Filed Pursuant to Rule 424(b)(3)
File No. 333-27349
PROSPECTUS
640,493 Shares
MicroAge, Inc.
Common Stock
This Prospectus relates to the offer and sale by Judy C. Flynn
("Selling Stockholder") of 640,493 shares of the Common Stock, $0.01 par value
per share (the "Common Stock"), of MicroAge, Inc., a Delaware corporation (the
"Company"). The Company will not receive any portion of the proceeds from the
sale of the Common Stock offered hereby. The Company's Common Stock is traded on
Nasdaq National Market under the symbol "MICA." On June 2, 1997, the closing
sale price for the Common Stock, as reported by Nasdaq National Market, was
$18.875 per share.
The Selling Stockholder may from time to time effect sales of Common
Stock in one or more transactions pursuant to Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), in privately negotiated
transactions, or in ordinary broker's transactions on Nasdaq National Market, at
the price prevailing at the time of such sales, at prices relating to such
prevailing market prices, or at negotiated prices. It is anticipated that any
broker-dealers participating in such sales of securities will receive the usual
and customary selling commissions. The net proceeds to the Selling Stockholder
will be the proceeds received by her upon such sales, less brokerage
commissions. All expenses of registration incurred in connection with this
offering are being borne by the Company. The brokerage and other expenses of
sale incurred by the Selling Stockholder will be borne by the Selling
Stockholder. See "Plan of Distribution" and "Selling Stockholder."
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See "Risk Factors" on page 3 for a discussion of certain factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.
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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.
June 3, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements, and other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its regional offices located at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding registrants, such as the Company, that file
electronically with the Commission. In addition, the Company's Common Stock is
traded on Nasdaq National Market. Reports, proxy statements, and other
information filed by the Company are also available for inspection at the
offices of Nasdaq National Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form
S-3 (the "Registration Statement") that the Company has filed with the
Commission under the Securities Act. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain information contained in the
Registration Statement and the exhibits thereto and reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
in this Prospectus as to the provisions of any documents filed as an exhibit to
the Registration Statement or otherwise filed with the Commission are not
necessarily complete and, in each instance, reference is made to the copy of
such document as so filed. Each such statement is qualified in its entirety by
such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the
Commission and are hereby incorporated by reference in this Prospectus: (i) the
Annual Report of the Company on Form 10-K for the fiscal year ended November 3,
1996, and (ii) the Quarterly Report of the Company on Form 10-Q for the fiscal
quarter ended February 2, 1997. All other documents and reports filed by the
Company with the Commission pursuant to Sections 13, 14, or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be made a part hereof from
their respective dates of filing.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will cause to be furnished without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in the document
which this Prospectus incorporates). Requests should be directed to Investor
Relations, MicroAge, Inc., 2400 South MicroAge Way, Tempe, Arizona 85282;
telephone: (602) 366-2414.
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RISK FACTORS
The purchase of the Common Stock offered hereby involves substantial
risk. The following matters, including those mentioned elsewhere, should be
considered carefully by a prospective investor in evaluating a purchase of the
Common Stock.
Intense Competition
The computer reseller industry is characterized by intense competition,
based primarily on product availability, price, speed of delivery, credit
availability, ability to tailor specific solutions to customer needs, quality
and breadth of product lines, service and post-sale support, and quality of
customer training. In addition, the Company faces competition in the recruitment
and retention of franchised and non- franchised resellers. The Company and its
reseller locations compete for sales with numerous other computer resellers,
including (i) master resellers; (ii) direct resellers; (iii) wholesalers
(resellers that do not sell to end-users); (iv) vendors that sell directly to
large purchasers; and (v) parties that implement other sales methods, such as
direct mail, computer "superstores," and mass merchandisers. There can be no
assurance that the Company will not lose market share, 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 reduction in its gross margins.
Narrow Margins
The Company has experienced low operating and gross profit margins
caused by intense price competition within its industry. The Company has
partially offset the effect of the low margins by achieving increased revenue
and reduced operating expenses as a percentage of revenue; however, there can be
no assurance that the Company will maintain or increase revenue or further
reduce expenses (as a percentage of revenue) in the future. Future operating and
gross profit margins may be adversely affected by market pressures, the
introduction of new Company initiatives, changes in revenue mix, the Company's
utilization of early payment discount opportunities, vendor pricing actions, and
other competitive and economic pressures.
Dependence on Vendor Incentives and Marketing Development Funds
The Company receives funds from certain vendors which are earned
through marketing programs, meeting established purchasing objectives, or
meeting other objectives determined by the vendor. There can be no assurance
that these programs will be continued by the vendors. A substantial reduction in
the vendor funds available to the Company would have an adverse effect on the
Company's results of operations.
Product Supply; Dependence on Key Vendors
The computer reseller industry continues to experience product supply
shortages and customer order backlogs due to the inability of certain
manufacturers to supply certain products. In addition, certain vendors have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that vendors will be able to
maintain an adequate supply of products to fulfill all of the Company's customer
orders on a timely basis. Although the Company has not historically encountered
such conditions, the failure to obtain adequate product supplies, if competitors
were able to obtain them, could have a material adverse effect on the Company's
results of operations.
Three vendors of the Company each represented more than 10% of total
product sales for the year ended November 3, 1996. They were COMPAQ Computer
Corporation ("COMPAQ"), Hewlett-Packard Company ("Hewlett-Packard"), and
International Business Machines Corporation ("IBM"). In 1996, sales of products
from COMPAQ, Hewlett-Packard, and IBM represented 22%, 20%, and 14%,
respectively, of the Company's total product sales. Sales of these three
manufacturers' products represented approximately 56% of the Company's revenue
from product sales during both fiscal 1996 and fiscal 1995.
The Company's agreements with these vendors generally are renewed
periodically and permit termination by the vendor without cause, generally upon
30 to 90 days' notice, depending on the vendor. In
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addition, the Company's business is dependent upon price and related terms and
product availability provided by its key vendors. Although the Company considers
its relationships with COMPAQ, Hewlett-Packard, and IBM 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 these key vendors in their volume discount
schedules or other marketing programs would not adversely affect the Company.
Termination or nonrenewal of the Company's agreements with COMPAQ,
Hewlett-Packard, or IBM would have a material adverse effect on the Company's
business.
Open Sourcing
In the past, certain of the Company's vendors required resellers to
purchase their products and services exclusively from one source. Vendors have
generally removed this requirement, resulting in "open sourcing" of their
products. To date, open sourcing has significantly contributed to the rapid
growth of the Company's sales to value-added resellers. However, competitive
pricing pressures throughout the industry have intensified; these competitive
pressures have been particularly evident in the Company's distribution business.
During fiscal 1996, 61% of total sales were attributable to the Company's
distribution business and 39% of total sales were attributable to its systems
integration business. While the Company believes that it can effectively compete
for sales of those products available under open sourcing, there can be no
assurance that open sourcing will not adversely affect the Company's business.
Potential Fluctuations in Quarterly Results
The Company's operating results may vary significantly from quarter to
quarter depending on certain factors, including, but not limited to, demand for
the Company's information technology products and services, product
availability, competitive conditions, new product introductions, and general
economic conditions. In particular, the Company's operating results are
sensitive to changes in the mix of product and service revenues, product
margins, inventory adjustments, and interest rates. Although the Company
attempts to control its expense levels, these levels are based, in part, on
anticipated revenues. Therefore, the Company may not be able to control spending
in a timely manner to compensate for any unexpected revenue shortfall. As a
result, quarterly period-to-period comparisons of the Company's financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, although the Company's financial
performance has not exhibited significant seasonality in the past, the Company
and the computer industry in general tend to follow a sales pattern with peaks
occurring near the end of the calendar year, due primarily to special vendor
promotions and year-end business purchases.
Risk of Declines in Inventory Value
The Company's business 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 the Company's
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. Under the terms of many of the Company's
distribution agreements, suppliers will credit the Company for inventory losses
resulting from the supplier's price reductions if the Company complies with
certain conditions. In addition, under many of the Company's agreements, the
Company 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.
Since the Company can only return a portion of its inventory, the Company could
be forced to liquidate nonreturnable aged inventory at prices below the
Company's cost. A supplier who elects to terminate a distribution agreement may
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 establishes reserves for
estimated losses due to obsolete
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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.
No Assurance of Successful Acquisitions
In order to establish or solidify its presence in strategic markets or
in response to competitive pressures, the Company has made, and in the future
may make, acquisitions of or investments in additional reseller locations. Any
acquisitions by the Company may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt, and amortization of
expenses related to goodwill and intangible assets, all of which could adversely
effect the Company's profitability. Acquisitions involve numerous risks, such as
the diversion of the attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has had no or
only limited experience, the integration of the acquired companies' management
information systems with those of the Company, and the potential loss of key
employees of the acquired companies, all of which could have a material adverse
effect on the Company's business, financial condition, or results of operations.
Capital Intensive Nature of Business
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 has financed its growth and cash needs to date primarily
through working capital financing facilities, bank credit lines, common stock
offerings, and cash generated from operations. The primary uses of cash have
been to fund increases in inventory and accounts receivable resulting from
increased sales. If the Company is successful in achieving continued revenue
growth, its working capital requirements will continue to increase.
The Company maintains three primary financing agreements (the
"Financing Agreements") with an aggregate borrowing capacity of $675 million.
The Financing Agreements expire in August 1998, but any of the Financing
Agreements may be terminated 90 days after either party gives the other party
notice of termination. At May 4, 1997, the Company had approximately $367
million outstanding under the Financing Agreements. Of the $675 million of
borrowing capacity represented by the Financing Agreements, $308 million was
unused as of May 4, 1997. Utilization of the unused $308 million is dependent
upon, among other things, the Company's collateral availability at the time the
funds would be needed.
The unavailability of a significant portion of, or the loss of, the
Financing Agreements or trade credit from vendors would have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to borrow adequate amounts on terms acceptable to the Company.
Dependence on Information Systems
The Company depends on a variety of information systems for its
operations, particularly its centralized information processing system which
supports, among other things, inventory management, order processing, shipping,
receiving, and accounting. Although the Company has not in the past experienced
significant failures or down time of its centralized information processing
system or any of its other information systems, any such failure or significant
down time 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. 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 its centralized information
processing system 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 its centralized information
processing system and its other information systems. 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
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personnel necessary for the operation of such systems, or that the Company will
be able to expand and improve its information systems.
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 a variety of independent common carriers.
Currently, United Parcel Service ("UPS") delivers the substantial majority of
the Company's products to its reseller customers. The termination of the
Company's arrangements with UPS or other 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.
Rapid Technological Change
The Company's industry is subject to rapid technological change, new
and enhanced product specification requirements, and evolving industry
standards. These changes may cause inventory and 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 results of operations of
the Company. See "-Risk of Declines in Inventory Value."
Possible Volatility of Stock Price
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 computer industry, or general market or economic conditions, among other
factors. In addition, in recent years the stock market has experienced
significant 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.
Disclosure Regarding Forward-Looking Statements
This Prospectus, including all documents incorporated herein by
reference, contains forward- looking statements. Additional written or oral
forward-looking statements may be made by the Company from time to time in
filings with the Commission or otherwise. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such statements may include, but not be limited to, projections of
revenues, income, or loss, capital expenditures, acquisitions, plans for future
operations, financing needs or plans, the impact of inflation and plans relating
to products or services of the Company, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking statements. Statements in this Prospectus,
including those set forth above, describe factors, among others, that could
contribute to or cause such differences.
USE OF PROCEEDS
All 640,493 shares of Common Stock offered hereby are being offered by
the Selling Stockholder. The Company will not receive any proceeds from the sale
of Common Stock by the Selling Stockholder.
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SELLING STOCKHOLDER
On January 15, 1997, a subsidiary of the Company merged with and into
Advanced Systems Consultants, Inc. ("ASC") pursuant to an Agreement and Plan of
Reorganization, dated January 14, 1997 (the "Agreement"). Prior to the merger,
ASC was one of the Company's reseller locations and purchased substantial
amounts of the Company's products for resale to its customers. At the time of
the merger, the Selling Stockholder owned all of the issued and outstanding
shares of the capital stock of ASC. As a result of the merger, ASC became a
wholly-owned subsidiary of the Company and the Selling Stockholder's shares of
ASC common stock were automatically canceled and extinguished and were converted
into 640,493 shares of the Company's Common Stock. Under the Agreement, the
Company is required to register for public sale those shares of Common Stock
issued to the Selling Stockholder. This Prospectus is a part of the Registration
Statement filed by the Company in order to satisfy this requirement. In
addition, in connection with the Agreement, the Company entered into a one-year
Employment Agreement with the Selling Stockholder pursuant to which she is paid
an annual base salary of $120,000.
The following table provides certain information with respect to the
Common Stock owned by the Selling Stockholder as of May 14, 1997.
Percentage of Percentage of
No. of Shares Common Stock Common Shares
of Common Owned Prior to No. of Common Owned After the
Stock Owned Offering(1) Shares Offered Offering(2)
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640,493 4.1% 640,493 0%
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(1) Includes all shares of Common Stock beneficially owned by the Selling
Stockholder as a percentage of the 15,481,129 shares of Common Stock
outstanding at May 14, 1997.
(2) Assumes that Selling Stockholder disposes of all the shares of Common
Stock covered by this Prospectus and does not acquire any additional
shares of Common Stock.
PLAN OF DISTRIBUTION
This Prospectus relates to the sale of 640,493 shares of Common Stock
by Selling Stockholder. The Selling Stockholder may from time to time effect
sales of Common Stock in one or more transactions pursuant to Rule 144 under the
Securities Act, in privately negotiated transactions, or in ordinary broker's
transactions on Nasdaq National Market, at the price prevailing at the time of
such sales, at prices relating to such prevailing market prices, or at
negotiated prices. It is anticipated that any broker-dealers participating in
such sales of securities will receive the usual and customary selling
commissions.
The Company will pay all of the expenses incident to the registration
of the Common Stock offered hereby, other than commissions and selling expenses
with respect to the Common Stock being sold by the Selling Stockholder.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona
85004.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference to the Annual Report on Form 10-K for the fiscal year ended
November 3, 1996, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
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No dealer, salesperson, or other person
has been authorized in connection with
this offering to give any information or
to make any representations other than
those contained in this Prospectus and, MicroAge, Inc.
if given or made, such information or
representations must not be relied upon
as having been authorized by the
Company. Neither the delivery of this 640,493
Prospectus nor any sale made hereunder
shall, under any circumstances, create Shares
any implication that there has been no of
change in the affairs of the Company Common Stock
since the date hereof or that the
information contained herein is correct
as of any date subsequent to the date
hereof. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy any of
the securities offered hereby by anyone
in any jurisdiction in which it is
unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
Page
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Available Information..................2
Information Incorporated by
Reference..............................2 PROSPECTUS
Risk Factors...........................3
Use of Proceeds........................6
Selling Stockholder....................7
Plan of Distribution...................7
Legal Matters..........................7
Experts................................7
June 3, 1997
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