ 2,359 $ 7,290 Leasehold improvements............................. 17,448 26,381 34,285 Distribution equipment............................. 39,814 62,462 71,031 Computer equipment................................. 40,579 59,161 69,384 ------- ------- ------- 100,115 150,363 181,990 Accumulated depreciation........................... (41,830) (61,237) (74,815) ------- ------- ------- $ 58,285 $ 89,126 $ 107,175 ======= ======= =======
Depreciation expense was $10,927 in fiscal 1993, $15,756 in 1994 and $21,785 in 1995. NOTE 6 -- LONG-TERM DEBT AND DUE TO INGRAM INDUSTRIES Ingram Industries manages most treasury activities, including the arrangement of short-term and long-term financing on a centralized, consolidated basis. Using a centralized cash management system, the Company's domestic cash receipts are remitted to Ingram Industries and domestic cash disbursements are funded by Ingram Industries on a daily basis. The Company's historical financial statements reflect funding provided by Ingram Industries to the Company, and net cash used by the Company, as amounts due to Ingram Industries. At December 31, 1994 and December 30, 1995, amounts due to Ingram Industries are classified as long-term due to the terms of the underlying debt at Ingram Industries. Ingram Industries charges the Company interest expense on the outstanding intercompany balance based on Ingram Industries' domestic weighted average cost of funds. The average rate was 6.93% in fiscal 1993, 6.99% in 1994 and 7.38% in 1995. The Company and other Ingram Industries affiliates participate in Ingram Industries' unsecured revolving credit agreement with a syndicate of banks. Under this agreement, Ingram Industries and its affiliates may borrow in various currencies up to $380,000 at various money market and bid rates. The weighted average borrowing rate was 6.84% at December 31, 1994 and 7.00% at December 30, 1995. The agreement extends to December 31, 1999, and is renewable for an additional two year period during the year prior to expiration. The agreement is guaranteed by certain subsidiaries of the Company and other Ingram Industries affiliates. At December 30, 1995, outstanding aggregate borrowings were $229,716, of which $167,176 is specifically related to amounts drawn by the Company's subsidiaries. The Company's subsidiaries outside the United States have lines of credit and short-term overdraft facilities aggregating $93,527 various banks worldwide. Most of these arrangements are reviewed periodically for renewal. At December 30, 1995, the Company had $5,782 outstanding under these facilities. In addition to the guarantee described above, the Company has guaranteed certain other borrowings of Ingram Industries totaling $328,572. Included within this amount are (i) amounts outstanding on an unsecured temporary revolving credit facility that provides for borrowings up to $200,000 at specified variable rates and expires on the earlier of December 31, 1996 or five days after the successful completion of an initial public offering and (ii) $192,900 of fixed maturity, privately placed debt with maturities from November 1, 1996 to November 1, 2002. As a result of the Split-Off described in Notes 1 and 12, it is anticipated that F-12 91 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) certain of the debt facilities guaranteed will be assumed by the Company in satisfaction of the amounts payable to Ingram Industries. Under the most restrictive provisions of the loan agreements, Ingram Industries is required to maintain certain levels of stockholders' equity, a certain current ratio and a certain debt to capital ratio and is subject to certain dividend restrictions. During 1994 and 1995, Ingram Industries was in compliance with the provisions of these agreements. Long-term debt consists of the following:
FISCAL PERIOD END --------------------- JUNE 29, 1994 1995 1996 -------- -------- -------- (UNAUDITED) Revolving credit facility.......................... $ 87,568 $167,176 $192,717 Overdraft facilities............................... 10,724 5,782 10,476 Other.............................................. 4,636 3,798 4,741 -------- -------- -------- 102,928 176,756 207,934 Less current maturities of long-term debt.......... (10,724) (6,332) (12,044) -------- -------- -------- $ 92,204 $170,424 $195,890 ======== ======== ========
Annual maturities of long-term debt as of December 30, 1995 are as follows: 1996.............................................................. $ 6,332 1997.............................................................. 364 1998.............................................................. 388 1999.............................................................. 167,566 2000 and thereafter............................................... 2,106 -------- $176,756 ========

NOTE 7 -- INCOME TAXES The components of income before taxes and minority interest consist of the following:
FISCAL YEAR --------------------------------- 1993 1994 1995 ------- -------- -------- United States....................................... $85,044 $ 99,701 $124,277 Foreign............................................. (2,189) 1,004 10,339 ------- -------- -------- Total..................................... $82,855 $100,705 $134,616 ======= ======== ========
F-13 92 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The provision for income taxes consists of the following:
FISCAL YEAR ------------------------------- 1993 1994 1995 ------- ------- ------- Current: Federal............................................. $30,268 $35,989 $44,615 State............................................... 4,721 4,060 9,544 Foreign............................................. 2,390 4,223 7,616 ------- ------- ------- 37,379 44,272 61,775 Deferred: Federal............................................. (1,929) (2,472) (4,082) State............................................... (198) 136 (949) Foreign............................................. (3,592) (2,332) (3,601) ------- ------- ------- (5,719) (4,668) (8,632) ------- ------- ------- Total income tax provision............................ $31,660 $39,604 $53,143 ======= ======= =======
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
FISCAL PERIOD END ------------------------------- 1993 1994 1995 ------- ------- ------- Deferred tax assets: Tax in excess of book basis of foreign operations... $ 9,837 $13,816 $19,511 Accruals not currently deductible................... 7,840 9,275 12,734 Inventories......................................... 2,724 3,538 5,876 Other............................................... 293 263 492 ------- ------- ------- Total....................................... $20,694 $26,892 $38,613 ======= ======= ======= Deferred tax liabilities: Depreciation........................................ $ 1,324 $ 958 $ 1,564 ======= ======= =======
Current deferred tax assets of $15,130 and $19,307 are included in other current assets at December 31, 1994 and December 30, 1995, respectively. Non-current deferred tax assets of $11,762 and $19,306 are included in other assets at December 31, 1994 and December 30, 1995, respectively. Reconciliation of the statutory U.S. federal income tax rate to the Company's effective rate is as follows:
FISCAL YEAR ---------------------- 1993 1994 1995 ---- ---- ---- U.S. statutory rate............................................ 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit.......... 3.3 2.8 3.9 Other.......................................................... (.1) 1.5 .6 ---- ---- ---- - - - Effective tax rate............................................. 38.2% 39.3% 39.5% ===== ===== =====
The Company is included in the consolidated federal income tax return filed by Ingram Industries. Taxes related to the Company are determined on a separate entity basis and taxes payable are remitted to Ingram F-14 93 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Industries every two months. Taxes payable to Ingram Industries of $4,089 at December 31, 1994 and $14,303 at December 30, 1995 are included in accrued expenses in the consolidated balance sheet. At December 30, 1995, the Company had foreign net operating tax loss carryforwards of $49,264 of which approximately one third have no expiration date. The Company does not provide for U.S. federal income taxes on undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. NOTE 8 -- COMMITMENTS AND CONTINGENCIES There are various claims, lawsuits and pending actions against the Company incident to the Company's operations. It is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company's financial position or results of operations. The Company has arrangements with certain finance companies which provide accounts receivable and inventory financing facilities for its customers. The Company assesses the financial stability of the finance companies and payment terms are within 3 to 30 days of product shipment. In conjunction with certain of these arrangements, the Company has inventory repurchase agreements with the finance companies that would require it to repurchase certain inventory which might be repossessed from the customers by the finance companies. Such repurchases have been insignificant to date. The Company leases the majority of its facilities and certain equipment under noncancelable operating leases. Renewal and purchase options at fair values exist for a substantial portion of the leases. Rental expense for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 was $11,939, $16,574 and $28,367, respectively. Future minimum rental commitments on operating leases that have remaining noncancelable lease terms in excess of one year as of December 30, 1995 are as follows: 1996............................................................... $21,507 1997............................................................... 18,614 1998............................................................... 16,693 1999............................................................... 14,912 2000............................................................... 9,912 Later years........................................................ 54,104

F-15 94 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9 -- SEGMENT INFORMATION The Company operates predominantly in a single industry segment as a wholesale distributor of microcomputer hardware and software. Geographic areas in which the Company operates include the United States (United States and the majority of the Company's exports), Europe (Belgium, Denmark, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom) and Other (Canada, Mexico and Singapore). Transfers between geographic areas primarily represent intercompany sales and are accounted for based on established sales prices between the related companies. Net sales, income (loss) from operations and identifiable assets by geographic area are as follows:
FISCAL YEAR ------------------------------------ 1993 1994 1995 ---------- ---------- ---------- NET SALES: United States: Sales to unaffiliated customers............... $3,118,316 $4,122,338 $5,969,749 Transfers between geographic areas............ 60,358 76,696 86,961 Europe........................................... 485,126 1,078,250 1,849,129 Other............................................ 440,727 629,611 797,989 Eliminations..................................... (60,358) (76,696) (86,961) ---------- ---------- ---------- Total.................................... $4,044,169 $5,830,199 $8,616,867 ========== ========== ========== INCOME (LOSS) FROM OPERATIONS: United States.................................... $ 98,669 $ 123,796 $ 156,749 Europe........................................... (3,246) 8,079 19,576 Other............................................ 7,605 8,415 10,556 ---------- ---------- ---------- Total.................................... $ 103,028 $ 140,290 $ 186,881 ========== ========== ========== IDENTIFIABLE ASSETS: United States.................................... $ 945,699 $1,381,798 $1,996,642 Europe........................................... 190,892 393,346 669,309 Other............................................ 159,772 199,145 274,947 ---------- ---------- ---------- Total.................................... $1,296,363 $1,974,289 $2,940,898 ========== ========== ==========
No single customer accounts for 10% or more of the Company's net sales. NOTE 10 -- TRANSACTIONS WITH RELATED PARTIES Ingram Industries provides certain corporate, general and administrative services to the Company in addition to treasury activities described in Note 6 (including, but not limited to, legal, tax, employee benefits and electronic data processing services). Charges for these services are based upon utilization and at amounts which management believes are less than the amounts which the Company would incur as a stand-alone entity. Such amounts are reflected as charges allocated from Ingram Industries on the consolidated statement of income. Ingram Industries also provides guarantees to certain of the Company's vendors and for certain of the Company's leases; no charges from Ingram Industries have been reflected in the Company's financial statements for such guarantees. The Company leases warehouse and office space from certain shareholders of Ingram Industries. Total rental payments were $729 in fiscal 1993, $784 in 1994 and $1,645 in 1995. F-16 95 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Other transactions with Ingram Industries affiliates includes sales of $1,664 in fiscal 1993, $3,056 in 1994 and $5,281 in 1995. NOTE 11 -- STOCK OPTIONS AND INCENTIVE PLANS Certain of the Company's employees participate in Ingram Industries' qualified and non-qualified stock option and SAR plans. Ingram Industries' plans provide for the grant of options and SARs at fair value. In conjunction with the Split-Off, Ingram Industries options held by the Company's employees and certain other Ingram Industries options and SARs will be converted to Ingram Micro options ("Rollover Stock Options") to purchase Class A Common Stock. Upon conversion, approximately 11,000,000 Rollover Stock Options will be outstanding. The Rollover Stock Options have exercise prices ranging from $0.66 to $3.32 per share, the majority will be fully vested by the year 2000 and no such options expire later than 10 years from the date of grant. The Company recorded a non-cash compensation charge of approximately $7,802 or $4,760 net of tax, in the first half of 1996 related to the vested portion of certain Rollover Stock Options. This charge was based on the difference between the estimated fair value of such options in the first quarter of 1996 and the exercise price of such options. The Company will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123") in 1996. As permitted by FAS 123, the Company will continue to measure compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Therefore, the adoption of FAS 123 will have no impact on the Company's financial condition or results of operations. The Company has two Incentive Stock Unit ("ISU") plans available to grant up to 1,575,000 ISUs to certain key employees. Subject to continued employment, these stock appreciation awards vest over five years and actual cash payout is based on the increase in book value from date of award grant. Outstanding ISUs at January 1, 1994, December 31, 1994 and December 30, 1995 were 748,200, 221,000 and 25,100, respectively. The amounts charged to expense related to these incentive stock unit plans totaled $3,354 in fiscal 1993, $2,163 in 1994 and $695 in 1995. There were no grants made under the ISU plans in 1995. The Company will establish its separate stock option and incentive plans in conjunction with the Split-Off. Refer to Note 12. NOTE 12 -- SUBSEQUENT EVENTS Formation of Ingram Micro Inc. On April 29, 1996, a Delaware corporation, Ingram Micro Inc., was formed to hold all of the outstanding stock of Ingram Micro Holdings Inc. ("Holdings"). It is the Company's plan to merge with and into such Delaware corporation prior to the effective date of a registration statement on Form S-1 filed with the Securities and Exchange Commission. The proposed merger will not impact the Company's financial statements, as the Company's historical financial statements reflect the capital structure described herein. Ingram Micro Inc., a Delaware corporation, has two classes of common stock consisting of 265,000,000 shares of $0.01 par value Class A Common Stock, 135,000,000 shares of $0.01 par value Class B Common Stock and 1,000,000 shares of $0.01 par value Preferred Stock. Class A stockholders are entitled to one vote on each matter to be voted on by the shareholders whereas the Class B stockholders are entitled to ten votes on each matter to be voted on by the shareholders. The two classes of stock have similar rights in all other respects. Each share of Class B Common Stock may at any time be converted to a share of Class A Common Stock; however, conversion will occur automatically on the earliest to occur of (i) the fifth anniversary of the consummation of the Split-Off pursuant to the Exchange Agreement; (ii) the sale of such share of Class B Common Stock to any person not provided for under the provisions of the Board Representation Agreement; F-17 96 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) or (iii) the date on which the number of shares of Class B Common Stock then outstanding represents less than 25% of the aggregate number of shares of Class A Common Stock and Class B Common Stock then outstanding. After the finalization of the capital structure resulting from the formation of the Delaware corporation, the Company will have 107,251,352 shares of Class B Common Stock outstanding. Key Employee Stock Purchase Plan As of April 30, 1996, the Company adopted the Key Employee Stock Purchase Plan (the "Plan") which provides for the issuance of up to 4,000,000 shares of Class B Common Stock to certain employees. In June 1996, the Company offered 2,775,000 shares of its Class B Common Stock to certain employees pursuant to the Plan, and subsequently sold 2,510,400 shares with net proceeds of approximately $17,173. The shares sold thereby are subject to vesting and certain restrictions on transfer, may be redeemable prior to vesting and are subject to repurchase by the Company upon termination of employment. In addition, the Company granted, pursuant to this Plan, 107,000 restricted shares of Class B Common Stock to certain officers and employees of the Company. These shares are subject to vesting. Prior to vesting, these restricted grant shares are subject to forfeiture to the Company without consideration. 1996 Equity Incentive Plan As of April 30, 1996, the Company adopted the 1996 Equity Incentive Plan and Ingram Industries approved the grant of options under this plan. In June 1996, the Company issued options at $7.00 per share to purchase an aggregate of approximately 4,800,000 shares of Class B Common Stock under its Equity Incentive Plan to all eligible employees of the Company. These options vest and generally become exercisable over five years from the issue date and expire eight years after the issue date. Split-Off, Reorganization and Exchange The Company plans to engage in a Split-Off, consisting of a Reorganization and an Exchange, from Ingram Industries and Ingram Entertainment. Pursuant to the Reorganization Agreement it is contemplated that the Company will retain all of the assets and liabilities associated with the Company's business and will indemnify Ingram Industries and Ingram Entertainment for all liabilities related to the Company's business and operations or otherwise assigned to the Company. In addition the Reorganization Agreement provides for the sharing by the Company of approximately 73% of certain contingent assets and liabilities not allocated to one of the parties. The Company will assume a portion of Ingram Industries' debt in return for the extinguishment of intercompany indebtedness. The debt to be assumed by the Company includes (i) an accounts receivable securitization program which will be transferred to the Company subsequent to the Split-Off; and (ii) $192,900 of privately placed term debt. The Company will also enter into a $1 billion Credit Facility. In connection with the Reorganization Agreement, the Company is expected to enter into an employee benefits transfer and assumption agreement with Ingram Industries and Ingram Entertainment which will provide for the allocation of employee benefit assets and liabilities on a pro rata basis to each of the parties of the Split-Off. It is also contemplated that the Company will enter into a Tax Sharing Agreement. This Agreement will hold the Company liable for its allocable share of the consolidated federal and state income tax liability for the year that includes the Split-Off and approximately 73% of any adjustment in excess of reserves already established by Ingram Industries for past federal or state tax liabilities of the Company, Ingram Industries or Ingram Entertainment. In addition, the Company will share in any refunds received. The Company will also enter into Transitional Service Agreements related to certain administration services including data processing. F-18 97 INGRAM MICRO INC. (A WHOLLY-OWNED SUBSIDIARY OF INGRAM INDUSTRIES INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) In conjunction with the Reorganization, the Company will consummate an Exchange pursuant to which the existing shareholders of Ingram Industries may exchange all or a portion of their shares of Ingram Industries common stock for shares of Class B Common Stock of the Company and/or common stock of Entertainment of equivalent value. If all stockholders were to exchange all eligible shares, they would receive 107,251,352 shares of Class B Common Stock. Pursuant to a Transfer Restrictions Agreement, the shares of Class B Common Stock received by employees of the Company, Ingram Industries or Ingram Entertainment in the Exchange are expected to be subject to repurchase by the Company upon termination of employment. The repurchase feature lapses upon consummation of an initial public offering. F-19 98 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] PROSPECTUS (Subject to Completion) Issued August 27, 1996 20,000,000 Shares LOGO CLASS A COMMON STOCK --------------------------- OF THE 20,000,000 SHARES OF CLASS A COMMON STOCK (THE "COMMON STOCK") OFFERED HEREBY, 4,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS, AND 16,000,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." UP TO 2,000,000 OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING RESERVED FOR SALE TO CERTAIN INDIVIDUALS. SEE "EMPLOYEE AND PRIORITY OFFERS." ALL SUCH SHARES ARE BEING OFFERED ON THE SAME TERMS AND CONDITIONS AS THE SHARES BEING OFFERED TO THE PUBLIC GENERALLY, AND ANY PURCHASERS OF SUCH SHARES WHO ARE AFFILIATES OF THE COMPANY WILL REPRESENT THAT ANY PURCHASES ARE BEING MADE FOR INVESTMENT PURPOSES ONLY. ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING ISSUED AND SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK, THE COMMON STOCK OFFERED HEREBY AND THE CLASS B COMMON STOCK (THE "CLASS B COMMON STOCK," AND COLLECTIVELY WITH THE COMMON STOCK, THE "COMMON EQUITY"). THE RIGHTS OF HOLDERS OF COMMON STOCK AND CLASS B COMMON STOCK ARE IDENTICAL EXCEPT FOR VOTING AND CONVERSION RIGHTS AND RESTRICTIONS ON TRANSFERABILITY. HOLDERS OF THE COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF THE CLASS B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE ON MOST MATTERS SUBJECT TO STOCKHOLDER VOTE. UPON THE CLOSING OF THIS OFFERING, THE INGRAM FAMILY STOCKHOLDERS (AS DEFINED HEREIN) WILL HAVE APPROXIMATELY 80.7% OF THE COMBINED VOTING POWER OF THE COMMON EQUITY (80.5% IF THE U.S. UNDERWRITERS EXERCISE THEIR OVER-ALLOTMENT OPTION IN FULL). APPLICATION HAS BEEN MADE FOR THE COMMON STOCK TO BE LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "IM." --------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH THIS OFFERING. --------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------------- PRICE $ A SHARE ---------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) -------- -------------- ----------- ~~Per Share.............................. $ $ $ Total(3)............................... $ $ $~~
- --------------- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) Before deducting expenses payable by the Company estimated at $1,200,000. (3) The Company has granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 3,000,000 additional Shares at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." --------------------------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996 at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. --------------------------- MORGAN STANLEY & CO. International THE ROBINSON-HUMPHREY COMPANY, INC. ALEX. BROWN & SONS INTERNATIONAL HAMBRECHT & QUIST J.C. BRADFORD & CO. , 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 99 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. An itemized statement of the estimated amount of the expenses, other than underwriting discounts and commissions, incurred and to be incurred in connection with the issuance and distribution of the securities registered pursuant to this Registration Statement is as follows: Securities and Exchange Commission registration fee.............. $ 111,034 NYSE listing fee................................................. * NASD filing fee.................................................. 30,500 Printing and engraving expenses.................................. * Accounting fees and expenses..................................... * Legal fees and expenses.......................................... * Transfer Agent fees and expenses................................. * Blue Sky fees and expenses and legal fees........................ * Miscellaneous.................................................... * -------- Total.................................................. $1,200,000 ========

- --------------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in effect, that any person made a party to any action by reason of the fact that he is or was a director, officer, employee or agent of the Company may and, in certain cases, must be indemnified by the Company against, in the case of a non- derivative action, judgments, fines, amounts paid in settlement and reasonable expenses (including attorneys' fees) incurred by him as a result of such action, and in the case of a derivative action, against expenses (including attorneys' fees), if in either type of action he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. This indemnification does not apply, in a derivative action, to matters as to which it is adjudged that the director, officer, employee or agent is liable to the Company, unless upon court order it is determined that, despite such adjudication of liability, but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for expenses, and, in a non-derivative action, to any criminal proceeding in which such person had reasonable cause to believe his conduct was unlawful. Section 102 of the DGCL allows the Company to eliminate or limit the personal liability of a director to the Company or to any of its stockholders for monetary damage for a breach of fiduciary duty as a director, except in the case where the director (i) breaches such person's duty of loyalty to the Company or its stockholders, (ii) fails to act in good faith, engages in intentional misconduct or knowingly violates a law, (iii) authorizes the payment of a dividend or approves a stock purchase or redemption in violation of Section 174 of the DGCL or (iv) obtains an improper personal benefit. Article Tenth of the Company's Certificate of Incorporation includes a provision which eliminates directors' personal liability to the fullest extent permitted under the Delaware General Corporation Law. Article Tenth of the Company's Certificate of Incorporation provides that the Company shall indemnify any person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Company or is or was serving at the request of the Company as a director or officer of another II-1 100 corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by Delaware Law. Each such indemnified party shall have the right to be paid by the Company for any expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. Article Tenth of the Company's Certificate of Incorporation also provides that the Company may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Company to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law. Reference is made to the underwriting agreement to be filed as an Exhibit hereto, pursuant to which the Underwriters will agree to indemnify officers and directors of the Company against certain liabilities under the Securities Act. As permitted by Delaware Law and the Company's Certificate of Incorporation, the Company maintains insurance covering its directors and officers against certain liabilities incurred by them in their capacities as such, including among other things, certain liabilities under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the second quarter of 1996, the Company offered 2,775,000 shares of its Class B Common Stock to certain of its employees, of which 2,510,400 shares were purchased for $17.6 million. The shares were issued without registration under the Securities Act in reliance upon the exemptions from registration afforded by Section 4(2) of the Securities Act, and Regulation D and Regulation S promulgated under the Securities Act. All such shares were issued pursuant to the Company's Key Employee Stock Purchase Plan and are subject to certain restrictions. Reference is made to "Management -- Rollover Plan" and "The Split-Off -- The Exchange" regarding shares, and options exercisable for shares, of the Company's Common Equity, to be issued in connection with the Exchange, the purchasers thereof and the consideration therefor. Such issuances will occur without registration under the Securities Act in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act. II-2 101 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) LIST OF EXHIBITS. 1.01 -- Form of Underwriting Agreement* 3.01 -- Form of Certificate of Incorporation of the Registrant+ 3.02 -- Form of Bylaws of the Registrant+ 3.03 -- Form of Amended Bylaws of the Registrant* 4.01 -- Specimen Certificate for the Class A Common Stock, par value $0.01 per share, of the Registrant* 5.01 -- Opinion of Davis Polk & Wardwell* 10.01 -- Ingram Micro Inc. Executive Incentive Bonus Plan 10.02 -- Ingram Micro Inc. Management Incentive Bonus Plan 10.03 -- Ingram Micro Inc. General Employee Incentive Bonus Plan 10.04 -- Agreement dated as of December 21, 1994 between the Company and Jeffrey R. Rodek 10.05 -- Agreement dated as of April 25, 1988 between the Company and Sanat K. Dutta 10.06 -- Agreements dated as of April 14, 1992 and April 15, 1992 between the Company and John Wm. Winkelhaus, II 10.07 -- Ingram Micro Inc. Rollover Stock Option Plan 10.08 -- Ingram Micro Inc. Key Employee Stock Purchase Plan+ 10.09 -- Ingram Micro Inc. 1996 Equity Incentive Plan+ 10.10 -- Ingram Micro Inc. Amended 1996 Equity Incentive Plan* 10.11 -- Severance Agreement dated as of June 1, 1996 among the Company, Ingram Industries, Linwood A. Lacy, Jr., and NationsBank, N.A., as trustee of the Linwood A. Lacy, Jr. 1996 Irrevocable Trust dated February 1996 10.12 -- Credit Facility* 10.13 -- Form of Reorganization Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.14 -- Form of Registration Rights Agreement dated as of [ ], 1996 among the Company and the persons listed on the signature pages thereof* 10.15 -- Form of Board Representation Agreement* 10.16 -- Form of Thrift Plan Liquidity Agreement dated as of [ ], 1996 among the Company and the Ingram Thrift Plan* 10.17 -- Form of Tax Sharing and Tax Services Agreement dated , 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.18 -- Form of Master Services Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.19 -- Form of Employee Benefits Transfer and Assumption Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.20 -- Form of Data Center Services Agreement dated as of [ ], 1996 among the Company, Ingram Book Company, and Ingram Entertainment Inc.* 21.01 -- Subsidiaries of the Registrant 23.01 -- Consent of Price Waterhouse LLP 23.02 -- Consent of Davis Polk & Wardwell (included in their opinion filed as Exhibit 5.01)* 24.01 -- Powers of Attorney of certain officers and directors of the Registrant+ 27.01 -- Financial Data Schedule (EDGAR version only)

- --------------- * To be filed by amendment. + Previously filed. II-3 102 (b) FINANCIAL STATEMENT SCHEDULES See Schedule II on page S-1. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or the information is contained in the Consolidated Financial Statements and related notes and therefore have been omitted. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that: (1) It will provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (2) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (3) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (4) For the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 103 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Ingram Micro Inc. has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana, State of California, on this 26th day of August, 1996. INGRAM MICRO INC. By: /s/ MICHAEL J. GRAINGER ------------------------------------ Name: Michael J. Grainger Title: Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------- ----------------------------------- ---------------- * Chairman of the Board of Directors August 26, 1996 ------------------------------------------- Martha R. Ingram * Chief Executive Officer (Principal August 26, 1996 ------------------------------------------- Executive Officer); Director John R. Ingram /s/ MICHAEL J. GRAINGER Chief Financial Officer (Principal August 26, 1996 ------------------------------------------- Financial Officer and Principal Michael J. Grainger Accounting Officer) * President and Chief Operating August 26, 1996 ------------------------------------------- Officer; Director Jeffrey R. Rodek * Vice Chairman; Director August 26, 1996 ------------------------------------------- David R. Dukes * Director August 26, 1996 ------------------------------------------- David B. Ingram * Director August 26, 1996 ------------------------------------------- Philip M. Pfeffer * Pursuant to Power of Attorney previously filed with the Commission. /s/ MICHAEL J. GRAINGER Attorney-in-Fact August 26, 1996 ------------------------------------------- Michael J. Grainger
II-5 104 INGRAM MICRO INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF DESCRIPTION OF YEAR EXPENSES OTHER(*) DEDUCTIONS YEAR - ----------------------------------- ---------- ---------- -------- ---------- --------- Allowance for doubtful accounts receivable and sales returns: 1995............................. $ 25,668 $ 24,168 $ 673 $(19,718) $ 30,791 1994............................. 18,594 20,931 (4) (13,853) 25,668 1993............................. 12,928 17,492 2,343 (14,169) 18,594 Inventory obsolescence: 1995............................. $ 10,706 $ 13,199 $ 207 $(11,867) $ 12,246 1994............................. 9,431 9,410 257 (8,392) 10,706 1993............................. 6,076 6,587 121 (3,353) 9,431
- --------------- * Other includes recoveries, acquisitions and the effect of fluctuations in foreign currency. S-1 105 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NO. - ------- ------------------------------------------------------------------------- ---------- 1.01 -- Form of Underwriting Agreement* 3.01 -- Form of Certificate of Incorporation of the Registrant+ 3.02 -- Form of Bylaws of the Registrant+ 3.03 -- Form of Amended Bylaws of the Registrant* 4.01 -- Specimen Certificate for the Class A Common Stock, par value $0.01 per share, of the Registrant* 5.01 -- Opinion of Davis Polk & Wardwell* 10.01 -- Ingram Micro Inc. Executive Incentive Bonus Plan 10.02 -- Ingram Micro Inc. Management Incentive Bonus Plan 10.03 -- Ingram Micro Inc. General Employee Incentive Bonus Plan 10.04 -- Agreement dated as of December 21, 1994 between the Company and Jeffrey R. Rodek 10.05 -- Agreement dated as of April 25, 1988 between the Company and Sanat K. Dutta 10.06 -- Agreements dated as of April 14, 1992 and April 15, 1992 between the Company and John Wm. Winkelhaus, II 10.07 -- Ingram Micro Inc. Rollover Stock Option Plan 10.08 -- Ingram Micro Inc. Key Employee Stock Purchase Plan+ 10.09 -- Ingram Micro Inc. 1996 Equity Incentive Plan+ 10.10 -- Ingram Micro Inc. Amended 1996 Equity Incentive Plan* 10.11 -- Severance Agreement dated as of June 1, 1996 among the Company, Ingram Industries, Linwood A. Lacy, Jr., and NationsBank, N.A., as trustee of the Linwood A. Lacy, Jr. 1996 Irrevocable Trust dated February 1996 10.12 -- Credit Facility* 10.13 -- Form of Reorganization Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.14 -- Form of Registration Rights Agreement dated as of [ ], 1996 among the Company and the persons listed on the signature pages thereof* 10.15 -- Form of Board Representation Agreement* 10.16 -- Form of Thrift Plan Liquidity Agreement dated as of [ ], 1996 among the Company and the Ingram Thrift Plan* 10.17 -- Form of Tax Sharing and Tax Services Agreement dated , 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.18 -- Form of Master Services Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.19 -- Form of Employee Benefits Transfer and Assumption Agreement dated as of [ ], 1996 among the Company, Ingram Industries, and Ingram Entertainment* 10.20 -- Form of Data Center Services Agreement dated as of [ ], 1996 among the Company, Ingram Book Company, and Ingram Entertainment Inc.* 21.01 -- Subsidiaries of the Registrant 23.01 -- Consent of Price Waterhouse LLP 23.02 -- Consent of Davis Polk & Wardwell (included in their opinion filed as Exhibit 5.01)* 24.01 -- Powers of Attorney of certain officers and directors of the Registrant+ 27.01 -- Financial Data Schedule (EDGAR version only)
- --------------- * To be filed by amendment. + Previously filed.

1 EXHIBIT 10.01 July 17, 1996 Senior Staff Participants Title, Department Ingram Micro Inc. 1600 E. St. Andrew Place Santa Ana, CA 92705 Dear : We are pleased to announce the 1996 Executive Incentive Bonus Plan ("Bonus Plan") for all Officers and Directors, which is outlined in the attached documents and summarized below. SUMMARY OF THE PLAN Bonuses awarded under this program will be determined by three (3) components consisting of (1) Company's performance against Original Plan pre-tax, pre-bonus profit targets, (2) individual performance goals and objectives and (3) Average Daily Borrowing performance against target. Under the Bonus Plan sixty percent (60%) of your eligible incentive bonus award will be automatically calculated based on the pre-tax, pre-bonus (PTPB) profit performance of the following operating unit(s): PTPB PROFIT PERFORMANCE
UNIT WEIGHTING MINIMUM PLAN MAXIMUM ---- --------- ------- ---- ------- U.S. & Alliance 00% $141.5M $164.9M $188.0M Alliance 00% 2.8M 27.4M 37.9M Rest of World 00% 31.6M 39.6M 42.8M Worldwide 00% 181.5M 210.2M 237.5M
The remaining forty percent (40%) will be based on your individual performance against personal goals and objectives, subject to pre-tax, pre-bonus achievement. The Bonus Target amount will be subject to modification based on the performance of Company's borrowing against target and terms and conditions outlined under the "General Provisions" section of the Bonus Plan. BONUS TARGET Your Target Bonus is % of your "base earned salary" which results in a projected Bonus Target amount of $ . Once the minimum pre-tax, pre-bonus threshold is reached, you will be eligible for bonus participation. Upon achieving the pre-tax, pre-bonus, profit performance target and individual performance goals and objectives, you are eligible for 100% of your Target Bonus, subject to borrowing and other considerations. You are eligible to earn up to 150% of the Target Bonus if the Company performs exceptionally well. The earned bonus payout will be paid in early March 1997, and you must be employed at the time of payout to be eligible. Please refer to Attachments A1-A5 for graphic representation. 2 1996 Bonus Plan Letter Page 2 The Target Bonus will be prorated for participants who were hired, promoted, or transferred during the Bonus Plan year or who were absent for more than 30 days after the beginning of the Bonus Plan year. Newly hired Associates must be employed prior to the beginning of the 4th Quarter (October 1, 1996) to be eligible for bonus participation. THE EFFECT OF COMPANY BORROWINGS In addition to profit performance, Ingram Micro's borrowing is a factor for determining bonus awards. If the average daily borrowings for the year are less than Original Plan by 5.0%-14.9%, the Bonus Target will be increased by 5% for each participant. If the average daily borrowings for the year are less than Original Plan by 15% or more, the Bonus Target will be increased by 15% for each participant. If Ingram Micro's average daily borrowings for the year are greater than Original Plan by 5% or more, the Bonus Target for all participants will be reduced by 15%. The effect of borrowings will be calculated separately for US & Alliance, Rest of World and Worldwide, and shall be allocated to each participant based on the same percentage used under PTPB profit performance. As a result, the Available Payout under each will be modified according to borrowings performance in the various sections. AVERAGE DAILY BORROWINGS TARGET PAYOUT TABLE *
U.S. & Alliance Rest of World Worldwide --------------- ------------- --------- (Domestic Borrowing Target) (Dicom, Canada, Europe Targets) (Total Worldwide Target) (000's) (000's) (000's) 1996 Plan = $591,569 $225,708 $813,003 5% More than Plan = $621,147 $236,993 $853,653 5% Less than Plan = $561,990 $214,423 $772,352 15% Less than Plan = $502,833 $191,851 $691,053
*Note: No borrowing modifier will be used to adjust Bonus Awards allocated under the Alliance (only) and Export portions of the Plan. INDIVIDUAL PERFORMANCE GOALS AND OBJECTIVES On an annual basis, "Incentive Bonus Plan Objectives" must be completed for each participant and shall be used as a basis to evaluate individual performance against key objectives. Guidelines for developing objectives are summarized in the attached document. 3 1996 Bonus Plan Letter Page 3 GENERAL PROVISIONS There are certain general provisions of the 1996 Executive Incentive Bonus Plan which are: 1. Bonus Award - At the sole discretion of the Acting Chief Executive Officer, individual bonus awards may be modified plus or minus, based on unusual performance or circumstance relating to the business. 2. Employment - If a participant's employment with the Company ends for any reason before bonuses are paid, the participant will not be eligible for any payment of the bonus. 3. Acquisitions - It is anticipated than Ingram Micro will continue to make acquisitions throughout the Bonus Plan year. To be fair to Bonus participants, any losses or profits resulting from Acquisitions (where financial impact can be separated) will be adjusted from the Original Plan. This includes both the operating results and the interest costs of Ingram Micro Holdings' equity investment in the acquisition. Any interest charges absorbed by an acquisition beyond the direct incremental costs, will be reversed from the adjustment. If an acquisition is made and cannot be reasonably separated financially, the Ingram Micro Board of Directors will use its best efforts to adjust for the acquisition. 4. Tax Changes - The Company may experience U.S. tax changes at the Federal level for both corporate income tax and employer payroll taxes. Since the Bonus Plan is based upon pre-tax, pre-bonus income, Federal tax changes will have little effect. If the financial cost of any change in employer payroll taxes is greater than $1M, then it will be adjusted from the Original Plan. 5. Developmental Projects - Ingram Micro is committed to making a significant investment in several key developmental MIS projects. However, any expense benefit that is gained from projects not completed as budgeted, will be subtracted from pre-tax, pre-bonus calculations. For projects completed as planned, or completed under budget, the corresponding expenses/benefits will be included in the pre-tax, pre-bonus calculations. 6. The Executive Incentive Bonus Plan - The Bonus Plan is maintained at the sole discretion of Ingram Micro Inc. The Board of Directors maintains the right to modify or terminate the Bonus Plan at any time, without prior notification to the Bonus Plan participants. The Board of Directors appreciates your continued support and commitment to the business and financial success of Ingram Micro. Very truly yours, -------------------------------- ----------------------------- Jeffrey R. Rodek David R. Dukes President & COO Worldwide Co-Chairman of the Board 4 INGRAM MICRO INC. EXECUTIVE INCENTIVE BONUS PLAN 1996 PLAN DESCRIPTION 1996 Executive Incentive Bonus Plan ("Bonus Plan") participants will be eligible for an incentive bonus award based on the Company's pre-tax, pre-bonus, Original Plan profit performance against its financial plans and participants' performance against individual goals and objectives, subject to Company's borrowing performance against target. Three (3) components will be used to determine the bonus award consisting of: (1) Sixty percent (60%) of the award will be automatically calculated based on the pre-tax, pre-bonus profit performance of the Company; (2) Forty percent (40%) of the award will be based on each participant's individual performance against personal goals and objectives, subject to pre-tax, pre-bonus achievement; and (3) Ingram Micro's borrowing is a factor for determining bonus awards. SUMMARY OF THE PLAN Bonuses awarded under this program will be determined by three (3) components consisting of (1) Company's performance against Original Plan pre-tax, pre-bonus profit targets, (2) individual performance goals and objectives and (3) Average Daily Borrowing performance against target. Under the Bonus Plan sixty percent (60%) of the participants eligible incentive bonus award will be automatically calculated based on the pre-tax, pre-bonus (PTPB) profit performance of the following operating unit(s): PTPB PROFIT PERFORMANCE
UNIT WEIGHTING MINIMUM PLAN MAXIMUM ---- --------- ------- ---- ------- U.S. & Alliance 00% $141.5M $164.9M $188.0M Alliance 00% 2.8M 27.4M 37.9M Rest of World 00% 31.6M 39.6M 42.8M Worldwide 00% 181.5M 210.2M 237.5M
The remaining forty percent (40%) will be based on individual performance against personal goals and objectives, subject to pre-tax, pre-bonus achievement. The Bonus Target amount will be subject to modification based on the performance of Company's borrowing against target and terms and conditions outlined under the General Provisions section of the Bonus Plan. BONUS TARGET Each participant is assigned a Bonus Target based on a percentage of their base earned salary. Once the minimum pre-tax, pre-bonus profit performance threshold is reached, participants are eligible for bonus participation. Upon achieving the pre-tax, pre-bonus profit performance target and individual performance goals and objectives, participants are eligible for 100% of their Target Bonus award, subject to borrowing and other considerations. Participants are eligible to earn up to 150% of the Target Bonus if the Company performs exceptionally well. Please refer to Attachment A1 - A5 for graphic representation. The Target Bonus will be prorated for participants who were hired, promoted, or transferred during the Bonus Plan year, or who were absent for more than 30 days after the beginning of the Bonus Plan year. Newly hired associates must be employed prior to the beginning of the 4th quarter (October 1, 1996) to be eligible for bonus participation. 5 1996 Executive Incentive Bonus Plan Page 2 BONUS AWARD EXAMPLE Under the Bonus Plan, if a participant earned $75,000 annually and his/her Bonus Target percentage was established at 15%, the Bonus Target Amount would equal $11,250. If 100% of the participant's weighting was based on U.S. & Alliance and U.S. & Alliance achieved 100% of the pre-tax, pre-bonus profit performance, the Bonus Award would be as follows based on achieving 100% of individual goals and objectives: Company's Performance - Pre-tax, Pre-bonus (60%) x $11,250 = $6,750 Individual Performance - Individual Goals & Objective (40%) x $11,250 = $4,500 Bonus Award - Company's performance = $6,750 - Individual's performance = $4,500 -------- TOTAL $11,250

The Target Bonus amount will be subject to modifications based on the performance of Company's borrowing against target and other considerations as outlined under the "General Provisions" section. INDIVIDUAL PERFORMANCE GOALS AND OBJECTIVES GUIDELINES Under the provisions of these bonus plans, annual goals and objectives are required for all participants which are used as a basis for determining the individual bonus award. Guidelines for developing objectives are as follows: 1. There should be between five (5) and six (6) objectives for each participant generally each objective would have two (2) to four (4) specific measurable goals. 2. Each objective should be assigned a percentage weight of not less than 10% and not more than 50%, reflecting its relative importance. The sum of the weightings for all objectives must be 100%. 3. Objectives must be clear and specific and should include clear measurement criteria by which performance will be evaluated. Examples are shown in Attachment A. 6 1996 Executive Incentive Bonus Plan Page 3 4. Total weight of the objectives should be based on the following parameters: IV. 60% of the total weight must be for objectives which relate to "Programs of Innovation." These must be new programs which are above and beyond normal job performance responsibilities. or Depending on the nature of the business unit, 50% of the total weight should be allocated based on the highest leverage activities of that functional area to improve our bottom line, or to gain competitive advantage in the marketplace. For example: - improve market share by X% - develop $X of proprietary product profit - exceed departmental financial objectives V. 25% of the total weight must be on objectives which are "Re-engineering" in nature relating to reducing costs, or enhancing productivity. Ideally, process and activities will be targeted to identify dramatically improved, lower cost, and faster processes. VI. 15% of total must be on "Leadership". Management is required to establish programs to enhance the development of effective leaders encompassing training, development and/or implementation of programs to make the work environment of the department better based on the Associate Survey. Up to 5% of the total weight can be related to "Self-development" to improve management skills and abilities. If a goal requires the involvement of another person or department, the appropriate person must be contacted and an agreement reached to support the goal. 5. Although the total weight of the objectives cannot exceed 100%, one (1) overachievement goal (125% maximum) will be permitted for a specific objective which is numerically measurable against exceptional performance above the Original Plan. Performance measurement parameters set too low will not be acceptable for overachievement goals. The purpose of the 125% is to reward associates for exceptional achievement. Overall performance (the sum of all objectives) cannot exceed 100%. 6. If during the course of the year an objective becomes invalid, the weight percentage must be spread to the remaining objectives. If new objectives must be added, a weighted percentage must be assigned and subtracted from the other objective. Total percentage cannot exceed 100%. 7 1996 Executive Incentive Bonus Plan Page 4 TERMS AND CONDITIONS THE EFFECT OF COMPANY BORROWINGS To protect Ingram Micro against reaching its profit objectives through unwarranted use of additional invested capital, the Bonus Plan contains a "capital used" restriction or minimum performance threshold. If Ingram Micro's average daily borrowings, the Bonus Targets for all participants will be reduced by 15%. However, if Ingram Micro achieves its profit goal by saving significant capital, the Bonus Plan will be adjusted to reflect this performance overachievement. If the average daily borrowings for the year are less than Original Plan by 5.0%-14.9%, the Bonus will be increased by 5% for each participant. If the average daily borrowings for the year are less than Original Plan by 15.0% or more, the Bonus will be increased by 15% for each participant. The effect of borrowings will be calculated separately US Alliance, Rest of the World and Worldwide and shall be allocated to each participant based on the same percentage used under PTPB profit performance. As a result, the Available Payout under each will be modified according to borrowings performance in the various sections. * Note: No borrowing modifier will be used to adjust Bonus Awards allocated under the Alliance (only) and Export portions of the Plan. The following rules apply to the borrowing restrictions and incentives: 1. If Ingram Micro exceeds budgeted sales levels in any category by more than 5% and maintains a pre-tax, pre-bonus operating profit percentage to net sales at the Original Plan level, the budgeted borrowings will be adjusted by the percentage that net sales are in excess of 105% of Original Plan. 2. Ingram Micro may neither unreasonably disrupt the vendor community nor tarnish the payment history of the Company in reaching the borrowings level goal. GENERAL PROVISIONS There are certain general provisions of the 1996 Executive Incentive Bonus Plan which are: 1. Bonus Award. - At the sole discretion of the Acting Chief Executive Officer, individual bonus awards may be modified plus or minus, based on unusual performance or circumstance relating to the business. 2. Employment. - If a participant's employment with the Company ends for any reason before bonuses are paid, the participant will not be eligible for any payment of the bonus. 3. Acquisitions. - It is anticipated that Ingram Micro will continue to make acquisitions throughout the Bonus Plan year. To be fair to Bonus Plan participants, any losses or profits resulting from acquisitions (where financial impact can be separated) will be adjusted from the Original Plan. This includes both the operating results and the interest costs of Ingram Micro Holdings' equity investment in the acquisition. Any interest charges absorbed by an acquisition beyond the direct incremental costs, will be reversed from the adjustment. If an acquisition is made and cannot be reasonably separated financially, the Ingram Micro Board of Directors will use its best efforts to adjust for the acquisition. 8 1996 Executive Incentive Bonus Plan Page 5 4. Tax Changes. - The Company may experience U.S. tax changes at the Federal level for both corporate income tax and employer payroll taxes. Since the Bonus Plan is based upon pre-tax, pre-bonus income, Federal tax changes will have little effect. If the financial cost of any change in employer payroll taxes is greater than $1M, then it will be adjusted from the Original Plan. 5. Developmental Projects. - Ingram Micro is committed to making a significant investment in several key developmental MIS projects. However, any expense benefit that is gained from projects not completed as budgeted, will be subtracted from pre-tax, pre-bonus calculations. For projects completed as planned, or completed under budget, the corresponding expenses/benefits will be included in the pre-tax, pre-bonus calculations. 6. The Executive Incentive Bonus Plan - The Bonus Plan is maintained at the sole discretion of Ingram Micro Inc. The Board of Directors maintains the right to modify or terminate the Bonus Plan at any time, without prior notification to the Bonus Plan participants. 9 ATTACHMENT B INGRAM MICRO INC. EXECUTIVE INCENTIVE BONUS PLAN 1996 BONUS OBJECTIVE EXAMPLES 1. (Example incorporating overachievement goals) OBJECTIVE: Active budgeted purchase discounts of n.nn% of sales by negotiating rebate programs with new vendors and maintaining or increasing current key rebates. MEASUREMENT CRITERIA: Purchase discounts x.xx% = 125% achievement of sales Purchase discounts n.nn% = 100% achievement Purchase discounts y.yy% = 75% achievement Purchase discounts z.zz% = 50% achievement Purchase discounts 10 ATTACHMENT A1 -- A-5 U.S. & ALLIANCE PERFORMANCE COMPONENT (A-1) Pre-Tax, Pre-Bonus Target is established at $164.9M which is defined as follows: $131,848k Original Plan pre-tax income -- U.S. 27,248k Amended Original Plan pre-tax income -- Alliance 5,789k U.S. and Alliance Bonus Budget -------- $154,885k Amended Original Plan pre-tax, pre-bonus income -- U.S. and Alliance combined

INGRAM ALLIANCE (A-2) Pre-Tax, Pre-Bonus Target is established at $27.4M consisting of the following: ~~$27,248k Amended Original Plan pre-tax, pre-bonus income -- Alliance 189 Bonus Budget ------- $27,437k Amended Original Plan pre-tax, pre-bonus income -- Alliance~~

REST OF WORLD PERFORMANCE COMPONENT (A-3) Pre-Tax, Pre-Bonus Target is established at $39.6M consisting of the following components: $14,118 Canada -- Original Plan pre-tax income 20,331 Europe -- Original Plan pre-tax income 1,420 Mexico -- Original Plan pre-tax income 803 Adjustment 2,948 Bonus ------- $39,620 Original Plan pre-tax, pre-bonus income

11 ATTACHMENT WORLDWIDE PERFORMANCE COMPONENT (A-4) Pre-Tax, Pre-Bonus Profit Target is established at $210.2M consisting of the following components: ~~$201,424k Amended Original Plan pre-tax, pre-bonus income 8,796k Bonus Budget* -------- $210,220k Amended Original Plan pre-tax, pre-bonus income - Worldwide~~

INGRAM INTERNATIONAL DIVISION (A-5) Pre-Tax, Pre-Bonus Profit Target is established as follows:
Export Asia/Pacific ------ ------------ 4,489k $1,167k Original Plan pre-tax, pre-bonus income 0k(1) 59k Bonus Budget* ------ ------ $4,489k $1,226k Original Plan pre-tax, pre-bonus income
- ---------------- (1) Bonus Target of $118,000 for Export was not included in original budget, but is included in the Revised Plan. (Not part of U.S./Alliance budget.) 12 INGRAM MICRO INC. EXECUTIVE INCENTIVE BONUS PLAN OBJECTIVES SUMMARY OF EVALUATIONS 1996 PARTICIPANT: DEPARTMENT:
Bonus Objectives % % Total Weight Achvd Achievement - -------------------------------------------------------------------------------- 1. . - -------------------------------------------------------------------------------- 2. . - -------------------------------------------------------------------------------- 3. . - -------------------------------------------------------------------------------- 4. . - -------------------------------------------------------------------------------- 5. . - -------------------------------------------------------------------------------- Total (NOT TO EXCEED 100%) ==============
Evaluations Prepared by: --------------------------------------- Vice President/Sr. Vice President Approval: --------------------

1 EXHIBIT 10.02 MEMORANDUM TO: All Ingram Micro U.S. Managers FROM: Jeffrey R. Rodek, David R. Dukes DATE: July 17, 1996 SUBJ: Management Incentive Bonus Plan - 1996 - -------------------------------------------------------------------------------- The Board of Directors of Ingram Micro has approved a Management Incentive Bonus Plan to provide financial incentive to Company managers, based upon the overall financial performance of Ingram Micro in the United States and the individual performance of each manager. This document describes the Incentive Bonus Plan for all managers and comparable positions except sales managers. As a manager, you have an important impact on the profitability of our Company. We want you to profit when Ingram Micro (U.S.) profits. You are eligible to receive a bonus of up to 9% of your 1996 earned income if the Company exceeds its budgeted pre-tax, pre-bonus profit target by more than 10% in the U.S. Below this top level of profit, the Target Bonus will vary as shown in the table below. Your "earned income" shall mean the actual dollars earned in 1996 (as reported on your W-2 form), excluding relocation reimbursements, and any bonus payment, including that for the 1995 Management Incentive Bonus Plan.
INGRAM MICRO PROFIT BEFORE TAX AND BONUS BONUS % ---------------------------------------- ------- Overachieve budget by 10.1 percent or more 9.0 Meet budget to overachieve up to 10.0 percent 7.0 95.0 to 99.9 percent of budget 6.0 90.0 to 94.9 percent of budget 5.0 75.0 to 89.9 percent of budget 3.0 Below 75 percent of budget 0.0
Half of the bonus amount calculated for you by the above program will be paid to you automatically. The other half of the bonus amount will be based upon your achievement of the personal objectives for 1996 which you and your supervisor should formulate. (A sample form is attached for format guidance). Once approved by your Vice President, these objectives should be forwarded to Charles Spears in Human Resources who will coordinate this program. In order to receive your 1996 Management Incentive Bonus, you must be employed with Ingram Micro on the date that bonus checks are distributed (early March, 1997). You must be employed as a manager on or before September 30, 1996 to be eligible to participate in this Plan. 2 ATTACHMENT "A" Under the provisions of the Management Incentive Bonus Plan, annual goals and objectives are required for all participants which are used as a basis for determining the individual bonus award. Guidelines for developing objectives are as follows: 1. There should be between five (5) and six (6) objectives for each participant. Generally each objective would have two (2) to four (4) specific measurable goals. 2. Each objective should be assigned a percentage weight of not less than 10% and not more than 50%, reflecting its relative importance. The sum of the weightings for all objectives must be 100%. 3. Objectives must be clear and specific and should include clear measurement criteria by which performance will be evaluated. Examples are shown in Attachment A. 4. Total weight of the objectives should be based on the following parameters: I. 60% of the total weight must be for objectives which relate to "Programs of Innovation." These must be new programs which are above and beyond normal job performance responsibilities. or II. 25% of the total weight must be on objectives which are "Re-engineering" in nature relating to reducing costs, or enhancing productivity. Ideally, process and activities will be targeted to identify dramatically improved, lower cost, and faster processes. III. 15% of total must be on "Leadership". Management is required to establish programs to enhance the development of effective leaders encompassing training, development and/or implementation of programs to make the work environment of the department better based on the Associate Survey. Up to 5% of the total weight can be related to "Self-development" to improve management skills and abilities. If a goal requires the involvement of another person or department, the appropriate person must be contacted and an agreement reached to support the goal. 5. Although the total weight of the objectives cannot exceed 100%, two (2) overachievement goals (125% maximum) will be permitted for specific objectives which are numerically measurable against exceptional performance above the Original Plan. Performance measurement parameters set too low will not be acceptable for overachievement goals. The purpose of the 125% is to reward associates for exceptional achievement and to help maximize overall performance. Overall performance of the sum of all objectives cannot exceed 100%. 6. If during the course of the year an objective becomes invalid, the weight percentage must be spread to remaining objectives. If new objectives must be added, a weighted percentage must be assigned and subtracted from the other objective. Total percentage cannot exceed 100%. 3 ATTACHMENT "B" INGRAM MICRO INC. MANAGEMENT INCENTIVE BONUS PLAN 1996 BONUS OBJECTIVE EXAMPLES 1. (Example incorporating overachievement goals) OBJECTIVE: Achieve budgeted purchase discounts of n.nn% of sales by negotiating rebate programs with new vendors and maintaining or increasing current key rebates. MEASUREMENT CRITERIA: Purchase discounts x.xx% of = 125% achievement sales Purchase discounts n.nn% = 100% achievement Purchase discounts y.yy% = 75% achievement Purchase discounts z.zz% = 50% achievement Purchase discounts 4 INGRAM MICRO INC. MANAGEMENT INCENTIVE BONUS PLAN OBJECTIVES SUMMARY OF EVALUATIONS 1996 PARTICIPANT: DEPARTMENT:
Bonus Objectives Eligible % Points Achieved Points Achvd - -------------------------------------------------------------------------------- 1. . - -------------------------------------------------------------------------------- 2. . - -------------------------------------------------------------------------------- 3. . - -------------------------------------------------------------------------------- 4. . - -------------------------------------------------------------------------------- 5. . - -------------------------------------------------------------------------------- Total (Not to exceed eligible points under "A" above). =================
Evaluations Prepared by: --------------------------------------- Vice President/Sr. Vice President Approval: ------------------- 5 INGRAM MICRO INC. MANAGEMENT INCENTIVE BONUS PLAN OBJECTIVES 1996 Name: Department: Human Resources Title: Objective #1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INNOVATION RE-ENGINEERING LEADERSHIP (CHECK ONE OF THE ABOVE) Points Assigned: ( %) ---- 1. Objective: 2. Measurement/Evaluation Criteria: --------------------- ------- Employee's Signature Date --------------------- ------- Supervisor's Signature Date TO BE COMPLETED AFTER END OF CALENDAR YEAR 1. Performance Against Objective: 2. Supervisor's Comment: - ---------- --------- ___% - ---------- --------- Rating x Points = ___(__%)

1 EXHIBIT 10.03 MEMORANDUM TO: All Ingram Micro U.S. Associates FROM: Jeffrey R. Rodek, David R. Dukes DATE: July 17, 1996 SUBJ: Annual Employee Bonus Program - 1996 - -------------------------------------------------------------------------------- The Board of Directors of Ingram Micro has approved a General Employee Incentive Bonus Plan to provide financial reward based upon the overall financial performance of Ingram Micro in the United States. We believe that you should profit when you contribute to the profitability of the Company. You are eligible to receive a bonus of up to 3% of your 1996 earned income if the Company exceeds its budgeted pre-tax, pre-bonus profit target by more than 10% in the U.S. Below this top level of profit, the Target Bonus will vary as shown in the table below. Your "earned income" shall mean the actual dollars earned in 1996 (as reported on your W-2 form), excluding relocation reimbursements, and any bonus payments, including that for the 1995 General Employees Incentive Bonus Program. For Sales Associates eligible for monthly or quarterly bonuses or commissions, the bonus will be calculated by including one-half of the earned commission and bonuses, plus the earned base salary for 1996. The bonus percentages are shown below:
INGRAM MICRO PROFIT BEFORE TAX AND BONUS BONUS % ---------------------------------------- ------- Overachieve budget by 10.1 percent or more 3.0 Meet budget to overachieve up to 10.0 percent 2.5 95.0 to 99.9 percent of budget 2.25 90.0 to 94.9 percent of budget 2.0 75.0 to 89.9 percent of budget 1.0 Below 75 percent 0.0
To be eligible to participate in this Plan, you must be employed by Ingram Micro on or before September 30, 1996. In order to receive your 1996 bonus, you must be employed by Ingram Micro on the date that the bonus checks are distributed (early March 1997.)

1 EXHIBIT 10.04 INGRAM MICRO [LETTERHEAD] December 21, 1994 Mr. Jeffrey R. Rodek 595 Riverview Road Memphis, TN 38120 Dear Jeff: This letter will confirm Ingram Micro's offer of employment to you as President and Chief Operating Officer. You will be responsible for direction and management of the U.S. organization. You will also be named a member of the Ingram Micro Board of Directors. In this position, you will report directly to me. Your direct reports will include Sanat Dutta, Executive Vice President; Ron Hardaway, Senior Vice President and U.S. Chief Financial Officer; Harold Pierce, Vice President of Human Resources; Robert Grambo, Vice President of Telesales and Greg Hawkins, Vice President of Sales, (who co-manage the sales function); Amy Hoffman, Vice President of Product Marketing; Susan Salay, Vice President of Strategic Marketing; and a to-be-named Vice President of Marketing Services, (acting head is Pat Dunne, Senior Director of Marketing). Ron Hardaway is acting in a dual capacity as Worldwide Chief Financial Officer for Ingram Micro and U.S. Chief Financial Officer. As a result, we will co-manage him until the Worldwide Chief Financial Officer is hired. After a two month orientation and training period, you will assume full profit and loss and asset management for Ingram Micro U.S. Doug Antone, Senior Vice President of Ingram Micro and President of Ingram Alliance Reseller Company, reports to David Dukes. After a further transition period, Doug and Ingram Alliance will be moved to your reporting and profit and loss responsibilities. Continuing to report to me will be David Dukes, Co-Chairman; David Rutledge, Senior Vice President of Administration; Mike Kelly, Senior Vice President of MIS; John Winkelhaus, Senior Vice President of Europe; Larry Elchesen, President of Ingram Micro Canada; and Eric Sigman, Vice President of Corporate Development. Your base salary will be $400,000 per year, ($33,333.33 monthly), to be paid on the Company's normal month-end payroll cycle. Your performance will be reviewed annually, commencing January 1, 1996. You will be eligible to 1 2 Mr. Jeff Rodek December 21, 1994 Page 2 participate in the standard health and employee benefit programs of Ingram Micro effective upon your date of employment. Information describing these programs is enclosed with this letter. Please note the supplemental thrift plan available to you. Ingram Micro agrees to pay you one year's severance, (one times your annual base salary), if the Company terminates your employment without cause within the first three years of employment. You will also be eligible to participate in the Executive Management Incentive Bonus Plan, targeted at 50% of your annual base salary, with a maximum potential payout of 150% of the targeted amount. Since your employment in 1995 will be slightly less than a full year, payment will be based upon actual earnings. Your target achievement will be based 70% on U.S. pre-tax, pre-bonus profit of Ingram Micro, and 30% on worldwide pre-tax, pre-bonus profit. Sixty percent of your actual award will be determined automatically, with the remaining payout determined by your individual performance against mutually agreed upon goals. Should worldwide and U.S. pre-tax and pre-bonus profits of Ingram Micro not reach the minimum plan target, no payouts will be made against either the Company or the individual performance components. Bonuses are expected to be paid in March, 1996. To maximize the benefit available to you for qualified stock options, if you accept our offer of employment, you will be placed on the Ingram Micro payroll on December 31, l994. You will be paid a token amount until you actually begin working for the company, but this will allow us to grant you Incentive Stock Options in 1994. At its next meeting the Ingram Industries Compensation Committee will be asked to award these Ingram Industries Inc. stock options: 1. 5,000 Ingram Industries Inc. qualified stock options with a date of December 31, 1994, with one-quarter vesting after the second, third, fourth and fifth year of employment; 2 3 Mr. Jeff Rodek December 21, 1994 Page 3 2. 5,000 Ingram Industries Inc. qualified stock options with a date of January 1, l995, with one-quarter vesting after the second, third, fourth and fifth year of employment; 3. 15,000 Ingram Industries Inc. non-qualified options with a date of January 1, 1995, with a vesting of one- quarter after each of the second, third, fourth and fifth year of employment; 4. 15,000 Ingram Industries Inc. non-qualified options with a vesting of one-quarter after each of the third, fourth, fifth and sixth year of employment. These are awarded January 1, 1995. This letter supercedes your previous letter which stated one-third vesting instead of one-quarter. Enclosed is a summary of the qualified and non-qualified stock option plans. Ingram Micro agrees to assist you with relocation of you and your family to Southern California. We agree: (a) to pay for house hunting trips for you and your family, twice monthly trips to visit your family until they move, the actual moving charges (including packing), 90-day temporary housing for you until your family arrives, and other direct moving costs; (b) your house purchasing expense, including customary closing costs and up to two points on your loan. The maximum loan amount covered under this agreement is $600,000.00; (c) your house sales expense, including reasonable and customary real estate commissions on the sale of the house which is your primary residence, legal fees at closing, non-recurring closing costs, etc. Ingram Micro agrees to further "gross up" the taxable portions of payments (a), (b) and (c) at your marginal combined Federal and California tax rate. If necessary, Ingram Micro will engage an employee relocation firm to 3 4 Mr. Jeff Rodek December 21, 1994 Page 4 acquire your home should you be unsuccessful in selling your home yourself within ninety days of your start date. Ingram Micro is an "at will" employer with continued employment based upon job performance, (i.e., successfully meeting expectations and requirements established for your job), and the continued success of Ingram Micro's business activity. Provisions of all employee benefits, compensation and perquisite programs may be amended, revised, suspended or deleted at any time with or without notice. If the above confirms your understanding of the terms and conditions of your employment, please sign both copies of this letter and return the original to me. This offer and its terms and conditions will expire on December 29, 1994, at the close of Ingram Micro's business day. Jeff, the Ingram Industries Board of Directors, the Ingram Micro management team and I look forward to you becoming an integral member of Ingram Micro and Ingram Industries. Very truly yours, Linwood A. Lacy, Jr. Co-Chairman of the Board Chief Executive Officer LAL:cmm Enc. c: Bronson Ingram Phil Pfeffer Michael Head Harold Pierce ACCEPTED AND AGREED: - ---------------------------------- Jeffrey R. Rodek Date 4

1 EXHIBIT 10.05 MICRO D [LETTERHEAD] 2801 South Yale Street Santa Ana, California 92704-5850 (714) 540-4781 April 25, 1988 Mr. Sanat Dutta 16 Francis Terrace Glen Cove, NY 11542 Dear Sanat: This letter will confirm Micro D's offer of employment to you as Senior Vice President-Operations. In this capacity you will be responsible for Operations, Purchasing, Value-Added Services, and Administration (to include the Human Resources function). Your direct reports will include the Vice President of Purchasing, the Director of Operations, and the Director of Administration. You will report to Chip Lacy, Chairman and CEO, until a President of the company is named. Your base salary will be $135,000 per year to be paid on the company's normal payroll cycle. You will have a performance and pro-rated salary review on November 1st, and be on an annual review cycle from that date. You will receive a $500 per month car allowance. You are eligible for the standard health and employee benefit programs. Micro D will waive any delayed effectiveness provision of this coverage and allow you coverage from your first day of employment. In addition, you are eligible for the executive health reimbursement plan. You will be eligible for the Senior Management Bonus Plan which is based upon company profitability/return on investment. At 1988 budgeted profit, your Target Bonus is 50% of your earned 1988 salary. Sixty percent (60%) of that Target Bonus is paid automatically, with forty percent (40%) payment based upon accomplishment of your individual performance goals. On your first date of employment the Board will approve 30,000 shares of stock options with an exercise price equal to the closing stock price that day. Your options will vest one-fourth after one year, one-fourth each after the second, third, and fourth years of service. Micro D agrees to a two part severance program. (1) If you are terminated without cause within your first two years of 2 employment, Micro D agrees to pay you six months (times your base pay) severance. After two years of service, your severance for termination without cause will be nine months. (2) If you are either involuntarily terminated or have a substantial change in title or reduction in salary, within twelve months of a change of control, you will receive severance equal to one-half (1/2) month's compensation for each month of full time service to Micro D, not to exceed twelve (12) months severance compensation. Change of control means issuance or transfer of more than 25% of the stock of Micro D. You are eligible for the greater calculated severance of the two provisions, not both. If you leave on your own accord at any time, there will be no severance due you. Micro D agrees to assist you with relocation of you and your family to Southern California. We agree: * to pay for house hunting trips, twice monthly trips to visit your family until they move, the actual moving charges (including packing), 30 day temporary housing for you until your family arrives, and other direct moving costs; * your house purchasing expense including customary closing and up to two points on your loan. The maximum loan amount covered under this agreement is $300K; * your house sales expense, including real estate commission on the sale of your house (estimated at $21K), legal fees at closing, etc.; * to provide up to five additional months temporary family housing by paying the lower of your New York home mortgage or temporary housing, (Oakwood two bedroom rental or the equivalent); * a $3K relocation expense defrayment direct payment. You and I anticipate that all the costs above could reach a maximum of $60K, with as much as $48K being taxable income to you. Micro D agrees to further "gross-up" the taxable portions of these payments at your marginal combined Federal and California tax rate, resulting in a potential maximum additional payment of $16K. At your suggestion, Micro D will approach an employee relocation firm to see if we can save Micro D cost and you taxable income by employing such a firm for your move. 2 3 Micro D employs on an at-will basis. Continued employment is based upon job performance, that is, successfully meeting expectations and requirements established for the job responsibilities and continued success of Micro D's business activity. If the above confirms your understanding of the terms and conditions of your employment, please sign both copies of this letter and return one copy to me before May 4, 1988. We have tentatively agreed that your first day of work will be Tuesday, May 31, 1988. The Board and I look forward to having you join Micro D. Very truly yours, Linwood A. Lacy, Jr. Chairman of the Board Chief Executive Officer ACCEPTED: - --------------------------------------- Sanat Dutta Date LAL:cmm cc:John Donnelly William Lomicka David Rutledge 3

1 EXHIBIT 10.06 April 14, 1992 Mr. John Winkelhaus Senior Vice President Sales Ingram Micro 2801 South Yale St. Santa Ana, CA 92704 Dear John: This letter will amend Ingram Micro's offer to you dated June 21, 1991, of employment as Senior Vice President of Europe. In this capacity you will be responsible for all facets of Ingram Micro's European operation, including Ingram SoftEurope, Ingram Micro (UK), the Ingram Coordination Center, and our planned acquisitions and/or joint ventures in the Nordic and Germanic countries. You will report to the Chairman and Chief Executive Officer, Linwood A. Lacy, Jr. You will serve on the Boards of Ingram SoftEurope, Ingram Micro (UK), Ingram Micro Europe, and the Ingram Coordination Center. You will be expected to live in Belgium. For practical reasons you will be on the payroll of the Ingram Coordination Center SA/NV, but you will remain an employee of Ingram Micro Inc. Your direct reports will be Jean Walravens, Managing Director of Ingram SoftEurope; Martin Blaney, Managing Director of Ingram Micro (UK) and Thierry Denaisse in his role as Managing Director of the Ingram Coordination Center. As additional joint ventures or acquisitions are made, the respective heads of those organizations will report to you as well. As you know, Jean Walravens will be leaving Ingram's employment within the next six months, and one of your first key responsibilities will be to locate and train his replacement. Your base salary will be $200,000 per year to be paid on the Company's normal monthly payroll cycle. This annual salary includes the 13th month bonus and any vacation bonus normally paid to employees in Belgium. You will have a performance and salary review on December 31, 1992, and annually thereafter. The Company will provide the full cost of tuition and fees for your children when they are ready to attend school. The Company will pay for language training for you, your wife, and your children, as appropriate. This training can begin when you wish. In addition, the Company will pay you an annual housing cost differential of BEF 927,741 and an annual goods and services cost differential of BEF 816,711. Since the Company completed a rental agreement between the ICC and landlord on 1 2 Mr. John Winkelhaus Senior Vice President Sales April 14, 1992 Page 2 November, 1991, the Company will continue to pay the lease on your behalf. You agree to reimburse the ICC for any payments in excess of your combined housing and goods and services allowance as determined by Runzheimer on an annual basis. The Company will provide you with a car, including operating expenses, insurance, etc. You will be eligible for an Executive Bonus Plan which will be based upon the European profitability/return on investment and your individual performance goals in 1992. The target bonus will be 50% of your earned salary in 1992, 40 percent of which will be paid for attainment of personal performance goals and 60 percent of which will be paid upon attainment of the European profit goals. This bonus will be paid the first week in March, 1993. Since we anticipate that our European operations will be in a turnaround and building mode, the profit goals for 1992 will be drawn with this in mind. We may work with you to construct a series of performance objectives which are more independent of profit performance than what you are used to in the U.S. program. In light of your receipt of free use of a car in Europe, your supplemental benefits allowance of $8,000 per year will be suspended as long as you are in Europe. Your total compensation will be split into the appropriate portions to be paid partially in the host country currency and partially in U.S. dollars deposited to your domestic checking account. The split proportions will be determined by you. You will have available to you both Ingram Industries tax counsel and the advice of Price Waterhouse in Belgium. This assignment to Belgium is temporary, but for at least two years. We hope you will be able and willing to stay longer. We will expect you to make a good faith effort to remain in the position for the two year minimum. If you choose to leave Ingram Micro employment at any time during your European assignment, it will be Ingram Micro's financial responsibility to move you and your family to the U.S., if your new employer will not bear your moving costs. The only exception to this commitment is if you go to work 2 3 Mr. John Winkelhaus Senior Vice President Sales April 14, 1992 Page 3 for a direct competitor of Ingram Micro in the microcomputer distribution business. Ingram Micro will pay the full cost of relocation for you and your family, including temporary housing, any furniture storage, etc. Any costs which are not deductible for tax purposes will be grossed up. There will be a $5,000 "miscellaneous relocation allowance" to cover incidental costs to you in the move. We will pay for furniture and car storage in the U.S. for the duration of your international assignment. Your health benefits will be the same as for other Ingram Coordination Center senior employees. Your group life insurance will continue in effect while you work out of the country. Your participation in the Ingram Industries Employee Thrift Plan (401k Plan) must be discontinued, but you are eligible to participate in the supplemental executive deferred compensation plan. Ingram Micro will pay for two home leave return trips per year for you and your family to the U.S. We assume these will be likely around family vacations. We would expect you to make every effort to coordinate such return trips with your business travel to minimize the cost to the Company. You should observe a vacation schedule of three weeks per year for yourself, in accordance with U.S. practice for a five year employee. It is important that we make clear what are your reassignment options, if you wish to return to the States after two years. The Company will make every effort to provide you with an appropriate position within Ingram Micro or Ingram Industries. However, there can be no commitment of a U.S. position under every business circumstance. We look forward to your excellent leadership of Ingram Micro's European operations. If you have any questions, please contact me. Please acknowledge and accept this assignment by signing below. 3 4 Mr. John Winkelhaus Senior Vice President Sales April 14, 1992 Page 4 Very truly yours, Linwood A. Lacy, Jr. Chairman of the Board Chief Executive Officer cc: Bronson Ingram Phil Pfeffer David Dukes Ken Woolf Accepted: - ------------------------------- ----------- John Winkelhaus Date 4 5 April 15, 1992 Mr. John Winkelhaus Senior Vice President Sales Ingram Micro 2801 South Yale St. Santa Ana, CA 92704 Dear John: As a supplement to your revised "Assignment Letter" dated April 14, 1992, this is to confirm the following: 1. On page two, first paragraph, you agreed to reimburse the Company for any housing payments in excess of your combined housing and goods and services allowance. The Company hereby agrees to "waive/forgive" this reimbursement subject to legal requirements in consideration and exchange for your waiver of favorable housing, goods and services monies in excess of actual housing costs. 2. The following language was included in your letter dated June 21, 1991, but removed from your April 14, 1992 assignment letter. This language is hereby incorporated as part of this "side letter": You requested of us additional cost of living adjustment beyond that specified above. Our analysis is that your effective tax cost will be lowered by the Federal allowance provided to Americans working out of the country, the absence of California state tax, and the low tax rate in Belgium (resultant from the Coordination Center employment and your frequent out of country travels). We believe the allowances being provided and tax benefits more than outweigh any additional living costs. If you and we determine, based on a joint review of tax return information, that this is not the case, now, or in the future, then we will adjust your compensation to "keep you whole." 1 6 Mr. John Winkelhaus Senior Vice President Sales April 15, 1992 Page 2 Very truly yours, Linwood A. Lacy, Jr Chairman of the Board Chief Executive Officer cc: Bronson Ingram Phil Pfeffer David Dukes Ken Woolf Accepted: - ------------------------------- ----------- John Winkelhaus Date 2

1 EXHIBIT 10.07 INGRAM MICRO INC. ROLLOVER STOCK OPTION PLAN SECTION 1. PURPOSE. The purpose of the Ingram Micro Inc. Rollover Stock Option Plan is to provide for the granting of options to purchase shares of Micro's common stock upon the conversion and cancellation of certain options to purchase shares of, and ISUs and SARs relating to, common stock of Industries as provided in the Conversion Agreement in connection with the split-off pursuant to the Exchange Agreement. SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: "BOARD" means the Board of Directors of Micro. "CAUSE" means commission of acts of dishonesty, disloyalty or acts substantially detrimental to the welfare of Micro, Industries or Entertainment or any of their respective Subsidiaries, as determined by the respective Boards of Directors, or designated committees thereof. "CLOSING" shall have the meaning ascribed thereto in the Exchange Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMITTEE" means a committee of the Board designated by the Board to administer the Plan and composed of not less than the minimum number of persons from time to time required by Rule 16b-3, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a "non-employee director" within the meaning of Rule 16b-3. Until otherwise determined by the Board, the Compensation Committee designated by the Board shall be the Committee under the Plan. "CONVERSION AGREEMENT" means the Stock Option, SAR and ISU Conversion and Exchange Agreement, dated as of the date of the Closing among the Ingram Companies and the other Persons set forth on the signature pages thereof. "EMPLOYEE" means an employee of Micro, Industries or Entertainment or any of their respective Subsidiaries or IEI Holdings Inc. 2 "EMPLOYER" means a Participant's employer on the date that an Option is granted hereunder to such Participant or any of such Employer's respective parent or subsidiary corporations. "ENTERTAINMENT" means Ingram Entertainment Inc. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE AGREEMENT" means the Exchange Agreement dated as of [ ], 1996 among the Ingram Companies and the other Persons set forth on the signature pages thereof. "EXECUTIVE OFFICER" means, at any time, an individual who is an executive officer of Micro within the meaning of Exchange Act Rule 3b-7 or who is an officer of Micro within the meaning of Exchange Act Rule 16a-1(f). "FAIR MARKET VALUE" means with respect to the Shares, as of any given date or dates, the reported closing price of a share of such class of common stock on such exchange or market as is the principal trading market for such class of common stock. If such class of common stock is not traded on an exchange or principal trading market on such date, the fair market value of a Share shall be determined by the Committee in good faith taking into account as appropriate recent sales of the Shares, recent valuations of the Shares, the lack of liquidity of the Shares, the fact that the Shares may represent a minority interest and such other factors as the Committee shall in its discretion deem relevant or appropriate. "INCENTIVE STOCK OPTION" means a right to purchase Shares from Micro that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. "INDUSTRIES" means Ingram Industries Inc. "INGRAM COMPANY" means each of Micro, Industries and Entertainment and their respective Subsidiaries or IEI Holdings Inc. "INGRAM FAMILY" means Martha Ingram, her descendants (including any adopted Persons and their descendants) and their respective spouses. "ISU" shall have the meaning ascribed thereto in the Conversion Agreement. "MICRO" means Ingram Micro Inc. 2 3 "NON-QUALIFIED STOCK OPTION" means a right to purchase Shares from Micro that is granted under Section 6 of the Plan and that is not intended to be an Incentive Stock Option. "OPTION" means an Incentive Stock Option or a Non-Qualified Stock Option. "OPTION AGREEMENT" means the written agreement evidencing an Option in substantially the form attached hereto as Annex 1. "PARTICIPANT" means any Employee set forth in Schedule 1 to the Conversion Agreement holding Options, ISUs or SARs outstanding as of the Closing under any Industries Equity-Based Plan (as defined in the Conversion Agreement) and to the extent applicable, any heirs or legal representatives thereof. "PERSON" means any individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "PLAN" means this Rollover Stock Option Plan. "PUBLIC OFFERING" means an underwritten registered public offering of Shares of any class of common stock of Micro. "PURCHASE AGREEMENT" means an agreement substantially in the form attached hereto as Annex 2 or Annex 3, as the case may be, to be executed by Micro and a Participant as a condition to the exercise, prior to a Public Offering, by such Participant of any Option granted hereunder. "RULE 16b-3" means Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SAR" shall have the meaning ascribed thereto in the Conversion Agreement. "SEC" means the Securities and Exchange Commission or any successor thereto. "SHARES" means shares of the Class A Common Stock, $.01 par value per share, of Micro, or such other securities of Micro as may be designated by the Committee from time to time pursuant to the provisions of the Plan. 3 4 "SUBSIDIARY" means, with respect to Industries, Entertainment or Micro, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such Person at any time after the Closing. SECTION 3. ADMINISTRATION. (a) Authority of Committee. The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities or other property, or suspended and the method or methods by which Options may be settled, exercised or suspended; (ii) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other property and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (iii) interpret and administer the Plan and any instrument or agreement relating to, or Option made under, the Plan; (iv) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (v) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. The Committee shall treat each Participant equally under this Section 3(a) and without regard to whether any such Participant is employed by Micro, Entertainment or Industries or any of their respective parent or subsidiary corporations, as the case may be. (b) Committee Discretion Binding. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including any Ingram Company, any Participant, any holder or beneficiary of any Option, any shareholder and any Employee. SECTION 4. SHARES AVAILABLE FOR OPTIONS. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the number of Shares with respect to which Options may be granted under the Plan shall be 12,000,000. 4 5 (b) Adjustments. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of Shares or other securities of Micro or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Shares of Micro (or number and kind of other securities or property) with respect to which Options may thereafter be granted, (ii) the number of Shares or other securities of Micro (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option; provided, in each case, that except to the extent deemed desirable by the Committee (A) with respect to Options that are intended to qualify as Incentive Stock Options, no such adjustment shall be authorized to the extent that such adjustment would cause the Plan to violate Section 422(b)(1) of the Code and (B) with respect to any Option, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan's meeting the requirements of Section 162(m) of the Code. (c) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. ELIGIBILITY. Participation in the Plan is limited to those Employees who qualify as Participants as of the Closing. SECTION 6. STOCK OPTIONS. (a) Grant. The Employees to whom Options shall be granted, the number of Shares to be covered by each Option, the option price therefor, the type of Option and the conditions and limitations applicable to the exercise of the Option shall be determined in accordance with the Conversion Agreement, including Schedule 1 thereto. Options will be Incentive Stock Options, Non-Qualified Stock Options or both, as provided in the Conversion Agreement. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. 5 6 (b) Exercise Price. The Committee shall establish the exercise price as provided in Schedule 1 to the Conversion Agreement. (c) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, subject to the Conversion Agreement, specify in the applicable Option Agreement or thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (d) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by Micro. Such payment may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to Micro as of the date of such tender is at least equal to such option price. SECTION 7. TERMINATION OR SUSPENSION OF EMPLOYMENT. The following provisions shall apply in the event of the Participant's termination of employment unless the Committee shall have provided otherwise, either at the time of the grant of the Option or thereafter. (a) Nonqualified Stock Options. (i) Termination of Employment. Except as the Committee may at any time otherwise provide or as required to comply with applicable law, if the Participant's employment with the Participant's Employer or any of its Subsidiaries is terminated for any reason other than death, permanent and total disability, retirement or Cause, the Participant's right to exercise any Nonqualified Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the 60th day following such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment. The Participant shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and has not subsequently been exercised. (ii) Death, Disability or Retirement. Except as the Committee may at any time otherwise provide or as required to comply with applicable law, if the Participant's employment with the Participant's Employer or any of its 6 7 Subsidiaries is terminated by reason of death, permanent and total disability, or retirement, the Participant or his successor (if employment is terminated by death) shall have the right to exercise any Nonqualified Stock Option during the one-year period following such termination of employment, to the extent it was exercisable and outstanding at the date of such termination of employment, but in no event shall such option be exercisable later than the date the Option would have expired had it not been for the termination of such employment. The meaning of the terms "permanent and total disability" and "retirement" shall be determined by the Committee. (iii) Cause. On the date the Participant's employment with the Participant's Employer or any of its Subsidiaries is terminated for Cause, the Participant's right to exercise any Nonqualified Stock Option shall terminate and such Option shall expire. (iv) Acceleration and Extension of Exercisability. Notwithstanding the foregoing, the Committee may, in its discretion, provide at any time (A) that an Option granted to a Participant may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant's employment and (B) that an Option may become immediately exercisable when it finds that such acceleration would be in the best interests of Micro. (b) Incentive Stock Options. Except as otherwise determined by the Committee at the time of grant or otherwise or as required to comply with applicable law, if the Participant's employment with the Participant's Employer or any of its Subsidiaries is terminated for any reason other than for Cause, the Participant shall have the right to exercise any Incentive Stock Option during the 60 days after such termination of employment to the extent it was exercisable at the date of such termination, but in no event later than the date the Option would have expired had it not been for the termination of such employment. If the Participant does not exercise such Option to the full extent permitted by the preceding sentence, the remaining exercisable portion of such Option automatically will be deemed a Nonqualified Stock Option, and such Option will be exercisable during the period set forth in Section 7(a) of the Plan, provided that in the event that employment is terminated because of death or the Participant dies in such 60-day period the Option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. On the date the Participant's employment with his Employer or any of its Subsidiaries is terminated for Cause, the Participant's 7 8 right to exercise any Incentive Stock Option shall terminate and such Option shall expire. (c) Any time spent by a participant in the status of "leave without pay" shall be disregarded for purposes of determining the extent to which any Option or portion thereof has vested or otherwise become exercisable or nonforfeitable. SECTION 8. AMENDMENT AND TERMINATION. (a) Amendments to the Plan. Subject to the provisions of the Conversion Agreement, the Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act, for which or with which the Board deems it necessary or desirable to qualify or comply. Notwithstanding anything to the contrary herein, the Committee may amend the Plan in such manner as may be necessary so as to have the Plan conform with local rules and regulations in any jurisdiction outside the United States. (b) Amendments to Options. Subject to the provisions of the Conversion Agreement, the Committee may waive any conditions or rights under, amend any terms of, or alter or suspend any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration or suspension that would adversely affect the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (c) Cancellation. Any provision of this Plan or any Option Agreement to the contrary notwithstanding, the Committee may cause any Option granted hereunder to be cancelled in consideration of a cash payment or alternative Option made to the holder of such cancelled Option equal in value to the Fair Market Value of such cancelled Option on the date of cancellation. SECTION 9. GENERAL PROVISIONS. (a) Nontransferability. No Option shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution provided, however, 8 9 that an Option other than an Incentive Stock Option may be transferable, to the extent set forth in the applicable Option Agreement, (i) if such Option Agreement provisions do not disqualify such Option for exemption under Rule 16b-3 or (ii) if such Option is not intended to qualify for exemption under such rule. (b) No Rights to Options. Except as provided in the Conversion Agreement or herein, no Employee, Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Options. The terms and conditions of Options need not be the same with respect to each recipient. (c) Share Certificates. All certificates for Shares or other securities of Micro or any Subsidiary delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission or any stock exchange upon which such Shares or other securities are then listed and any applicable laws or rules or regulations, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. A Participant may be required to pay to the Participant's Employer and such Employer shall have the right and is hereby authorized to withhold from any payment due or transfer made under any Option or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities or other property) of any applicable withholding taxes in respect of an Option, its exercise, or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Employer to satisfy all obligations for the payment of such taxes. (e) Option Agreements. Each Option hereunder shall be evidenced by an Option Agreement which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent Micro or any of its Subsidiaries from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, restricted stock and Shares (subject to shareholder approval if such approval is 9 10 required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of the Participant's Employer or any other Ingram Company. Further, the Participant's Employer may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan or otherwise, unless otherwise expressly provided in the Plan or in any Option Agreement. (h) Rights as a Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Option Agreement shall be determined in accordance with the laws of the State of Delaware. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle Micro to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to Micro by a Participant in connection therewith shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of Micro, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. 10 11 federal securities laws and any other laws to which such offer, if made, would be subject. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between Micro or any of its Subsidiaries and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from Micro or any of its Subsidiaries pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of Micro or any of its Subsidiaries. (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash or other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be cancelled, terminated, or otherwise eliminated. (n) Execution of Purchase Agreement; Disposition of Shares. Prior to a Public Offering, no Shares shall be issued pursuant to the exercise of an Option unless and until a Purchase Agreement shall be executed by Micro and the Participant. Each certificate representing Shares so acquired shall bear an appropriate legend setting forth the restrictions on transfer of such Shares as provided by such Purchase Agreement. (o) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. TERM OF THE PLAN. (a) Effective Date. The Plan shall be effective as of [DATE OF BOARD ADOPTION, 199_], subject to approval by the shareholders of Micro. (b) Expiration Date. Subject to earlier termination by Micro, the Plan shall expire 90 days after the Closing. Unless otherwise expressly provided in the Plan or in an applicable Option Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust or suspend any such Option or to waive any conditions or rights under any such Option shall, continue after the authority for grant of new Options hereunder has been exhausted or terminated. 11

1 EXHIBIT 10.11 AGREEMENT This Agreement (the "Agreement") is made and entered into as of June 1, 1996 by and among LINWOOD A. LACY, JR., a resident of Nashville, Tennessee ("Lacy"), INGRAM INDUSTRIES INC., a Tennessee corporation ("Ingram"), INGRAM MICRO INC., a Delaware corporation ("Micro"), and NATIONSBANK, N.A., as Trustee of the Linwood A. Lacy, Jr. 1996 Irrevocable Trust dated February 1996 (the "Trust"). WITNESSETH: WHEREAS, Lacy has performed certain services for Ingram and Micro, including serving until April 23, 1996 as the chief executive officer of Ingram and serving as chief executive officer of Micro; WHEREAS, Lacy desires to resign as an officer and employee of Ingram and as an officer, director and employee of all subsidiaries and affiliates of Ingram (collectively, the "Ingram Companies" and individually, an "Ingram Company"); and WHEREAS, the Ingram Companies desire to accept such resignation. NOW, THEREFORE, in consideration of the mutual premises herein contained and other good and valuable consideration, the sufficiency and mutuality of which is hereby acknowledged, the parties hereto agree as follows: 1. Resignation as Officer; Termination of Employment; Service as Director. Lacy acknowledges that, as of the date hereof, he hereby resigns as (a) an officer and employee of Ingram and an officer, director and employee of each of the other Ingram Companies, and (b) a member of any committees on which he may have served for any Ingram Company. Any employment agreements between any Ingram Company and Lacy are hereby terminated, and of no further force or effect. Lacy agrees to continue to serve as a member of the Board of Directors of Ingram until December 31, 1997, unless earlier removed in accordance with the Bylaws of Ingram. Unless mutually agreed or unless requested by an appropriate officer of an Ingram Company, Lacy agrees not to take or attempt to take any further action on behalf of or purportedly on behalf of any of the Ingram Companies, except in his capacity as a member of the Board of Directors of Ingram or actions taken in accordance with the cooperation provisions of Section 5 hereof. 2. Severance Benefits. In consideration of his covenants herein contained, Lacy will receive the following payments, all of which will be subject to applicable federal and state withholding taxes and such other deductions as Lacy may authorize: (a) Payments by Micro. Micro, for itself and on behalf of the Ingram Companies, agrees to pay to Lacy monthly severance payments of $48,333 per month for 12 months from the date hereof, with the first payment due on July 1, 1996, and thereafter on the first day of each month until a total of $580,000 shall have been paid. 2 (b) Payments by Ingram. Ingram agrees to pay to Lacy monthly severance payments of $40,000 for 12 months from the date hereof, with the first payment due on July 1, 1996 and thereafter on the first day of each month until a total of $480,000 shall have been paid. (c) Bonus. Micro agrees to pay to Lacy $272,000 representing 5/12 of his 1996 bonus based upon actual achieved profit objectives through May 1996. Such payment will be made by Micro to Lacy within 10 days of the date hereof. (d) Accrued Vacation. Micro agrees to pay Lacy $48,333 representing compensation for his earned unused vacation time through the date hereof, which the parties agree consists of 21 days, based on Lacy's base salary in effect as of the date hereof. Such payment will be made by Micro to Lacy within 10 days of the date hereof. (e) Other Benefits. Lacy will be permitted to participate in the Ingram medical and dental plans in which Lacy currently participates to the extent they remain in effect and any plan which replaces a discontinued plan in which he currently participates at regular associate rates for up to 12 months, so long as he remains a member of the Board of Directors of either Ingram or Micro. The period in which he so participates will reduce the period for which he will be eligible to exercise COBRA benefits. Ingram agrees to maintain, at its expense, a $850,000 term life insurance policy insuring Lacy's life for a 12 month period from the date hereof. Micro agrees to pay for Lacy's 1996 annual physical exam, not to exceed $2,000. Ingram or Micro, as the case may be, shall pay Lacy directors fees for his service on the Ingram or Micro Board of Directors, if he should serve on either such Board after June 1, 1997. All other employment benefits for Lacy shall cease on the date hereof. 3. Equity Ownership. Lacy represents and warrants that he and members of his immediate family, and trusts established for members of his immediate family (the "Lacy Family") own an aggregate of 1,175,000 shares of the common stock of Ingram ("Common Stock"). Such 1,175,000 shares of Common Stock, along with all securities issued in respect thereof in any stock split, stock dividend, recapitalization, reclassification, merger or the like, including all shares of the Common Stock of Micro issued in the Split-off, as hereinafter defined, shall be referred to as the "Shares". Of such Shares, 1,012,500 are owned beneficially and of record by Lacy individually and 162,500 are owned beneficially and of record by the Trust. All 1,012,500 shares owned by Lacy were purchased from the E. Bronson Ingram 1995 Charitable Remainder 8% Unitrust (the "Unitrust"). Of the 162,500 shares owned by the Trust, 112,500 were purchased from the Unitrust (the 1,125,000 shares purchased from the Unitrust and all securities issued in respect of such shares being herein referred to as the "Unitrust Shares"). Lacy holds an option to purchase 31,985 shares of the Common Stock which vests on December 31, 1998 (the "1998 Option") and an option to purchase 31,985 shares of Common Stock which vests on January l, 1999 (the "1999 Option"). Lacy also holds an option to acquire 120,000 shares of Common Stock, which option is unvested (such option being referred to as the "$1.27 Option"). Lacy also holds an option to acquire 144,000 shares of Common Stock; such option is vested to the extent of Lacy's right to purchase 48,000 shares of Common Stock at $1.932 per share (such option being referred to as the "$1.932 Option"). Lacy 2 3 holds Stock Appreciation Rights covering 62,500 units at an award price of $1.542 per unit (the "$1.542 SARs"), of which 46,875 are vested; Stock Appreciation Rights covering 14,360 units at an award price of $3.160 per unit (the "$3.160-A SARs"); and Stock Appreciation Rights covering 14,360 units at an award price of $3.160 (the "$3.160-B SARs"). Lacy represents that neither he nor members of the Lacy Family own any other equity securities or rights to acquire equity securities of Ingram or any other Ingram Company other than those described above. Lacy represents, and Ingram and Micro acknowledge, that 1,012,500 of the Shares are pledged (the "Pledge") to NationsBank, N.A. (the "Bank") to secure indebtedness of Lacy (the "Bank Loan"). (a) Disposition of the Common Stock. Under the terms of that certain Stock Purchase Agreement dated March 27, 1995, by and among the Unitrust, Lacy and Ingram (the "Stock Purchase Agreement"), Ingram has the right to repurchase the Unitrust Shares at Lacy's cost (which the parties agree is an aggregate of $2,451,600) if Lacy's employment by the Ingram Companies is terminated prior to April 15, 1997. Ingram has the option to purchase the remaining 50,000 Shares at a per-share price equal to the book value of Ingram as of the end of the most recent quarter (which per-share book value the parties agree is $5.28). For and in consideration of Lacy's covenants and agreements herein contained, Ingram agrees that it shall not purchase such 1,175,000 shares of the Common Stock at cost or at book value, as the case may be, other than as set forth in this Agreement. Lacy and the Trust agree that the Shares will be subjected to an escrow (the "Escrow") with a mutually agreeable national bank pursuant to the terms of the Escrow Agreement attached hereto as Exhibit A (the "Escrow Agreement"), subject as to 1,012,500 Shares to the terms of the Pledge. The Escrow Agreement, or one containing materially the same terms, will be entered into on or before June 30, 1996. From the date hereof until the Shares are released from Escrow, neither Lacy nor the Trust will transfer or attempt to transfer any of the Shares or any interest therein, whether by sale, gift, pledge or other form of disposition, or encumber or restrict the Shares in any way, provided, however, that either Lacy or the Trust shall be entitled to direct the escrow agent under the Escrow Agreement (the "Escrow Agent") to sell the Shares as hereinafter provided and to distribute to Lacy or the Trust from the proceeds of sale an amount equal to the anticipated federal, state and local income tax arising from the sale (a "Tax Distribution") upon the condition that the net after-tax proceeds from the sale thereof and all interest thereon (the "Cash Proceeds") shall be retained in Escrow in accordance with the terms of the Escrow Agreement. Within 10 days after notification to the Escrow Agent of Lacy's death or a Change of Control, as hereinafter defined, occurs, all Shares and Cash Proceeds shall be released from Escrow, provided that there shall be no release of Shares or Cash Proceeds to the extent there is pending a claim with respect thereto under the Escrow Agreement. As used herein, the phrase "Change of Control" shall mean a merger, sale or other acquisition which results in the Ingram Affiliates, as hereinafter defined, owning less than 50% of the voting control of Micro. As used herein, the phrase "Ingram Affiliates" shall mean Ingram, its subsidiaries, Martha R. Ingram, her children and their children, the QTIP and any trusts established for the benefit of any of the foregoing. On the date which is 24 months from the date hereof (the "24-Month Anniversary Date"), there shall be released from Escrow one-half the Shares 3 4 originally placed in Escrow and one-half the Cash Proceeds generated from sales of the Shares less the full amount of all releases (other than Tax Distributions) from Escrow, whether in Shares or in Cash Proceeds, during such 24-month period, provided that there shall be no release of Shares or Cash Proceeds to the extent there is pending a claim with respect thereto under the Escrow Agreement. On the date which is 30 months from the date hereof (the "30-Month Anniversary Date"), there shall be released from Escrow the balance of the Shares and the balance of the Cash Proceeds, provided that there shall be no release of Shares or Cash Proceeds to the extent there is pending a claim with respect thereto under the Escrow Agreement. To the extent possible, the Shares owned by the Trust shall be included in the Shares first released from the Escrow. During the term hereof and thereafter, if Micro is a corporation with securities registered under the Securities Exchange Act of 1934 (the "1934 Act"), Lacy and the Trust shall be entitled to sell the Shares (or instruct the Escrow Agent to sell the Shares if they remain subject to the Escrow) in the open market, subject to the obligation that if the Shares are at the time of sale subject to the Escrow, the Cash Proceeds therefrom shall be placed in Escrow. The foregoing is not meant to imply that there are not, or will not be, other restrictions on the ability of Lacy or the Trust to sell the Shares at such time, including those arising under federal or state securities laws or as a result of representations (which shall be no more restrictive on Lacy than on executives of Micro who are not members of the Ingram Family) made in connection with the ruling from the Internal Revenue Service (the "Ruling") in connection with the Split-off. As used herein, the term "Split-off" shall mean the contemplated distribution by Ingram of all the stock of Micro and Ingram Entertainment Inc. to certain shareholders of Ingram on a tax-free basis in accordance with the Ruling. During any period of time when Micro has no securities registered under the 1934 Act but the Split-off has been effected, Lacy and the Trust shall have the right to cause Micro to purchase at any time and from time to time, and Micro shall have the right to cause Lacy and the Trust to sell to Ingram at any time after June 30, 1998, any or all of the Shares at a price equal to their Fair Market Value, all in accordance with the terms of the Escrow Agreement (if the Shares remain subject to the Escrow). The "Fair Market Value" of the Shares shall be defined to mean the fair market value thereof as determined by the Board of Directors of Micro in good faith taking into account as appropriate recent sales of the Micro Shares, recent valuations of the Micro Shares, the lack of liquidity of the Micro Shares and the fact that the Micro Shares represent a minority interest and such other factors as the Board of Directors of Micro shall in its discretion deem relevant or appropriate; provided, however, that if pursuant to the final paragraph of this Section 3(a) there is required to be determined the Fair Market Value of the Shares when Micro is a corporation with securities registered under the 1934 Act, the Fair Market Value shall mean the average closing price of the Shares on the New York Stock Exchange or such other exchange on which the Shares are then traded, for the 10 trading days ending on the third business day immediately preceding the date on which the determination is made. If such puts or calls occur when the Shares are subject to the Escrow, the Cash Proceeds therefrom shall be placed in Escrow. 4 5 During any period of time when Ingram has no securities registered under the 1934 Act and the Split-off has not been effected, Lacy and the Trust shall have the right to cause Ingram to purchase at any time and from time to time, and Ingram shall have the right to cause Lacy and the Trust to sell to Micro after June 30, 1998, any or all of the Shares at a price equal to the Book Value of the Shares as of the end of the most recent quarter, all in accordance with the terms of the Escrow Agreement (if the Shares remain subject to the Escrow). As used herein, the term "Book Value" shall mean book value as determined by the then-independent certified public accountants of Ingram on the basis of Ingram's most recent certified consolidated balance sheet if the relevant date of determination of Book Value is December 31, or if the relevant date of the determination of Book Value is March 31, June 30 or September 30, as determined by Ingram's accountants in accordance with generally accepted accounting principles and practices applied on a consistent basis. If such puts or calls occur when the Shares are subject to the Escrow, the Cash Proceeds therefrom shall be placed in Escrow. If at any time prior to the 30-Month Anniversary Date when neither Ingram nor Micro has securities registered under the 1934 Act, Lacy shall materially violate the terms and conditions of this Agreement and the provisions of the Escrow Agreement with respect to Default Notice and Counter Notices have been complied with (if the Shares remain subject to the Escrow), Lacy and the Trust agree that Ingram, if prior to the Split-off, or Micro, if after the Split-off, shall have the right at its option to purchase the Unitrust Shares at a price of $2.1792 per share (or such equivalent amount as is equitable if the Shares have been converted to shares of the common stock of Micro in the Exchange, as hereinafter defined, or have been split or are otherwise changed or adjusted in a recapitalization, reclassification, merger or the like), and Ingram shall have the right to purchase the balance of the Shares which are not Unitrust Shares at a price equal to their Book Value, if prior to the Split-off, and Micro shall have the right to purchase the balance of the Shares which are not Unitrust Shares at their Fair Market Value, if after the Split-off, all in accordance with the terms of the Escrow Agreement. If any of the Shares have been sold, Ingram or Micro, as the case may be, shall be entitled to the Cash Proceeds therefrom, except as to Cash Proceeds withdrawn from Escrow after the 24-Month Anniversary Date or Cash Proceeds from Shares withdrawn from Escrow after the 24-Month Anniversary Date and subsequently sold. Ingram or Micro, as the case may be, shall be entitled to the benefit of the foregoing provisions of this paragraph without the necessity of proving the amount of damages incurred as a result of such violation of this Agreement. If at any time prior to the 30-Month Anniversary Date when either Ingram or Micro has securities registered under the 1934 Act, Lacy shall materially violate the terms and conditions of this Agreement and the provisions of the Escrow Agreement with respect to Default Notices and Counter Notices have been complied with (if the Shares remain subject to the Escrow) and the amount of damages, whether direct or consequential, to Ingram and Micro from such material violation has been determined, Lacy and the Trust agree that Ingram and Micro shall be entitled to be reimbursed from the Escrow (or from Lacy and the Trust if the Shares are not in Escrow) for such damages by release to Micro of the number of Unitrust Shares equal to the amount of damages so determined, divided by the Fair Market Value of a Unitrust Share as of the date of such release. Further, upon such violation, Ingram 5 6 shall have the right to purchase the balance of the Shares other than the Unitrust Shares at a price equal to their Book Value, if prior to the Split-off, and Micro shall have the right to purchase the balance of the Shares other than the Unitrust Shares at their Fair Market Value, if after the Split-off, all in accordance with the terms of the Escrow Agreement (if the Shares remain subject to the Escrow). If any of the Shares have been sold, Ingram or Micro, as the case may be, shall be entitled to the Cash Proceeds therefrom. b. Options and SARs. The 1998 Option, the 1999 Option, the $1.27 Option, the $1.932 Option, the $1.542 SARs, the $3.160-A SARs and the $3.160-B SARs (collectively, the "Lacy Options and SARs") shall remain outstanding, and continue to vest, to the extent not already fully vested, up to December 31, 1997 regardless of whether Lacy remains as a director of Ingram or Micro, except that if Lacy should resign as a director of Ingram or Micro, such vesting shall cease as the date of such resignation. Subject to the preceding sentence, the Lacy Options and SARs shall continue to be governed by the agreements under which they were granted with respect to certain puts and calls of Lacy and Ingram. 4. Participation in Exchange. Lacy and the Trust agree to exchange the Shares for Micro Shares in the Split-off in the same manner as if Lacy were a Micro employee after the Split-off (the "Exchange"). Lacy agrees that he will use his best efforts to cooperate with the Ingram Companies to effect the Split-off and the Exchange, and to that end will take all such actions as Ingram or Micro may reasonably request to cause the satisfaction of the conditions to the consummation of the Split-off and the Exchange. In the Exchange, all the Shares will be converted to Micro Shares. The Lacy Options and SARs will be converted in the Exchange in the same manner as if Lacy were an Ingram employee after the Split-off, with 72.84% of the Lacy Options and SARs converted into options to acquire common stock of Micro and the remainder left as Ingram options and SARs. 5. Cooperation. From and after the date hereof and for a period of two years, Lacy shall cooperate reasonably on a non-full-time basis with the Ingram Companies, their employees, agents and representatives to assist the businesses and operations of the Ingram Companies, including cooperation with the transition of management and cooperation with Micro's initial public offering. Such cooperation shall include, without limitation, Lacy's provision of any information relating to his activities while an employee of the Ingram Companies. Without limiting the generality of the foregoing, Lacy agrees to serve as a member of the Board of Directors of Micro, if so requested by Ingram, provided that such service shall not extend beyond December 31, 1997. Lacy shall not be required to devote more than 30 hours per month performing duties pursuant to this Section 5 during the first year following the date hereof, and not more than 20 hours per month thereafter. Ingram will reimburse Lacy for all his out-of-pocket expenses incurred in connection with such cooperation. 6. Loss on Sale of House. Ingram agrees to absorb the loss, if any (subject to the limitation below), on the sale of Lacy's house in Nashville, Tennessee. That loss will be calculated as the net receipt upon sale less net original purchase price plus cost of improvements (excluding furniture). Any loss will be reimbursed to Lacy and grossed up for federal and state tax purposes. Ingram's liability under this Section 6 shall be limited to $30,000 of loss on the sale of the house, 6 7 plus real estate commissions paid on the sale of the house and plus the gross-up provided for in the prior sentence. 7. Representations and Warranties of Lacy and the Trust. Lacy and the Trust have the full right, power and authority to enter into this Agreement. This Agreement has been duly and validly executed and delivered by Lacy and the Trust and constitutes a valid and binding obligation of each of them, enforceable against each of them in accordance with its terms. Lacy and the Trust represent and warrant that they own good and marketable title to the Shares and, as to Lacy, the Lacy Options and SARs, free and clear of all liens, encumbrances, pledges, security interests and restrictions whatsoever, and that such securities can be validly transferred without the consent or approval of any other person or entity, provided only, however, that the Shares are subject to the Pledge. The execution, delivery and performance of this Agreement will not, with or without the giving of notice or the passage of time or both, (a) violate any judgment, injunction or order of any court, arbitrator or governmental agency applicable to Lacy or the Trust, or (b) conflict with, result in the breach of any provision of or constitute a default under any agreement or instrument to which Lacy or the Trust is a party or by which either of them may be bound. Lacy further represents that the outstanding principal amount of the Bank Loan is currently $1,980,000. Lacy further represents and warrants that the Bank Loan (a) matures on _____________, (b) bears interest at the rate of ____% per annum, and (c) is secured only by the Shares. Lacy further represents and warrants that he has not received any notice of any default with respect to the Bank Loan, that the Bank Loan is not in default, and that no event has occurred that with the giving of notice, the passage of time or both would constitute a default under the Bank Loan. 8. Representations and Warranties of Ingram. Ingram hereby represents and warrants that it is a corporation duly organized and validly existing in good standing under the laws of the State of Tennessee and has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by Ingram and all of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part. This Agreement has been duly executed and delivered by Ingram and constitutes a valid and binding obligation on its part, enforceable against it in accordance with its terms. The execution, delivery and performance of this Agreement will not, with or without the giving of notice or the passage of time or both, (a) violate any judgment, injunction or order of any court, arbitrator or governmental agency applicable to Ingram, or (b) conflict with, result in the breach of any provision of or constitute a default under any agreement or instrument to which Ingram is a party or by which it may be bound. 9. Representations and Warranties of Micro. Micro hereby represents and warrants that it is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by Micro and all of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part. This Agreement has been duly executed and delivered by Micro and constitutes a valid and binding obligation on its part, enforceable against it in accordance with its terms. The execution, delivery and performance of this Agreement will not, with or without the 7 8 giving of notice or the passage of time or both, (a) violate any judgment, injunction or order of any court, arbitrator or governmental agency applicable to Micro, or (b) conflict with, result in the breach of any provision of or constitute a default under any agreement or instrument to which Micro is a party or by which it may be bound. 10. Confidential Information. Lacy acknowledges that as a part of his employment by the Ingram Companies, he has been afforded access to confidential information (as hereinafter defined and referred to as "Confidential Information"), and that public disclosure of such Confidential Information would have a material adverse effect on the Ingram Companies. Except in connection with his role as a member of the Board of Directors of Ingram or in connection with performing duties pursuant to Section 5 hereof, and except as required by law or legal process, Lacy agrees not to, directly or indirectly, without the prior, express written consent of each of Ingram and Micro, use, take advantage of, disclose, or divulge to any person or entity any Confidential Information. Confidential Information means any confidential, proprietary, business or technical information of any Ingram Company or any confidential information relating to a current or former officer or director of an Ingram Company. Such Confidential Information includes, but is not limited to, any of the following relating to any Ingram Company: a. trade secrets concerning the business and affairs of any Ingram Company, any Employee Invention (as hereinafter defined), product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, past, current and planned manufacturing or distribution methods and processes, customer lists, prospective customers, current and anticipated customer requirements, price lists, pricing policies and processes, any course of dealing with any person or entity, market studies, business plans, computer software and programs (including object codes and source codes, program logic algorithms, subroutines, modules, or subparts of computer programs and related documentation, including program notation), computer processing systems and techniques, computer hardware, software and database technologies, configurations, interfaces, systems, structures, and architectures (and related formulae, compositions, processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods, and information), manuals, and any other information, however documented or evidenced, that is a trade secret within the meaning of any federal or state trade secret law; and b. information concerning the business and affairs of any Ingram Company, including contractual arrangements or terms, historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names, personnel information regarding employees, including, but not limited to, names and backgrounds of personnel, and personnel training techniques and materials, however, documented or evidenced. Failure by any Ingram Company to designate or mark any 8 9 Confidential Information as confidential or proprietary shall not affect or impair its status as Confidential Information under this Agreement. Lacy agrees to comply with the Ingram Industries Business Ethics Code insofar as it relates, directly or indirectly, to the termination of his employment. Lacy agrees to return immediately to Ingram or Micro all property of any Ingram Company and all Confidential Information and summaries thereof in his possession, and Lacy agrees not to copy or otherwise record or retain such Confidential Information or summaries thereof. Notwithstanding the foregoing, Lacy shall be permitted to retain the Compaq personal computer, printer and fax machine at his home office in Nashville, the NEC notebook, the Motorola portable telephone and the parts and accessories for all the above items. While serving as a member of the Board of Directors of either Ingram or Micro, Lacy shall be entitled to continue to charge his telephone calls through Micro's MCI account, with billings to continue to be sent to his home and paid by Lacy. Lacy recognizes that the Confidential Information is a valuable and unique asset of the Ingram Companies. Without the prior express written consent of Ingram or except as required by law or legal process, Lacy agrees not to grant interviews, write articles or books, issue news releases or engage in other communications that relate to (i) his tenure at any of the Ingram Companies, (ii) this Agreement or the events or transactions relating hereto, or (iii) that contain Confidential Information. Without the prior express written consent of Lacy or except as required by law or legal process, Ingram and Micro agree that they will cause the officers and directors of the Ingram Companies not to grant interviews, write articles or books, issue news releases or engage in other communications that relate to (i) Lacy's tenure at any of the Ingram Companies, (ii) this Agreement or the events or transactions relating hereto, or (iii) that contain Confidential Information relating to Lacy. Each of the parties hereto agrees that no party shall release, publish, announce or otherwise make available to the public in any manner whatsoever any information or announcement regarding this Agreement or the transactions contemplated hereby without the prior written consent of each of the parties hereto, except as required by law or legal process, including, in the case of Micro, filings with the Securities and Exchange Commission. Lacy agrees not to communicate with, including responding to questions or inquiries presented by, the media, employees or investors of any Ingram Company or any third party relating to his resignation or the terms of this Agreement, without first obtaining the prior written consent of Ingram. Ingram and Micro agree not to take any action to disparage, dissipate or negatively affect the reputation of Lacy or his goodwill with employees, customers, suppliers, competitors, vendors, stockholders or lenders of Ingram, Micro, or any other third party. 11. Employee Inventions. Lacy acknowledges that all of Lacy's works of authorship relating to any Ingram Company, specially commissioned works, and other employee inventions (as hereinafter defined and referred to as "Employee Inventions"), were works made for hire and are the property of the Ingram Companies, including any copyrights, patents or other intellectual property rights pertaining thereto. If it is determined that any such works were not works made for hire, Lacy hereby assigns to Ingram all of Lacy's right, title, and interest, including all rights of copyright, patent and other intellectual property rights, to or in such Employee Inventions. Lacy covenants that he will promptly: (a) disclose to Ingram in writing any Employee Invention; (b) assign to Ingram 9 10 or to a party designated by it, at its request and without additional compensation, all of Lacy's right to the Employee Invention for the United States and all foreign jurisdictions; (c) execute and deliver to Ingram such applications, assignments and other documents as they may reasonably request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (d) sign all other papers necessary to carry out the above obligations; and (e) give testimony and render any other reasonable assistance in support of the rights of Ingram to any Employee Invention. For purposes of this Section 11, "Employee Invention" is defined as any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registrable or not), and any work of authorship (whether or not copyright protection may be obtained for it), created, conceived, or developed by Lacy, either solely or in conjunction with others, during the period of employment, or a period that includes a portion of the employment period, that relates in any way to, or is useful in any manner in, the business (existing or proposed) of any Ingram Company, and any such item created, conceived or developed by Lacy, either solely or in conjunction with others, following termination of Lacy's employment with Ingram and Micro that is wholly or partially based upon, dependent upon or uses any Confidential Information. 12. Restrictive Covenant. Lacy acknowledges that he has specialized knowledge and experience in the businesses of the Ingram Companies, that his reputation and contacts within the industries in which the Ingram Companies operate are of great value to the Ingram Companies, that if his knowledge, experience, reputation or contacts were used to compete in any way with any of the Ingram Companies, serious, irreparable harm to the Ingram Companies would result, that the businesses of the Ingram Companies are international in scope and their products are marketed throughout the world, and that the provisions of this Section 12 are reasonable and necessary to protect the businesses of the Ingram Companies. Thus, Lacy agrees that for a period of 30 months after the date hereof, Lacy shall not, without prior express written consent of each of Ingram and Micro, directly or indirectly: a. in competition with any other Ingram Company, solicit business from, perform services for, or otherwise interfere with any persons, company or other entity which are customers, clients, vendors, or suppliers of any Ingram Company, or any potential customers, clients, vendors or suppliers of any Ingram Company with whom such Ingram Company has had substantial contact during the six month period prior to the date of this Agreement; b. solicit for employment, or in any other fashion hire, engage as an independent contractor or consultant, or interfere with, any person who is or was an employee of any Ingram Company during the six month period prior to the date hereof or during the two year period after execution of this Agreement, or in any manner induce or attempt to induce any employee of any Ingram Company to terminate his or her employment with such Ingram Company; 10 11 c. take any non-privileged action, disparage, dissipate or negatively affect the goodwill, business, prospects, or reputation of any Ingram Company or its relationships with its employees, customers, suppliers, competitors, vendors, stockholders, lenders, prospective investors, prospective purchasers of any businesses or assets of any Ingram Company, or others; or d. own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control, or be connected with, as a proprietor, officer, director, employee, partner, principal, agent, representative, consultant, investor (other than as a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market), provided that Lacy at no time owns, directly or indirectly, in excess of 2% of the outstanding stock of any class of any such corporation, any business or enterprise engaged in the computer hardware or software distribution, video distribution or book distribution business or associated businesses in any location in the world. Notwithstanding the foregoing, Lacy shall be entitled to become associated with a customer or vendor of Micro so long as such customer or vendor does not compete directly or indirectly with an Ingram Company in the computer hardware or software distribution, video distribution or book distribution business or associated businesses. The parties hereto acknowledge that Lacy owns less than 10% of Earthlink, a privately held company which does not compete with any Ingram Company and in which Lacy has no involvement in management other than service as a director. 13. Violations of Covenants. Lacy further agrees and acknowledges that the violation by Lacy of the covenants set forth in Sections 10, 11 and 12 hereof would cause irreparable injury to the Ingram Companies and that the remedy at law for any violation or threatened violation thereof by him would be inadequate and that Ingram and Micro shall be entitled, in addition to any other rights they might have, to temporary and permanent injunctive relief or other equitable relief without the necessity of posting bond or proving actual damages. Ingram and Micro agree and acknowledge that their violation of the covenants set forth in Section 10 hereof would cause irreparable injury to Lacy and that the remedy at law for any violation or threatened violation thereof by them would be inadequate and that Lacy shall be entitled, in addition to any other rights he may have, to temporary and permanent injunctive relief or other equitable relief without the necessity of posting bond or providing actual damages. The provisions of Sections 10, 11 and 12 shall not be affected by whether or not the Shares are subject to the Escrow. 14. Arrangements and Covenants Regarding Bank Loan. Lacy and the Trust hereby covenant and agree that (a) except for the Bank Loan, neither will allow the Shares to serve as collateral for any indebtedness(es) or obligation(s) that either may now or hereafter have to or with the Bank, (b) neither will increase the principal amount of the Bank Loan, (c) neither will allow a default to exist under the Bank Loan beyond the expiration of any applicable grace or cure period, (d) each will cause the Bank Loan to be fully repaid at its stated maturity, without extension, (e) a default under the Bank Loan shall constitute a default and breach by Lacy and the Trust under this Agreement, (f) upon release of the Bank's security interest in the Shares for any reason whatsoever, Lacy and the Trust shall cause the Shares to be delivered immediately to the Escrow Agent under 11 12 the Escrow Agreement, (g) Lacy and the Trust shall, jointly and severally, be obligated to reimburse Ingram and Micro for any costs, expenses or amounts paid by them with respect to the Bank Loan (including any payments made to the Bank under the next succeeding paragraph) (collectively "Ingram Bank Payments"), and (h) Ingram and Micro shall have the right to set-off the Ingram Bank Payments against any amounts that either of them may now or hereafter owe to Lacy or the Trust hereunder. The Bank, Lacy and the Trust shall, on or before June 30, 1996, enter into an agreement reasonably satisfactory to Ingram and Micro, which shall provide, among other things, as follows: (a) subject to the Bank's first priority security interest, the Bank shall hold the Shares for the benefit of Lacy, the Trust, Ingram and Micro, (b) upon repayment of the Bank Loan or release of the Shares from the Bank's security interest for any reason whatsoever, the Bank shall immediately deliver the Shares to the Escrow Agent, (c) the Bank shall provide Ingram and Micro with notice of any default or potential default under the Bank Loan and a reasonable opportunity to cure the same, (d) prior to foreclosing upon the Shares or in the event that a default occurs under the Bank Loan, the Bank shall allow Ingram or Micro to purchase the Bank Loan for an amount equal to the outstanding principal balance thereof plus all accrued interest with respect thereto, and (e) following the occurrence of a default under the Bank Loan, Ingram or Micro shall have the right to repay the Bank Loan in full and obtain a release of the Bank's security interest in the Shares. The Bank shall also represent, warrant and covenant that (a) the Bank Loan is currently not in default and is in good standing, (b) the Bank Loan is secured only by the Shares, (c) the Shares do not, and will not, secure any other obligation or indebtedness of Lacy or the Trust to the Bank, (d) the Bank Loan is not, and shall not be, cross-defaulted with any other indebtedness or obligation, (e) the Bank shall not allow the principal amount of the Bank Loan to be increased or its maturity date extended, (f) the representations and warranties of Lacy and the Trust hereunder with respect to the Bank Loan are correct, and (g) the Bank shall not transfer, assign or otherwise convey the Bank Loan or any interest therein in any way. 15. Release by Lacy. Effective immediately, Lacy hereby fully, finally and irrevocably discharges Ingram, Micro and each Ingram Company, and each present, former and future director, officer and employee of Ingram, Micro or any Ingram Company or any parent, subsidiary, affiliate and shareholder thereof (the "Ingram Released Parties") from all manner of claims, actions, causes of action or suits, in law or in equity, which Lacy has or may have, known or unknown, against the Ingram Released Parties, or any of them, by reason of any matter, cause or thing whatsoever, including any action arising from or during his employment with Ingram and Micro, resulting from or relating to his resignation from such employment, relating to his status as a shareholder, optionholder, SAR holder, officer, director, employee or participant in any employee benefit plan of any Ingram Company, provided, however, that the foregoing (a) is not intended to be, and shall not constitute, a release of any right of Lacy to seek indemnification from Ingram, Micro or any Ingram Company with respect to claims based upon or arising from alleged or actual acts or omissions of Lacy as an officer, director or employee of Ingram, Micro or any Ingram Company, and (b) shall not release Ingram or Micro from liability for violations of this Agreement after the date hereof. From and after the date hereof, Lacy agrees and covenants not to sue, or threaten suit against, or make any claim against, any Ingram Company for or alleging any of the claims, actions, causes of action or suits as discussed above. Lacy acknowledges that this release includes, but is not 12 13 limited to, all claims arising under federal, state or local laws prohibiting employment discrimination and all claims growing out of any legal restrictions on the right of any Ingram Company to terminate its employees. Lacy also specifically waives and releases all claims of employment discrimination and all rights available to him under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), the Employment Retirement Income Security Act (ERISA), as well as all claims or rights under Tennessee Code Annotated Section 4-21-101, et seq. or Section 50-1-304, et seq. or any similar law of any jurisdiction. Lacy specifically agrees that he will not institute litigation in any forum, including any filing with any regulatory commission or agency, against any Ingram Released Party based on any allegations or circumstances that are in any way connected with his employment or the termination of his employment. 16. Release by Ingram. Effective immediately, each of Ingram and Micro releases and discharges Lacy, his heirs, personal representatives, successors and assigns from all manner of claims, actions, causes of action or suit, in law or in equity, which any Ingram Company has or hereafter can, shall or may have against Lacy by reason of any matter, cause or thing whatsoever, including any action arising from or during his employment with any Ingram Company, resulting from his resignation from such employment, related to his status as a shareholder, optionholder, officer, director, employee or participant in any Ingram Company employee benefit plan, provided, however, that the foregoing shall not include a release of Lacy for his violations of law, for violations of this Agreement, or violations of the Ingram Industries Business Ethics Code after the date hereof. From and after the date hereof, each of Ingram and Micro agrees and covenants not to sue, or threaten suit against, or make any claim against, Lacy for or alleging any of the claims, actions, causes of action or suits as discussed above. 17. Miscellaneous. a. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Ingram and Micro, their successors and assigns, and Lacy and his heirs, personal representatives, successors and assigns. b. Survival. All representations and warranties contained in this Agreement shall survive the execution and delivery hereof. c. Specific Performance; Legal Fees. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof, or any international court having jurisdiction, this being in addition to any other remedy to which they are entitled under this Agreement or at law or in equity. In addition, any party that is required to enforce the terms and provisions of this Agreement and is successful therein and any party that prevails in connection with any litigation or legal proceeding relating hereto shall be reimbursed by the other party for 13 14 all costs and expenses, including reasonable legal fees incurred in connection with such legal proceeding. d. Entire Agreement. This Agreement, the Escrow Agreement, the Ingram Industries Business Ethics Code and the agreements relating to the Lacy Options and SARs constitute the entire agreement among Ingram, Micro and Lacy relating to the subject matter hereof; there are no terms other than those contained herein or therein; this Agreement terminates, cancels, supersedes any and all prior agreements and understandings among the parties (including without limitation all employment agreements and the Stock Purchase Agreement). In the case of any inconsistency between the terms of this Agreement and the terms of the Escrow Agreement, on the one hand, and the agreements relating to the Lacy Options and SARs, on the other hand, the terms of this Agreement and the Escrow Agreement shall govern and control. This Agreement may not be modified or amended except in a writing signed by the parties hereto. e. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee without giving effect to principles of conflicts of law. f. Consent to Jurisdiction and Venue. Each party hereto irrevocably submits to the exclusive jurisdiction of any Untied States Federal Court sitting in the Middle District of Tennessee, or if no federal jurisdiction lies, in any Tennessee State Court, over any suit, action or proceeding arising out of or relating to this Agreement. The venue of any dispute, controversy, litigation or proceeding arising out of this Agreement shall be exclusively in the County of Davidson, State of Tennessee. Each party hereto irrevocably waives any objection to venue in state or federal courts sitting in Davidson County, Tennessee, and waives irrevocably any claim of inconvenient forum. Lacy specifically agrees and acknowledges that this provision has been expressly bargained for by Ingram and Micro, and that its inclusion has been a material inducement for Ingram and Micro to enter into this Agreement. g. Underwriters' Lockup. Lacy agrees to sign a lockup agreement if requested by the underwriters of Micro's initial public offering and subsequent offerings restricting the sale of his shares in Micro to the same extent as required of other significant shareholders of Micro. Micro will strive to minimize these restrictions consistent with its best interest. h. No Election of Remedies. Notwithstanding anything herein to the contrary, the parties hereto agree that to the extent that Lacy fails to perform his covenants and obligations hereunder or materially violates any term or condition hereof, (i) Ingram and Micro shall be entitled to suspend any payments or obligations under Section 2 hereof and (ii) Ingram and Micro shall be entitled to the rights set forth in Section 3 hereof and in the Escrow Agreement. The remedies of Ingram and Micro for the violation of this Agreement shall not be limited to those described in (i) or (ii) above, and nothing herein shall preclude Ingram or Micro from pursuing other remedies for the violation of the terms hereof. 14 15 i. Counterparts. This Agreement may be executed in counterparts, which together shall constitute one and the same agreement. Ingram, Micro and Lacy agree that this Agreement shall be binding and enforceable among them to the fullest extent possible regardless of whether the Trust executes this Agreement, the Escrow Agreement is signed or the Agreement contemplated by Section 14 hereof is signed. Each party hereto shall use its or his best efforts to cause the full execution of this Agreement and such other agreements. j. Enforceability. The provisions of this Agreement shall not be construed strictly for or against any party hereto. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions, because it conflicts with any provisions of any constitution, statute, rule or public policy, or for any reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. If any provision of this Agreement shall be held or deemed to impose restrictions which are too broad, too lengthy or otherwise unreasonable, the parties hereto agree to be bound by a court's decision as to what restrictions would be reasonable and acknowledge that such court has the authority and discretion to make such a determination. The parties hereby waive any inference that this Agreement should be construed against the drafter. k. Confidentiality of this Agreement. Lacy agrees to maintain absolute confidentiality and secrecy concerning the terms of this Agreement and will not reveal, or disseminate by publication in any manner whatsoever, this Agreement or any matters pertaining to it, to any other person, including but not limited to any past or present employee of any Ingram Company or any media representative except as required by law or legal process. This confidentiality provision does not apply to communications necessary between immediate family members or legal and financial planners or tax preparers who are also bound by this confidentiality agreement. Ingram and Micro shall treat the terms of this Agreement as strictly confidential and will disseminate them only to those Ingram and Micro personnel or members of their Board of Directors whose approval of this Agreement is required or who are responsible for taking some action required by said Agreement, or as required by law or legal process. Micro agrees that, to the extent practicable, it will allow Lacy to review and comment upon disclosures regarding Lacy in documents to be filed with the Securities and Exchange Commission in the anticipated initial public offering, and will consider and incorporate to the extent reasonable comments made by Lacy thereon, all to the extent that such comments can be incorporated consistently with applicable law and regulations. l. Acknowledgment by Lacy. Lacy hereby acknowledges that he has carefully read and fully understands all the provisions of this Agreement. He further acknowledges that this Agreement sets forth the entire agreement among himself, Ingram and Micro. Lacy hereby acknowledges that, in considering whether to sign this Agreement, he has not relied 15 16 upon any representation or statement, written or oral, not set forth in this Agreement and that he has not been threatened or coerced into signing this Agreement by any official of any Ingram Company and that he has read, understood, and fully and voluntarily accepts the terms of this Agreement. Lacy at all times has been represented by legal counsel, and acknowledges that he has been advised to and has had full opportunity and sufficient time to discuss the terms of this Agreement with his counsel and understands that this is a full release of any and all claims against the Ingram Companies, and that he intends to be legally bound by same. m. Captions. The captions herein are for purposes of identification only and shall not be considered in construing this Agreement. 18. Legal Fees. Each of the parties hereto agrees to pay its own legal fees in connection with the preparation and negotiation of this Agreement, provided that Micro will reimburse to Lacy as a reimbursable business expense the legal fees and costs of Solomon, Ward, Seidenwurm & Smith in connection with corporate governance and related issues and this Agreement and related documents, up to a maximum of $25,000. 19. Waiver of Trial by Jury. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES AND THE STATE OF TENNESSEE. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR (b) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH PARTY HERETO HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT EACH PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 16 17 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. INGRAM INDUSTRIES INC. By: ROY E. CLAVERIE ----------------------------- Title: Senior Vice President ----------------------------- INGRAM MICRO INC. By: MARTHA R. INGRAM ----------------------------- Title: Chairman ----------------------------- /s/ LINWOOD A. LACY, JR. ----------------------------- LINWOOD A. LACY, JR. NATIONSBANK, N.A., as Trustee of the Linwood A. Lacy, Jr. 1996 Irrevocable Trust dated February 1996 By: ----------------------------- Title: ----------------------------- 17 18 EXHIBIT A FORM OF ESCROW AGREEMENT This Escrow Agreement, dated _______________, among INGRAM INDUSTRIES INC., a Tennessee corporation ("Ingram"); INGRAM MICRO INC., a Delaware corporation ("Micro"); LINWOOD A. LACY, JR., a resident of Nashville, Tennessee; NATIONSBANK, N.A. as Trustee of the Linwood A. Lacy, Jr., 1996 Irrevocable Trust dated February 1996 (the "Trust"); and ___________, a [national banking association], as escrow agent ("Escrow Agent"). This is the Escrow Agreement referred to in the Agreement of even date herewith among Ingram, Micro, the Trust and Lacy (the "Lacy Agreement"). Capitalized terms used in this Agreement without definition shall have the respective meanings given to them in the Lacy Agreement. The parties, intending to be legally bound, hereby agree as follows: 1. ESTABLISHMENT OF ESCROW a. Lacy is depositing with Escrow Agent the following stock certificates: __________________________ issued by Ingram owned beneficially and of record by Lacy and the following stock certificates: _____________________________ issued by Ingram and owned beneficially and of record by the Trust (collectively, along with any shares of common stock of Ingram or Micro issued in respect of the Escrow Shares, including shares of the common stock of Micro issued in the Split-off, referred to as the "Escrow Shares"). Escrow Agent acknowledges receipt thereof. b. Escrow Agent hereby agrees to act as escrow agent and to hold, safeguard and disburse the Escrow Shares pursuant to the terms and conditions hereof. 2. DISPOSITION OF ESCROW SHARES a. Generally. Escrow Agent shall hold the Escrow Shares in escrow (the "Escrow") pending their disposition in accordance with the Lacy Agreement. b. No Transfers. Lacy and the Trust are not permitted prior to the 30-Month Anniversary Date to transfer or attempt to transfer any of the Escrow Shares or any interest therein, whether by sale, gift, pledge or other form of disposition, or encumber or restrict the Escrow Shares 19 in any way, provided, however, that (i) either Lacy or the Trust shall be entitled to direct the Escrow Agent to sell the Escrow Shares and to distribute to Lacy or the Trust an amount equal to the anticipated federal, state and local income tax arising from the sale upon the condition that the net after-tax proceeds from the sale thereof and all interest thereon (the "Cash Proceeds") shall be retained in Escrow in accordance with the terms hereof and (ii) Lacy and the Trust shall exchange the Escrow Shares for shares issued by Micro in the contemplated Split-Off. Escrow Agent shall not honor and shall disregard any notice of such a transfer, conveyance or disposition prior to the 30-Month Anniversary Date, except as provided for herein. c. Period Subject to Escrow. On or after the 24-Month Anniversary Date, if no Default Notice shall have previously been delivered, Lacy may deliver to the other parties hereto a written notice (the "First Release Notice") stating that (i) the 24-Month Anniversary Date has passed; (ii) Lacy has not materially violated the provisions of the Lacy Agreement; and (iii) Lacy and the Trust are requesting that one-half the Escrow Shares originally placed in Escrow and one-half the Cash Proceeds generated from sales of the Escrow Shares less the full amount of all releases from Escrow, whether in Shares or in Cash Proceeds (other than Tax Distributions) during such 24-month period be delivered to them, as applicable. On or after the 30-Month Anniversary Date, if no Default Notice shall have previously been delivered, Lacy may deliver to the other parties hereto a written notice (the "Second Release Notice") stating that (i) the 30-Month Anniversary Date has passed; (ii) Lacy has not materially violated the provisions of the Lacy Agreement and (iii) Lacy and the Trust are requesting that the balance of the Escrow Shares and the balance of the Cash Proceeds generated from sales of the Escrow Shares be delivered to them, as applicable. At any time during the term of the Escrow, Lacy or his estate may deliver to the other parties hereto a written notice (the "Further Release Notice") stating that (i) Lacy has died or a change of control of Micro has occurred; (ii) Lacy has not materially violated the provisions of the Lacy Agreement and (iii) Lacy and the Trust are requesting that the balance of the Escrow Shares and the balance of the Cash Proceeds generated from sales of the Escrow Shares be delivered to them, as applicable. If Ingram or Micro gives a Counter Notice within 30 days following Escrow Agent's receipt of the First Release Notice, the Second Release Notice or the Further Release Notice, as the case may be, such dispute shall be resolved as provided in Section 2(g) below. If no Counter Notice is received within the applicable 30-day period, then Escrow Agent shall deliver such Escrow Shares and such Cash Proceeds to Lacy and the Trust, as applicable. d. Default. On or before the 30-Month Anniversary Date, when neither Ingram nor Micro have securities registered under the 1934 Act, either Ingram, if prior to the Split-Off, or Micro, if after the Split-Off, may give notice to the other parties to this Agreement of a material violation by Lacy or the Trust of any provision of the Lacy Agreement, which notice shall specify in reasonable detail the nature of such violation (a "Default Notice"). If Lacy gives a Counter Notice (as hereinafter defined) within 30 days following receipt by Escrow Agent of the Default Notice, such dispute shall be resolved as provided in Section 2(g) below. If no Counter Notice is received by Escrow Agent within such 30-day period, then the Escrow Agent shall deliver the Escrow Shares remaining in Escrow to Ingram or Micro, as the case may be, upon its payment of $2.1792 per share for the Unitrust Shares (or such equivalent amount as is equitable if the Escrow 2 20 Shares have been converted to shares of the common stock of Micro in the Exchange, or have been split or are otherwise changed or adjusted in a recapitalization, reclassification, merger or the like), and the Escrow Agent shall deliver to Ingram the balance of the Escrow Shares upon its payment of their Book Value, if prior to the Split-off, or the Escrow Agent shall deliver to Micro the balance of the Escrow Shares upon its payment of their Fair Market Value, if after the Split-off. If any of the Escrow Shares have been sold, the Escrow Agent shall deliver to Ingram or Micro, as the case may be, the Cash Proceeds therefrom. On or before the 30-Month Anniversary Date when either Ingram or Micro has securities registered under the 1934 Act, either Ingram or Micro may give a Default Notice, which shall contain a statement of the amount of damages, whether direct or consequential, suffered by the Ingram Companies (the "Damages Amount"). If Lacy gives a Counter Notice within 30 days following receipt by Escrow Agent of the Default Notice, such dispute shall be resolved as provided in Section 2(g) below. If no Counter Notice is received by Escrow Agent within such 30-day period, Escrow Agent shall release such number of the Unitrust Shares as equals the Damages Amount divided by the Fair Market Value of a Unitrust Share. In any event, the Escrow Shares owned by the Trust shall, to the extent practicable, be transferred from Escrow first, followed by the Unitrust Shares owned by Lacy. e. Pre-IPO Post-Split-Off. If no Default Notice shall previously have been delivered, either Lacy and the Trust, at any time after the date hereof and prior to the 30-Month Anniversary Date, or Micro, after June 30, 1998 and prior to the 30-Month Anniversary Date, may deliver to the other parties to this Agreement a written notice (a "Pre-IPO Post-Split-Off Notice"), which shall specify (i) that Micro is not a corporation with securities registered under the 1934 Act, (ii) that a Split-Off has been effected and (iii) the Fair Market Value of the Escrow Shares and the details of, and the supporting materials for, the calculation thereof. If any party gives a Counter Notice within 30 days after Escrow Agent's receipt of a Pre-IPO Post-Split-Off Notice, such dispute shall be resolved as provided in Section 2(g) below. If no Counter Notice is received within such 30 day period, then Escrow Agent shall deliver the Escrow Shares to Micro, and Micro shall deliver to Escrow Agent payment in immediately available funds of an amount equal to Fair Market Value of the Escrow Shares as set forth in the Pre-IPO Post-Split-Off Notice. f. Pre-IPO Pre-Split Off. If no Default Notice shall previously have been delivered, either Lacy and the Trust, at any time after the date hereof and prior to the 30-Month Anniversary Date, or Ingram, after June 30, 1998 and prior to the 30-Month Anniversary Date, may deliver to the other parties to this Agreement a written notice (a "Pre-IPO Pre-Split-Off Notice"), which shall specify (i) that Micro is not a corporation with securities registered under the 1934 Act, (ii) that a Split-Off has not been effected and (iii) the Book Value of the Escrow Shares and the details of, and the supporting materials for, the calculation thereof. If any party gives a Counter Notice within 30 days after its receipt of a Pre-IPO Pre-Split-Off Notice, such dispute shall be resolved as provided in Section 2(g) below. If no Counter Notice is received within such 30-day period, then Escrow Agent shall deliver the Escrow Shares to Ingram, and Ingram shall deliver to Escrow Agent payment in immediately available funds of an amount equal to the Book Value of the Escrow Shares as set forth in the Pre-IPO Pre-Split-Off Notice. 3 21 g. Counter Notices; Disputes. A Counter Notice shall mean any written notice disputing any matter set forth in a Default Notice; a Pre-IPO Post-Split-Off Notice; or a Pre-IPO Pre-Split-Off Notice (including without limitation, the facts underlying such notice or the calculation of the Fair Market Value of the Shares or Book Value of the Escrow Shares). If a Counter Notice is given in response to any notice, Escrow Agent shall dispose of the Escrow Shares only in accordance with (i) joint written instructions of the parties hereto or (ii) a final non-appealable order of a court of competent jurisdiction. Any court order shall be accompanied by a legal opinion of counsel for the presenting party satisfactory to Escrow Agent to the effect that the order is final and non-appealable. Escrow Agent shall act on such court order and legal opinion without further question. 3. TERMINATION OF ESCROW On the 30-Month Anniversary Date, Escrow Agent shall deliver the Escrow Shares and the Cash Proceeds to Lacy and the Trust, provided that no Default Notice shall previously have been issued and no dispute under Section 2(g) shall be existing. If there is a Default Notice under Section 2(g), Escrow Agent shall continue to hold the Escrow Shares and the Cash Proceeds until it receives joint written instructions of the parties or a final non-appealable order of a court of competent jurisdiction as contemplated by Section 2(g). 4. DUTIES OF ESCROW AGENT a. Escrow Agent shall not be under any duty to give the Escrow Shares held by it hereunder any greater degree of care than it gives its own similar property. b. Escrow Agent shall not be liable, except for its own gross negligence or willful misconduct and, except with respect to claims based upon such gross negligence or willful misconduct that are successfully asserted against Escrow Agent, the other parties hereto shall jointly and severally indemnify and hold harmless Escrow Agent (and any successor Escrow Agent) from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys' fees and disbursements, arising out of and in connection with this Agreement. c. Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact or matter stated therein or the propriety or validity of the service thereof. Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and may assume that the person purporting to give receipt or advice, or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. Escrow Agent may conclusively presume that the representative of any party 4 22 hereto which is an entity other than a natural person has full power and authority to instruct Escrow Agent on behalf of that party unless written notice to the contrary is delivered to Escrow Agent. d. Escrow Agent may act pursuant to the advice of counsel with respect to any matter relating to this Agreement and shall not be liable for any action taken or omitted by it in good faith in accordance with such advice. e. Escrow Agent does not have any interest in the Escrow Shares deposited hereunder but is serving as escrow holder only and having only possession thereof. Any payments of income from the Escrow Shares shall be subject to withholding regulations then in force with respect to United States taxes. The parties hereto will provide Escrow Agent with appropriate tax identification number certification, if requested. f. Escrow Agent makes no representation as to the validity, value, genuineness or the collectability of any security or other document or instrument held by or delivered to it. g. Escrow Agent shall not be called upon to advise any party as to the wisdom in selling or retaining or taking or refraining from any action with respect to any securities or other property deposited hereunder. h. Escrow Agent (and any successor Escrow Agent) may at any time resign as such by delivering the Escrow Shares to any successor Escrow Agent jointly designated by the other parties hereto in writing, or to any court of competent jurisdiction, whereupon Escrow Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. The resignation of Escrow Agent will take effect on the earlier of (i) the appointment of a successor (including a court of competent jurisdiction) or (ii) the day which is 30 days after the date of delivery of its written notice of resignation to the other parties hereto. If at that time Escrow Agent has not received a designation of a successor Escrow Agent, Escrow Agent's sole responsibility after that time shall be to retain and safeguard the Escrow Shares until receipt of a designation of successor Escrow Agent or a joint written disposition instruction by the other parties hereto or a final non-appealable order of a court of competent jurisdiction. i. In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Shares, or in the event that Escrow Agent is in doubt as to what action it should take hereunder, Escrow Agent shall be entitled to retain the Escrow Shares until Escrow Agent shall have received (i) a final non-appealable order of a court of competent jurisdiction directing delivery of the Escrow Shares or (ii) a written agreement executed by the other parties hereto directing delivery of the Escrow Shares, in which event Escrow Agent shall disburse the Escrow Shares in accordance with such order or agreement. Any court order shall be accompanied by a legal opinion of counsel for the presenting party satisfactory to Escrow Agent to the effect that the order is final and non-appealable. Escrow Agent shall act on such court order and legal opinion without further question. 5 23 j. The parties hereto shall pay Escrow Agent compensation (as payment in full) for the services to be rendered by Escrow Agent hereunder in the amount of $_________ at the time of execution of this Agreement and $_____________ annually thereafter, and agree to reimburse Escrow Agent for all reasonable expenses, disbursements and advances incurred or made by Escrow Agent in the performance of its duties hereunder (including reasonable fees, expenses and disbursements of its counsel). Any such compensation and reimbursement to which Escrow Agent is entitled shall be borne by Micro. Any fees or expenses of Escrow Agent or its counsel that are not paid as provided for herein must be paid as a condition to the release of the Escrowed Shares. k. No printed or other matter in any language (including, without limitation, prospectuses, notices, reports and promotional material) that mentions Escrow Agent's name or the rights, powers, or duties of Escrow Agent shall be issued by the other parties hereto or on such parties' behalf unless Escrow Agent shall first have given its specific written consent thereto. l. The other parties hereto authorize Escrow Agent, for any securities held hereunder, to use the services of any United States central securities depository it reasonably deems appropriate, including, without limitation, the Depository Trust Company. 5. LIMITED RESPONSIBILITY This Agreement expressly sets forth all the duties of Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against Escrow Agent. Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Agreement. 6. OWNERSHIP OF ESCROW SHARES Lacy and the Trust agree that, for purposes of this Agreement (including federal and other taxes based on income), Lacy and the Trust will be treated as the owner of 86.2% and 13.8% of the Escrow Shares, respectively, and that Lacy and the Trust will report all income, if any, that is earned on, or derived from, the Escrow Shares as their income, in such proportions, in the taxable year or years in which such income is properly includable and pay any taxes attributable thereto. 7. NOTICES All notices, consents, waivers and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written 6 24 confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt) provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): To Ingram: Ingram Industries Inc. 4400 Harding Road Nashville, Tennessee 37205 Attention: General Counsel with a copy to: Bass, Berry & Sims 2700 First American Center Nashville, Tennessee 37238 Attention: Leigh Walton To Micro: Ingram Micro Inc. 1600 East Saint Andrew Place Santa Ana, California 92705 Attention: General Counsel To Lacy: Linwood A. Lacy, Jr. /s/ Linwood A. Lacy, Jr. --------------------- Nashville, Tennessee ______ with a copy to: Linwood A. Lacy, Jr. 2304 Cranborne Road Midlothian, Virginia 23113 and a copy to: Mr. Richard L. Seidenwurm Solomon Ward Seidenwurm & Smith 401 B Street, Suite 1200 San Diego, California 92101 To Trust: NationsBank, N.A. --------------------- Richmond, Virginia Attention: Mr. Phil Rudder 7 25 To Escrow Agent: ------------------------ ------------------------ ------------------------ Attention:_____________ 8. JURISDICTION; SERVICE OF PROCESS Each party hereto irrevocably submits to the exclusive jurisdiction of any United States Federal Court sitting in the Middle District of Tennessee, or if no federal jurisdiction lies, in any Tennessee State Court, over any suit, action or proceeding arising out of or relating to this Agreement. The venue of any dispute, controversy, litigation or proceeding arising out of this Agreement shall be exclusively in the County of Davidson, State of Tennessee. Each party hereto irrevocably waives any objection to venue in state or federal courts sitting in Davidson County, Tennessee, and waives irrevocably any claim of inconvenient forum. Lacy specifically agrees and acknowledges that this provision has been expressly bargained for by Ingram and Micro, and that its inclusion has been a material inducement for Ingram and Micro to enter into this Agreement. 9. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original and all of which, when taken together, will be deemed to constitute one and the same document. 10. SECTION HEADINGS The headings of sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. 11. WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will 8 26 preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12. EXCLUSIVE AGREEMENT AND MODIFICATION This Agreement supersedes all prior agreements among the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by all of the parties hereto. 13. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without giving effect to principles of conflicts of law. 9 27 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. INGRAM INDUSTRIES INC. By: --------------------------------- Name: --------------------------------- Title: --------------------------------- INGRAM MICRO INC. By: --------------------------------- Name: --------------------------------- Title: --------------------------------- LINWOOD A. LACY, JR. 1996 IRREVOCABLE TRUST By: NATIONSBANK, N.A., TRUSTEE By: --------------------------------- Name: --------------------------------- Title: --------------------------------- LINWOOD A. LACY, JR., Individually --------------------------------------- ESCROW AGENT By: --------------------------------- Name: --------------------------------- Title: --------------------------------- 10

1 EXHIBIT 21.01 SUBSIDIARIES OF INGRAM MICRO INC.
STATE/COUNTRY SUBSIDIARY OF INCORPORATION - ---------- ---------------- Ingram Micro Holdings Inc. California Ingram Micro Inc. California Ingram Export Company Ltd. Barbados Ingram Micro Inc. Canada CD Access Inc. Iowa Ingram Micro Delaware Inc. Delaware Ingram Micro Management Company Delaware Ingram Dicom S.A. de C.V. Mexico Export Services Inc. California Ingram European Coordination Center S.A./N.V. Belgium Lifetree France S.A.R.L. France Ingram Micro S.A.R.L. France Ingram Micro N.V. Belgium Ingram Micro B.V. The Netherlands Micro Communication Services B.V. The Netherlands Ingram Micro S.p.A. Italy Ingram Micro GmbH Germany Ingram Micro Holdings Limited United Kingdom Ingram Micro (UK) Limited United Kingdom Mirai Networks Limited United Kingdom Metrocom Computer Systems Limited United Kingdom Document Technology Limited United Kingdom Software Limited United Kingdom Ingram Micro Singapore Inc. California Ingram Micro Japan Inc. Delaware Ingram Micro S.A. Spain Ingram Micro AB Sweden Ingram Micro A/S Denmark Ingram Micro A.S. Norway Datateam Norm AB Sweden Oy Datateam AB Finland Ingram Micro SA/AG Switzerland Ingram Micro Malaysia Sdn Bhd Malaysia Ingram Micro GmbH Zweigniederlassung Osterreich Austria IMI Washington Inc. Delaware Ingram Micro Singapore Pte Ltd Singapore

1 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 (333-08453) of our report dated February 29, 1996, except as to Note 12 which is dated as of June 25, 1996, relating to the financial statements of Ingram Micro Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the three years ended December 30, 1995 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included these schedules. We also consent to the reference to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Nashville, Tennessee August 22, 1996

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF INGRAM MICRO INC. FOR THE PERIODS ENDED DECEMBER 30, 1995 AND JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 6-MOS DEC-30-1995 DEC-28-1996 JAN-01-1995 DEC-31-1995 DEC-30-1995 JUN-29-1996 56,916 45,172 0 0 1,102,066 1,048,579 30,791 35,193 1,582,922 1,333,651 2,799,616 2,484,196 150,363 181,990 61,237 74,815 2,940,898 2,641,421 1,779,977 1,538,040 0 0 0 0 0 0 1,073 1,073 309,722 337,728 2,940,898 2,641,421 8,616,867 5,543,167 8,616,867 5,543,167 8,011,181 5,166,134 8,429,986 5,428,731 9,687 2,002 0 0 46,057 28,698 134,616 84,497 53,143 33,856 84,307 50,640 0 0 0 0 0 0 84,307 50,640 0.70 0.42 0 0