SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
- --------
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- -------- Exchange Act of 1934,
For the quarterly period ended August 3, 1997 or
- --------
Transition report pursuant to Section 13 or 15(d) of the Securities
- -------- Exchange Act of 1934
Commission file number 0-15995
MICROAGE, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0321346
(State of incorporation) (I. R. S. Employer
Identification No.)
2400 South MicroAge Way
Tempe, AZ 85282
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 804-2000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No
---
The number of shares of the registrant's Common Stock (par value $.01 per share)
outstanding at September 2, 1997 was 15,788,837.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- August 3, 1997 and November 3, 1996.
Consolidated statements of income -- Quarters ended August 3, 1997 and
July 28, 1996; 39 weeks ended August 3, 1997 and July 28, 1996.
Consolidated statements of cash flows -- 39 weeks ended August 3, 1997
and July 28, 1996.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
Assets
August 3, November 3,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,265 $ 21,331
Accounts and notes receivable, net 249,818 257,637
Inventory, net 417,586 325,313
Other 10,554 11,135
------------ ------------
Total current assets 714,223 615,416
Property and equipment, net 64,918 53,361
Intangible assets, net 25,250 17,499
Other 13,022 9,126
------------ ------------
Total assets $ 817,413 $ 695,402
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 532,292 $ 474,516
Accrued liabilities 18,279 23,497
Current portion of long-term obligations 2,482 2,121
Line of credit 45,619 --
Other 3,414 3,617
------------ ------------
Total current liabilities 602,086 503,751
Long-term obligations 4,269 3,892
Stockholders' equity:
Preferred stock, par value $1.00 per share;
Shares authorized: 5,000,000
Issued and outstanding: none -- --
Common stock, par value $.01 per share;
Shares authorized: 40,000,000
Issued: August 3, 1997 - 15,771,848
November 3, 1996 - 15,320,133 158 153
Additional paid-in capital 130,197 124,308
Retained earnings 81,298 64,229
Loan to ESOT -- (207)
Treasury stock, at cost;
Shares: August 3, 1997 - 71,836
November 3, 1996 - 97,028 (595) (724)
------------ ------------
Total stockholders' equity 211,058 187,759
------------ ------------
Total liabilities and stockholders' equity $ 817,413 $ 695,402
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
Quarter ended 39 weeks ended
----------------------- -----------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue $1,093,484 $ 847,716 $2,989,522 $2,498,172
Cost of sales 1,020,484 800,394 2,793,562 2,362,465
---------- ---------- ---------- ----------
Gross profit 73,000 47,322 195,960 135,707
Operating expenses 54,444 38,049 146,841 110,419
---------- ---------- ---------- ----------
Operating income 18,556 9,273 49,119 25,288
Other expenses - net 7,509 2,605 19,434 10,267
---------- ---------- ---------- ----------
Income before income taxes 11,047 6,668 29,685 15,021
Provision for income taxes 4,649 2,827 12,616 6,435
---------- ---------- ---------- ----------
Net income $ 6,398 $ 3,841 $ 17,069 $ 8,586
========== ========== ========== ==========
Net income per common share $ 0.39 $ 0.25 $ 1.05 $ 0.56
========== ========== ========== ==========
Weighted average common and
common equivalent
shares outstanding 16,338 15,674 16,233 15,309
The accompanying notes are an integral part of
these financial statements.
3
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
39 weeks ended
--------------------
August 3, July 28,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,069 $ 8,586
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 17,413 14,335
Provision for losses on accounts and notes receivable 6,743 4,893
Changes in assets and liabilities, net of business acquisitions:
Accounts and notes receivable 11,785 (64,944)
Inventory (91,057) 9,534
Other current assets 596 779
Other assets (3,505) (718)
Accounts payable 39,916 38,025
Accrued liabilities (5,357) 5,911
Other liabilities (777) (1,278)
-------- --------
Net cash provided by (used in) operating activities (7,174) 15,123
Cash flows from investing activities:
Purchases of property and equipment (24,176) (15,019)
Purchases of businesses and investments
in unconsolidated companies, net of cash acquired (1,489) --
-------- --------
Net cash used in investing activities (25,665) (15,019)
Cash flows from financing activities:
Amounts received from ESOT 207 439
Proceeds from issuance of stock - stock option and
employee stock purchase plans 4,020 1,146
Net borrowings under line of credit 45,318 1,190
Principal payments on long-term obligations (1,772) (3,045)
-------- --------
Net cash provided by (used in) financing activities 47,773 (270)
-------- --------
Net increase (decrease) in cash and cash equivalents 14,934 (166)
Cash and cash equivalents at beginning of period 21,331 14,009
-------- --------
Cash and cash equivalents at end of period $ 36,265 $ 13,843
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MicroAge, Inc.
(the "Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair statement of results for the periods
have been included. Operating results for the 39 weeks ended August 3, 1997 are
not necessarily indicative of the results that may be expected for the year
ending November 2, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 3, 1996.
On January 15, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a previously franchised reseller location.
The merger has been accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of the acquired company for all periods presented.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands).
Quarter ended July 28, 1996:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ --------
Revenue $ 842,674 $ 5,042 $ 847,716
Net income $ 3,551 $ 290 $ 3,841
39 weeks ended July 28, 1996:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ --------
Revenue $ 2,486,640 $ 11,532 $ 2,498,172
Net income $ 8,046 $ 540 $ 8,586
5
<PAGE>
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended 39 weeks ended
-------------------- --------------------
Aug. 3, Jul. 28, Aug. 3, Jul. 28,
1997 1996 1997 1996
-------- -------- -------- --------
Interest expense $ 1,456 $ (21) $ 3,991 $ 1,160
Expenses from sales of
accounts receivable 5,070 2,283 14,071 8,284
Other 983 343 1,372 823
-------- -------- -------- --------
$ 7,509 $ 2,605 $ 19,434 $ 10,267
======== ======== ======== ========
NOTE C - FINANCING ARRANGEMENTS
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $675 million. The line of credit in the
accompanying balance sheet represents borrowings under a line of credit option
in the Agreements. The Agreements expire in August 2000.
NOTE D - LITIGATION
On July 14 through July 19, 1994, seven class action complaints were filed
against the Company, certain of its officers and directors, and, in three of the
lawsuits, one of the underwriters of the Company's June 16, 1994 public offering
of common stock. On December 5, 1994, the Court consolidated the seven actions
into a single action. On February 16, 1995, plaintiffs filed and served an
amended, consolidated complaint against the Company, certain officers and
directors of the Company, and three of the underwriters of the Company's June
16, 1994 public offering of common stock ("the Complaint"). On April 28, 1995,
the Company filed a motion to dismiss the Complaint in its entirety. On March
25, 1996, the Court dismissed the majority of the allegations contained in the
Complaint. An agreement in principle was subsequently reached to settle the
litigation, subject to obtaining final court approval thereof. On August 1,
1997, the court approved the settlement and entered the Final Judgment and Order
of Dismissal. The Company's contribution to the settlement, after the
contributions of the Company's directors and officers insurers, was immaterial
to the Company's financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements contained in this Item may be "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
These forward-looking statements may include projections of revenue and net
income and issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and 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 information. Some of the important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key suppliers;
potential fluctuations in quarterly results; risks of declines in inventory
values; no assurance of successful acquisitions (see "Liquidity and Capital
Resources" below); the capital intensive nature of the Company's business;
dependence on information systems; dependence on independent shipping companies;
and rapid technological change. Reference is made to Part I, Item 2 of the
Company's Report on Form 10-Q for the quarterly period ended May 4, 1997 for
additional discussion of the foregoing factors.
On January 15, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a previously franchised reseller location.
The merger has been accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of the acquired company for all periods presented.
Results of Operations
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------------------------------
Aug. 3, May 4, Feb. 2, Nov. 3, July 28,
1997 1997 1997 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $ 1,093,484 $ 1,035,719 $ 860,319 $ 1,033,998 $ 847,716
Cost of sales 93.3% 93.5% 93.5% 94.3% 94.4%
------------ ------------ ---------- ------------ ----------
Gross profit 6.7 6.5 6.5 5.7 5.6
Operating expenses 5.0 4.8 5.0 4.4 4.5
------------ ------------ ---------- ------------ ----------
Operating income 1.7 1.7 1.5 1.2 1.1
Other expenses - net 0.7 0.7 0.6 0.3 0.3
------------ ------------ ---------- ------------ ----------
Income before income tax 1.0 1.0 0.9 0.9 0.8
Provision for income taxes 0.4 0.4 0.4 0.4 0.3
------------ ------------ ---------- ------------ ----------
Net income 0.6% 0.6% 0.5% 0.5% 0.5%
============ ============ ========== ============ ==========
</TABLE>
7
<PAGE>
Total Revenue. Total revenue of $1.1 billion increased $246 million, or 29%, for
the quarter ended August 3, 1997 as compared to the quarter ended July 28, 1996.
This revenue increase included a $199 million, or 38%, increase in distribution
business revenue and a $44 million, or 14%, increase in systems integration
business revenue.
Total revenue of $3.0 billion increased $491 million, or 20%, for the 39 weeks
ended August 3, 1997 as compared to the 39 weeks ended July 28, 1996. This
revenue increase included a $432 million, or 29%, increase in distribution
business revenue and a $50 million, or 5%, increase in systems integration
business revenue.
The revenue increases were attributable to sales to resellers added since July
28, 1996, increased demand for the Company's major suppliers' products, improved
product availability and the growth of the microcomputer products industry.
Gross Profit Percentage. The Company's gross profit percentage was 6.7% for the
quarter ended August 3, 1997 and 5.6% for the quarter ended July 28, 1996. The
gross profit percentage was 6.6% for the 39 weeks ended August 3, 1997 as
compared to 5.4% for the 39 weeks ended July 28, 1996.
The increase in the Company's gross profit percentage results primarily from a
higher service content in revenues, which generates higher margins, the
increasing profitability of the Company's integration business and increasing
supplier incentives and early pay discounts.
Operating Expenses. As a percentage of revenue, operating expenses were 5.0% for
the quarter ended August 3, 1997 compared to 4.5% for the quarter ended July 28,
1996. Operating expenses increased $16.4 million to $54.4 million for the
quarter ended August 3, 1997, as compared to the quarter ended July 28, 1996.
Operating expenses increased from $110.4 million, or 4.4% of revenue, for the 39
weeks ended July 28, 1996 to $146.8 million, or 4.9% of revenue, for the 39
weeks ended August 3, 1997. The increases in operating expenses were primarily
attributable to costs associated with increased revenue, increased spending in
support of electronic commerce initiatives and capacity expansion in personnel,
systems and facilities.
Other Expenses - Net. Other expenses - net increased to $7.5 million for the
quarter ended August 3, 1997 from $2.6 million for the quarter ended July 28,
1996. Other expenses - net increased to $19.4 million for the 39 weeks ended
August 3, 1997 from $10.3 million for the 39 weeks ended July 28, 1996. These
increases were primarily due to increases in average daily borrowings to support
higher inventory and accounts receivable levels.
Supplier Incentive Funds
The Company receives funds from certain suppliers which are earned through
marketing programs or meeting purchasing or other objectives established by the
supplier. There can be no assurance that these programs will be continued by the
suppliers. A substantial reduction in the supplier funds available to the
Company would have an adverse effect on the Company's results of operations.
Subsequent Event
On August 4, 1997, Teamsters union members went on strike against United Parcel
Service (UPS). The strike lasted 15 days and impacted the Company through
increased delivery times, increased
8
<PAGE>
transportation costs and decreased call center revenue. Because of the brevity
of the strike, higher transportation costs were not passed on by the Company to
its customers.
The Company anticipates that the UPS strike could impact its fourth quarter
results by approximately $.03 to $.05 per share.
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, the amount of supplier
incentive funds received by the Company 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 supplier promotions and year-end
business purchases.
Liquidity and Capital Resources
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 are likely to increase.
The Company has acquired or invested in, and intends to acquire or invest in,
local or regional resellers to expand the Company's service offerings and its
reach into certain geographic areas. See Part II, Item 2(c) below for a
discussion of an acquisition completed by the Company during the quarter ended
August 3, 1997. The Company's acquisitions or investments may be made utilizing
cash, stock, or a combination of cash and stock.
For the 39 weeks ended August 3, 1997, $7 million of cash was used in operating
activities. Net cash used in operating activities included an increase in
inventory of $91 million, offset by an increase in accounts payable of $40
million, a decrease in accounts receivable of $12 million and net income, before
certain non-cash items, of $41 million.
The number of days cost of sales in ending inventory increased from 33 days at
November 3, 1996 to 37 days at August 3, 1997, but was down from 43 days at the
end of the second fiscal quarter. The number of days' cost of sales in ending
accounts payable was 47 days at August 3, 1997 and November 3, 1996. The number
of days' sales in ending accounts receivable decreased from 24 days at November
3, 1996 to 21 days at August 3, 1997, primarily due to accounts receivable that
were sold under a financing facility (see discussion below). The receivables
days adjusted for sold receivables were 41 days and 43 days at August 3, 1997
and November 3, 1996, respectively.
9
<PAGE>
For the 39 weeks ended August 3, 1997, $26 million was used in investing
activities, of which $24 million was used for the purchase of property and
equipment, and $2 million was used for purchases of businesses and investments
in unconsolidated companies. Net cash of $48 million was provided by financing
activities during the 39 weeks ended August 3, 1997, which consisted primarily
of borrowings under the Company's financing facility.
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $675 million. The Agreements include an accounts
receivable facility (the "A/R Facility") and inventory financing facilities (the
"Inventory Facilities").
Under the A/R Facility, the Company has the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At August 3, 1997, the net amount
of sold accounts receivable was $244 million and the effective funding rate was
LIBOR plus 1.85%.
The Inventory Facilities provide for borrowings up to $325 million. Within the
Inventory Facilities, the Company has lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") of $175
million and a line of credit for general working capital requirements
("Supplemental Line of Credit") of $150 million. Payments for products purchased
under the Inventory Lines of Credit vary depending upon the product supplier,
but generally are due between 45 and 60 days from the date of the advance. No
interest or finance charges are payable on the Inventory Lines of Credit if
payments are made when due. At August 3, 1997, the Company had $90 million
outstanding under the Inventory Lines of Credit (included in accounts payable in
the accompanying Balance Sheets), and $46 million outstanding under the
Supplemental Line of Credit. As of August 3, 1997, the interest rate on the
Supplemental Line of Credit was LIBOR plus 2%.
Of the $675 million of financing capacity represented by the Agreements, $295
million was unused as of May 4 , 1997. Utilization of the unused portion is
dependent upon the Company's collateral availability at the time the funds would
be needed. There can be no assurance that the Company will be able to borrow
adequate amounts on terms acceptable to the Company.
Borrowings under the Agreements are secured by substantially all of the
Company's assets, and the Agreements contain certain restrictive covenants,
including working capital and tangible net worth requirements, and ratios of
debt to tangible net worth and current assets to current liabilities. At August
3, 1997, the Company was in compliance with these covenants.
The Company also maintains trade credit arrangements with its suppliers and
other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
The unavailability of a significant portion of, or the loss of, the Agreements
or trade credit from suppliers would have a material adverse effect on the
Company.
Although the Company has no material capital commitments, the Company expects to
make capital expenditures of approximately $5 to $10 million during the fourth
quarter of fiscal 1997.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note D of Notes to Consolidated Financial Statements (Unaudited)
for information regarding a consolidated class action lawsuit against the
Company, its directors, certain of its officers, and three of the underwriters
of the Company's June 16, 1994 public offering of Common Stock.
Item 2. Changes in Securities
(a) None
(b) None
(c) On July 7, 1997, the Company issued 108,417 shares of Common Stock
to two individuals in connection with their sale to the Company of a previously
franchised corporate reseller. The sale of the Common Stock was exempt from the
registration provisions of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) of the Act for transactions not involving a public
offering, based on the fact that the Common Stock was offered and sold to a
limited number of investors who had access to financial and other relevant data
concerning the Company, its financial condition, business and assets.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Restated Certificate of Incorporation of MicroAge,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q of MicroAge, Inc. for
the quarter ended May 1, 1994)
3.2 By-Laws of MicroAge, Inc., Amended and Restated as of
April 3, 1997 (Incorporated by reference to Exhibit
4.1 to Registration Statement No. 333-26247)
10.1 Amendment to Restated and Amended Purchase Agreement
dated as of July 31, 1997, by and between MicroAge
Computer Centers, Inc. et al and Deutsche Financial
Services Corporation
10.2 Amendment to Second Restated Agreement for Wholesale
Financing dated as of July 31, 1997, by and between
MicroAge Computer Centers, Inc. et al and Deutsche
Financial Services Corporation
11
<PAGE>
10.3 Sixth Amendment dated August 1, 1997 to the Amended
and Restated MicroAge, Inc. Retirement Savings and
Employee Stock Ownership Plan and Trust
10.4 Form of Franchise Agreement by and between the
Company and its franchisees effective as to franchise
agreements executed after January 1997
11 EPS Detail Calculation
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the quarter
ended August 3, 1997.
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of MicroAge, Inc.
(Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of MicroAge, Inc. for the quarter ended
May 1, 1994)
3.2 By-Laws of MicroAge, Inc., Amended and Restated as of April 3,
1997 (Incorporated by reference to Exhibit 4.1 to Registration
Statement No. 333-26247)
10.1 Amendment to Restated and Amended Purchase Agreement dated as
of July 31, 1997, by and between MicroAge Computer Centers,
Inc. et al and Deutsche Financial Services Corporation
10.2 Amendment to Second Restated Agreement for Wholesale Financing
dated as of July 31, 1997, by and between MicroAge Computer
Centers, Inc. et al and Deutsche Financial Services
Corporation
10.3 Sixth Amendment dated August 1, 1997 to the Amended and
Restated MicroAge, Inc. Retirement Savings and Employee Stock
Ownership Plan and Trust
10.4 Form of Franchise Agreement by and between the Company and its
franchisees effective as to franchise agreements executed
after January 1997
11 EPS Detail Calculation
27 Financial Data Schedule
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROAGE, INC.
(Registrant)
Date: September 5, 1997 By: /s/ Jeffrey D. McKeever
------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: September 5, 1997 By: /s/ James R. Daniel
------------------------------
James R. Daniel
Senior Vice President, Chief
Financial Officer and Treasurer
EXHIBIT 10.1
AMENDMENT TO RESTATED AND AMENDED PURCHASE AGREEMENT
This Amendment to Restated and Amended Purchase Agreement ("Amendment")
is made by and between MICROAGE COMPUTER CENTERS, INC., MICROAGE SOLUTIONS,
INC., MCSA, INC., MCSZ, INC., MCSJ, INC., MCSP, INC., MCSQ, INC., MCST, INC.,
MCSR, INC., MCSS, INC., MICROAGE LOGISTICS SERVICES, INC., COMPLETE
DISTRIBUTION, INC., MICROAGE INFOSYSTEMS SERVICES, INC., ADVANCED SYSTEMS
CONSULTANTS, INC., PCCLEARANCE, INC., IMAGE CHOICE, INC., AND MCSY, INC.
(individually and collectively, "Seller"), and DEUTSCHE FINANCIAL SERVICES
CORPORATION ("Purchaser") as of the 31st day of July, 1997.
WHEREAS, Purchaser and Seller entered into that certain Restated and
Amended Purchase Agreement dated as of August 3, 1995, as amended (the "Purchase
Agreement"); and
WHEREAS, Purchaser and Seller desire to amend the Purchase Agreement as
provided herein.
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and Seller agree as follows (except as otherwise defined
herein, all capitalized terms will have the same meanings set forth in the
Purchase Agreement):
1. The first and second sentences of Section 11.1 of the Purchase
Agreement are hereby amended and restated in their entirety to read as
follows:
"Absent termination of this Agreement pursuant to Article 12, this
Agreement shall continue in full force and effect through August 2,
2000. Thereafter, this Agreement will remain in full force and effect
until the date which is ninety (90) days after a Party gives written
notice to the other that this Agreement is terminated upon the
expiration of such ninety (90) days (the 'Termination Date' shall be the
date of termination of this Agreement pursuant to this Article 11)."
2. Notwithstanding anything to the contrary in the Purchase Agreement,
Seller will provide written notice to DFS within two (2) Business Days
following any acquisition by Seller of all or substantially all of the
assets of, or any equity interest or stock in, another entity.
3. Except as expressly modified or amended herein, all other terms and
provisions of the Purchase Agreement, including without limitation all
letter agreements regarding fees and other amounts payable to Purchaser
in connection with the Purchase Agreement, to the extent consistent with
the foregoing, will remain unmodified and in full force and effect and
the Purchase Agreement, as hereby amended, is ratified and confirmed by
Purchaser and Seller.
IN WITNESS WHEREOF, Purchaser and Seller have executed this Amendment as
of the date and year first above written.
SELLER MICROAGE COMPUTER CENTERS, INC.
By:__________________
Title:_______________
MICROAGE SOLUTIONS, INC.
By:__________________
Title:_______________
1
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MCSA, INC.
By:__________________
Title:_______________
MCSZ, INC.
By:__________________
Title:_______________
MCSJ, INC.
By:__________________
Title:_______________
MCSP, INC.
By:__________________
Title:_______________
MCSQ, INC.
By:__________________
Title:_______________
MCST, INC.
By:__________________
Title:_______________
MCSR, INC.
By:__________________
Title:_______________
MCSS, INC.
By:__________________
Title:_______________
MICROAGE LOGISTICS SERVICES, INC.
By:__________________
Title:_______________
COMPLETE DISTRIBUTION, INC.
By:__________________
Title:_______________
2
<PAGE>
MICROAGE INFOSYSTEMS SERVICES, INC.
By:__________________
Title:_______________
ADVANCED SYSTEMS CONSULTANTS, INC.
By:__________________
Title:_______________
PCCLEARANCE, INC.
By:__________________
Title:_______________
IMAGE CHOICE, INC.
By:__________________
Title:_______________
MCSY, INC.
By:__________________
Title:_______________
PURCHASER DEUTSCHE FINANCIAL SERVICES CORPORATION
By:__________________
Title:_______________
3
EXHIBIT 10.2
AMENDMENT TO SECOND RESTATED AGREEMENT FOR WHOLESALE FINANCING
This Amendment to Second Restated Agreement for Wholesale Financing
("Amendment") is made by and between MICROAGE COMPUTER CENTERS, INC. ("MCCI"),
MICROAGE LOGISTICS SERVICES, INC. (MLS") and DEUTSCHE FINANCIAL SERVICES
CORPORATION ("DFS") as of the 31 day of July, 1997.
WHEREAS, DFS, MCCI and MLS entered into that certain Second Restated
Agreement for Wholesale Financing dated as of August 3, 1995, as amended (the
"AWF");
WHEREAS, DFS, MCCI and MLS desire to amend the AWF as provided herein.
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, DFS, MCCI and MLS agree as follows (except as otherwise defined
herein, all capitalized terms will have the same meanings set forth in the AWF):
1. The references in Section 9(a) of the AWF to MCCI's Distribution Centers in
Tempe, Arizona and Cincinnati, Ohio, shall be amended to mean MCCI's and MLS'
Distribution Centers in Tempe, Arizona, Cincinnati, Ohio and Sparks, Nevada.
2. Subsection 9(a)(I) of the AWF is hereby amended and restated in its entirety
to read as follows (all references to MCCI shall be deemed to be references to
MCCI and MLS, jointly and severally):
"(I) the sum of (I) sixty percent (60%) of the remainder of (A) the
wholesale invoice price to MCCI of the Excess Inventory as reflected in the
Inventory Warehouse Status Report, minus (B) an obsolescence reserve in the
amount of Three Percent (3%) of the wholesale invoice price net of any price
protection credits to MCCI of the Excess Inventory, or such other obsolescence
reserve amount as DFS deems reasonably necessary from time to time, plus (II)
until such time as DFS has first priority, fully perfected security interest in
MCCI's inventory bearing any trademark or trade name of Compaq Computer
Corporation, forty percent (40%) of the remainder of (C) the wholesale invoice
price net of any price protection credits to MCCI of its inventory bearing any
trademark or trade name of Compaq Computer Corporation which is new, unopened in
the original container, which is located in MCCI's Tempe, Arizona, Cincinnati,
Ohio and Sparks, Nevada Distribution Centers, and which has been owned by MCCI
for not more than one hundred twenty (120) days as reflected in the Inventory
Warehouse Status Report, minus (D) all amounts owed by MCCI to Compaq Computer
Corporation as of the date of the Inventory Warehouse Status Report; minus (E)
any Deficit Net Collateral Value of the Regular Inventory and any Deficit Net
Collateral Value of the IBM Credit Inventory, as calculated pursuant to clause
(ii) below, and minus (F) the Guaranty Reserve Amount as defined in clause (iii)
below (the 'Net Excess Inventory Availability');"
3. The fourth and fifth sentences of Section 21 of the AWF are hereby amended
and restated in their entirety to read as follows:
"Absent termination of this Agreement pursuant to Paragraph 12 or 14,
this Agreement shall continue in full force and effect through August 2, 2000.
Thereafter, this agreement will remain in full force and effect until the date
which is ninety (90) days after a party gives written notice to the other that
this Agreement is terminated upon the expiration of such ninety (90) days."
<PAGE>
4. Notwithstanding anything to the contrary in the AWF, MCCI and/or MLS will
provide written notice to DFS within two (2) business days following any
acquisition by MCCI and/or MLS of all or substantially all of the assets of, or
any equity interest or stock in, another entity.
5. Except as expressly modified or amended herein, all other terms and
provisions of the AWF, including without limitation all letter agreements
regarding interest charges, fees and other amounts payable to DFS in connection
with the AWF, to the extent consistent with the foregoing, will remain
unmodified and in full force and effect and the AWF, as hereby amended, is
ratified and confirmed by DFS, MCCI and MLS.
IN WITNESS WHEREOF, DFS, MCCI and MLS have executed this Amendment as of
the date and year first above written.
MICROAGE COMPUTER CENTERS, INC.
By:
-----------------------------
Title: Treasurer
MICROAGE LOGISTICS SERVICES, INC.
By:
-----------------------------
Title: Treasurer
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
------------------------------
Title: VP and Area General Manager
2
SIXTH AMENDMENT
TO THE
MICROAGE, INC.
RETIREMENT SAVINGS AND
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan
and Trust (the "Plan"), as amended and restated by a document effective as of
January 1, 1995 and amended by the First Amendment dated May 10, 1995, the
Second Amendment dated March 14, 1996, the Third Amendment dated November 4,
1996, the Fourth Amendment dated December 4, 1996 and the Fifth Amendment dated
January 31, 1997 is hereby further amended as follows:
1. All of the changes made to the Plan by this Sixth Amendment are
effective as of August 1, 1997. This Sixth Amendment shall amend only the
provisions of the Plan as set forth herein, and those provisions not expressly
amended hereby shall be considered in full force and effect.
2. A new Section 4.10 is hereby added to the Plan and reads as
follows:
4.10 Special Purpose Contribution. The Employer may make
contributions to the Plan on behalf of Participants who are not Highly
Compensated Employees, in amounts the Employer deems advisable to deal
with special situations ("Special Purpose Contributions").
3. A new Section 5.02(d) is hereby added to the Plan and reads as
follows:
(d) Special Purpose Contributions. As of the last day of each
Plan Year or any other pay period for which a Special Purpose
Contributions is made, the Administrator must allocate those Special
Purpose Contributions for the Plan Year or for the relevant pay period
to the account of each such Participant who is eligible to receive an
allocation, and that allocation must be in proportion to that
Participant's Compensation in relation to the Compensation of all
similarly entitled Participants
<PAGE>
for that Plan year or other relevant pay period or on such other basis
for allocation designated by the Employer
4. Section 6.01(b) of the Plan is hereby amended to read as
follows:
(b) The interests of each Participant in his Participant
Elective Deferral, Employer Matching Contribution, Special Purpose
Contribution and rollover or transfer account(s), if any, shall at all
times be fully vested and nonforfeitable.
To signify its adoption of this Sixth Amendment, MicroAge, Inc. has
caused this Sixth Amendment to be executed by its duly authorized officer on
this 1st day of August, 1997.
MICROAGE, INC.
By:_________________________________
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
2
MicroAge Computer Centers
Franchise Agreement
March 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. INTRODUCTION....................................................... 1
2. GRANT OF FRANCHISE................................................. 1
3. DEVELOPMENT OF CENTER.............................................. 2
A. CONVERSION OF CENTER............................. 2
B. CENTER OPENING................................... 2
4. COMPANY SUPPORT.................................................... 2
A. OPERATING MANUAL................................. 2
B. SUPPORT SERVICES................................. 3
C. TRAINING......................................... 3
5. MARKS.............................................................. 3
A. OWNERSHIP AND GOODWILL OF MARKS.................. 3
B. LIMITATIONS ON FRANCHISEE'S USE OF MARKS......... 3
C. PROHIBITED USES.................................. 4
D. DISCONTINUANCE OF USE OF MARKS................... 4
6. CONFIDENTIAL INFORMATION........................................... 4
7. EXCLUSIVE RELATIONSHIP............................................. 4
8. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION........................ 5
9. FEES AND PAYMENTS AND SOURCE OF SUPPLY............................. 5
A. PRODUCT PURCHASES................................ 5
B. PRODUCT HOLD/INTEREST ON LATE PAYMENTS........... 6
10. OPERATING STANDARDS................................................ 6
A. AUTHORIZED PRODUCTS AND SERVICES................. 6
B. PRODUCT ORDERING AND SALES....................... 6
C. COMPLIANCE WITH LAWS............................. 7
D. CODE OF ETHICS................................... 7
E. MANAGEMENT OF THE CENTER/
CONFLICTING AND COMPETING INTERESTS.............. 7
F. INSURANCE........................................ 7
11. ADVERTISING AND PROMOTION.......................................... 8
i
<PAGE>
TABLE OF CONTENTS
Section Page
12. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS....................... 8
13. INSPECTIONS AND AUDITS............................................. 8
14. TRANSFER........................................................... 8
A. BY THE COMPANY................................... 8
B. YOU MAY NOT TRANSFER
WITHOUT APPROVAL OF THE COMPANY.................. 8
C. CONDITIONS FOR APPROVAL OF TRANSFER.............. 9
D. TRANSFER TO A CORPORATION OR PARTNERSHIP......... 10
E. DEATH OR DISABILITY OF FRANCHISEE................ 10
F. THE COMPANY'S RIGHT OF FIRST REFUSAL............. 10
15. RENEWAL OF FRANCHISE............................................... 11
A. MUTUAL AGREEMENT TO RENEW........................ 11
B. RENEWAL AGREEMENTS/RELEASES...................... 11
16. TERMINATION OF THE FRANCHISE....................................... 11
A. TERMINATION WITHOUT CAUSE........................ 11
B. TERMINATION BY THE COMPANY....................... 12
17. RIGHTS AND OBLIGATIONS
UPON TERMINATION OR EXPIRATION OF THE FRANCHISE.................... 12
A. PAYMENT OF AMOUNTS OWED TO THE COMPANY........... 12
B. MARKS............................................ 12
C. CONFIDENTIAL INFORMATION......................... 13
D. COVENANT NOT TO COMPETE.......................... 13
E. CONTINUING OBLIGATIONS........................... 14
18. MISCELLANEOUS PROVISIONS........................................... 14
A. JUDICIAL ENFORCEMENT, INJUNCTION
AND SPECIFIC PERFORMANCE......................... 14
B. ARBITRATION...................................... 14
C. SEVERABILITY AND SUBSTITUTION OF VALID
PROVISIONS....................................... 15
D. WAIVER OF OBLIGATIONS............................ 16
E. RESERVATION OF RIGHTS............................ 16
F. YOU MAY NOT WITHHOLD
PAYMENTS DUE THE COMPANY......................... 16
G. RIGHTS OF PARTIES ARE CUMULATIVE................. 16
ii
<PAGE>
TABLE OF CONTENTS
Section Page
H. WAIVER OF PUNITIVE DAMAGES....................... 16
I. WAIVER OF JURY TRIAL............................. 16
J. LIMITATION OF CLAIMS............................. 17
K. COSTS AND ATTORNEYS' FEES........................ 17
L. GOVERNING LAW.................................... 17
M. CONSENT TO JURISDICTION AND VENUE................ 17
N. FORCE MAJEURE.................................... 18
O. CONSTRUCTION..................................... 18
19. NOTICES............................................................ 18
Exhibits and Attachments
- ------------------------
Personal Guaranty
State-Specific Riders
Exhibit A-2 Statement of Franchisee
Exhibit A-3 Franchisee Disclosure Questionnaire (for use in Illinois only)
Exhibit A-4 Code of Ethics
iii
<PAGE>
MICROAGE COMPUTER CENTERS
FRANCHISE AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into on
_____________________, 19___, by and between MICROAGE COMPUTER CENTERS, INC., a
Delaware corporation, with its principal office at 2400 South MicroAge Way,
Tempe, Arizona 85282-1896 (the "Company") and __________________________________
_____________________________ ("you" "your" or "Owner"), a _____________________
corporation, whose principal business address is _______________________________
_______________________________________________________________________________.
1. INTRODUCTION.
------------
The MicroAge family of companies franchises and operates sales and
support locations that specialize in the marketing of computer hardware and
software and other high technology products, maintenance and repair services for
these products, related consultation services and additional products and
services introduced from time to time. These sales locations are known as
"MicroAge Computer Centers." The Company owns, uses and licenses certain
trademarks, service marks and commercial symbols in the operation and
franchising of MicroAge Computer Centers, including the trade and service marks
MicroAge\ and The Solution Center\, all of which are collectively referred to as
the "Marks." MicroAge Computer Centers use the Marks and are operated with
certain business formats, systems, methods and standards, all of which may be
improved, developed or modified in the future.
You own and operate an independent computer sales location and desire
to convert this location to a MicroAge Computer Center. You have applied for a
franchise to own and operate a MicroAge Computer Center at the location
identified above as your principal business address and the application has been
approved by the Company based on the representations made in the application and
in the Statement of Franchisee attached as Exhibit A-2 or the Franchisee
Disclosure Questionnaire attached as Exhibit A-3.
2. GRANT OF FRANCHISE.
------------------
The Company grants you a nonexclusive franchise (the "Franchise") to
operate a MicroAge Computer Center at the location specified above (the
"Center"), and to use the Marks in its operation for a term of 10 years starting
on the date of this Agreement. You will be responsible for converting your
existing computer sales location to a MicroAge Computer Center. You may not
relocate the Center without the Company's prior written consent, which consent
will not be unreasonably withheld, and you will pay all expenses in connection
with the relocation, including any expenses incurred by the Company. Termination
or expiration of this Agreement constitutes a termination or expiration of the
Franchise.
<PAGE>
2. DEVELOPMENT OF CENTER.
---------------------
CONVERSION OF CENTER.
--------------------
The Center must meet the Company's requirements for professional
appearance and must comply with all applicable Vendor requirements. You will
use, in the development and operation of the Center, only those types of
fixtures, equipment and signs that create and enhance the professional
appearance of the Center.
You will place or display at the premises of the Center (interior and
exterior) only those signs, emblems, lettering and logos that are approved by
the Company and meet applicable Vendor requirements. Subject to approval by the
Company, you may continue to use your prior independent trade name (unless you
were licensed to use this name by another franchisor or licensor) provided that
the "MicroAge" Mark is always displayed in conjunction with the prior trade
name.
1. CENTER OPENING.
--------------
You may open the Center for business as a MicroAge Computer Center only
after the Center meets the Company's appearance requirements and all amounts due
to the Company have been paid.
1. COMPANY SUPPORT.
---------------
1. OPERATING MANUAL.
----------------
The Company will provide you, during the term of the Franchise, at
least 1 copy of the Company's operating manual (the "Operating Manual," which
may be in multiple volumes or provided by electronic means), which may include
the following subjects: product ordering and payment policies and procedures;
product pricing and fee levels; Marks usage criteria; directory of services; and
other information to assist you in the operation, promotion and management of
the Center. The Operating Manual is presently published under the name the
BUSINESS BUILDER RESOURCE GUIDE. The provisions of the Operating Manual, which
may be modified by the Company, constitute provisions of this Agreement. If
there is a dispute regarding the contents of the Operating Manual, the master
copy maintained by the Company at its principal office will be controlling. The
Operating Manual is the Company's property and you must return it to the Company
upon termination or expiration of this Agreement.
2. SUPPORT SERVICES.
----------------
The Company will provide certain services, information and assistance
to you in connection with the operation of the Center: (1) a product ordering
system; (2) a product information system; (3) plan and make available regional
and national meetings; and (4) other services, information and assistance
described in the Operating Manual. In addition, the Company
2
<PAGE>
may offer certain services, information and assistance on a fee basis as
described in the Operating Manual.
3. TRAINING.
--------
The Company may, at its option, furnish initial training to you in the
operation of a MicroAge Computer Center during times designated by the Company.
At the Company's option, training may be furnished at the Company's or your
principal offices. You are responsible for any salary, travel and living
expenses which you or your employee(s) incur in connection with training.
2. MARKS.
-----
1. OWNERSHIP AND GOODWILL OF MARKS.
-------------------------------
Your right to use the Marks arises solely from this Agreement. This
right is limited to the operation of the Center in compliance with this
Agreement and the Operating Manual. Any unauthorized use of the Marks by you
will constitute an infringement of the rights of the Company. Your use of the
Marks and the goodwill created from this usage will be for the exclusive benefit
of the Company. You agree to immediately notify the Company of any apparent
infringement of any Mark or claim by any person of any rights in any Mark. All
provisions of this Agreement applicable to the Marks will apply to any
additional trademarks, service marks and commercial symbols authorized by the
Company for your use.
2. LIMITATIONS ON FRANCHISEE'S USE OF MARKS.
----------------------------------------
You will use the Marks as the predominant identification of the Center,
but you must identify yourself as the independent owner of the Center in the
manner prescribed by the Company. You cannot use any Mark as part of any
corporate or trade name or with any prefix, suffix or other modifying words,
terms, designs or symbols (other than logos licensed to you under this
Agreement), or in any modified form. You will display the Marks in the manner
prescribed by the Company and will obtain fictitious or assumed name
registrations as may be required under applicable law.
3. PROHIBITED USES.
---------------
You cannot use any Mark on any product or promotional items offered,
sold or distributed by you or in any other manner not expressly authorized in
writing by the Company.
4. DISCONTINUANCE OF USE OF MARKS.
------------------------------
If the Company decides it is advisable for the Company and/or you to
modify or discontinue use of any Mark, and/or use additional or substitute trade
or service marks, you must comply within a reasonable time after notice by the
Company.
3
<PAGE>
3. CONFIDENTIAL INFORMATION.
------------------------
The Company and its related companies possess certain
confidential information relating to the operation of MicroAge Computer Centers
(the "Confidential Information") and will disclose the Confidential Information
to you in the Operating Manual and in providing information, training, services
and assistance during the term of the Franchise. You will not acquire any
interest in the Confidential Information other than the right to use it during
the term of the Franchise and that your use in any other business constitutes an
unfair method of competition. The Confidential Information is proprietary, may
involve trade secrets of the Company and is disclosed to you solely on the
condition that you: (a) do not use the Confidential Information in any other
business or capacity; (b) maintain the confidentiality of the Confidential
Information during and after the term of the Franchise; (c) do not make
unauthorized copies (in written or electronic form) of the Confidential
Information; and (d) adopt and implement all procedures prescribed from time to
time by the Company to prevent unauthorized use or disclosure of the
Confidential Information, including restrictions on disclosure to employees of
the Center and the use of nondisclosure and noncompetition agreements with
employees who have access to the Confidential Information.
4. EXCLUSIVE RELATIONSHIP.
----------------------
You acknowledge that you could not engage in a Competing Business
(defined below) during the term of this Agreement and also faithfully perform
your obligations to use your best efforts to promote and enhance the business of
the Center and to protect the Confidential Information and the Marks. During the
term of this Agreement neither you, nor any of your shareholders or partners (in
the event you are doing business as a corporation or partnership), nor any
member of your immediate family will: (a) have any direct or indirect
controlling ownership interest in any business operating under a name,
trademark, logo, symbol or similar identification licensed by or otherwise
identifying a competitor of the Company ("Competing Business"), wherever the
Competing Business is located; (b) have any other ownership interest whatsoever
in any Competing Business, where the Competing Business is located or operating
within 50 miles of the Center or any other MicroAge Computer Center; (c) perform
services as a director, officer, manager, employee, consultant, representative,
agent or otherwise for any Competing Business wherever located; or (d) have any
direct or indirect interest in any entity which has granted or is granting
franchises or licenses to others to operate a Competing Business. These
restrictions will not apply to your ownership of other MicroAge Computer Centers
nor to your ownership of securities in a Competing Business if these securities
are listed on a stock exchange or traded on the over-the-counter market and
represent 1% or less of that class of securities. Further, "Competing Business"
shall not include lines of business which you were engaged in prior to the date
of this Agreement, as confirmed in writing by you and accepted in writing by the
Company.
4
<PAGE>
5. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.
-------------------------------------------
You and the Company are independent contractors, and nothing in this
Agreement is intended to make either party an agent, partner or employee of the
other party. You will conspicuously identify yourself at the premises of the
Center and in all dealings with third parties as the independent owner of the
Center under a franchise agreement with the Company and will place other notices
of independent ownership on forms, stationery, advertising and other materials
as the Company may require. Neither the Company nor you will make any express or
implied agreements, warranties or representations, or incur any debt, in the
name of or on behalf of the other or represent that the relationship between the
parties is other than franchisor and franchisee. The Company will have no
liability for any taxes levied upon you, the Center or the Company, in
connection with the sales made, services performed or business conducted by you.
You will indemnify, defend and hold harmless the Company and its
related entities and their shareholders, directors, officers, employees, agents,
successors and assignees (the "Indemnified Parties") against any liability for
any claims directly or indirectly arising out of the operation of the Center.
For purposes of this indemnification, "claims" means and includes all claims,
obligations, actual and consequential damages, taxes, attorneys' fees and costs
reasonably incurred in the defense of any claim against the Indemnified Parties.
The Company will have the right to defend any claims. This indemnity will
continue in full force and effect after expiration or termination of this
Agreement.
6. FEES AND PAYMENTS AND SOURCE OF SUPPLY.
--------------------------------------
1. PRODUCT PURCHASES.
-----------------
You are required to purchase from the MicroAge family of companies no
less than $100,000 in products (based on invoices to you) during each calendar
quarter. You will pay a mark-up or override on all products you purchase from or
through the Company, which is referred to as the "Product Fee." The Product Fee
may vary from product to product and will be listed in the Operating Manual or
electronic price guide. Payment for products will be made no later than the
shipment date or on other credit terms described in the Operating Manual and
offered by the Company in its sole discretion. The Company has the right to
receive commissions, cash or other items of benefit from any of the Company's
vendors or other third party providers of goods or services.
The Company, or its designee, shall be your primary source for purchase
of products. You shall use your best efforts to purchase from the Company your
requirements for products available from the Company and listed in the Company's
then current price guide.
2. PRODUCT HOLD/INTEREST ON LATE PAYMENTS.
--------------------------------------
If you are delinquent in payment of amounts due to the Company, you may
not be permitted, in the Company's sole discretion, to purchase products from
the Company or to utilize
5
<PAGE>
the Company's support services. In addition, all amounts you owe the Company and
its related companies, will bear interest after due date at the highest
applicable legal rate for open account business credit, not to exceed 2% per
month. The Company has sole discretion to apply any pay ments by you to any of
your past due indebtedness. This Section 9B does not constitute the Company's
agreement to accept payments after they are due or a commitment by the Company
to extend credit to or finance your operation of the Center.
7. OPERATING STANDARDS.
-------------------
1. AUTHORIZED PRODUCTS AND SERVICES.
--------------------------------
In order to maintain the image of MicroAge Computer Centers as
professionally operated locations offering, selling and supporting quality
computer products and related products and services, you will not offer or sell
any products or services other than computer products and related products and
services, nor will the Center or its premises be used for any purposes other
than the operation of a MicroAge Computer Center in accordance with this
Agreement.
2. PRODUCT ORDERING AND SALES.
--------------------------
Product ordering procedures are described in the Operating Manual. You
will comply with all applicable vendor requirements. The Company cannot sell or
ship any product to you for which you do not possess dealership authorization
from the vendor. The Company will honor all vendor dealership authorization
requirements and cannot assure or guarantee that any vendor will continue to
authorize the Company's distribution or your sale of any vendor's products. You
will sell product only to end-users, to third parties authorized by the
applicable vendor, or to another member of the MicroAge network for the limited
purpose of assisting that reseller in serving its clients, and this assistance
shall not exceed the lesser of $5,000 or 3% of your gross sales per month
without the prior written consent of the Company.
3. COMPLIANCE WITH LAWS.
--------------------
You will secure and maintain in force all required licenses, permits
and certificates relating to the operation of the Center and will operate the
Center in full compliance with all applicable laws, ordinances and regulations.
You will notify the Company in writing within 5 days of the commencement of any
action, suit or proceeding, and of the issuance of any order, injunction, award
or decree of any court or agency, which may adversely affect your or the
Center's operation or financial condition.
4. CODE OF ETHICS.
--------------
You shall abide by and cause your employees to abide by the "Code of
Ethics" adopted (and as amended) by the Company. The Code of Ethics, attached as
Exhibit A-4, is a statement of the Company's policies on good business
practices, fair dealing, cooperative activities and other matters relating to
the operation of MicroAge Computer Centers.
6
<PAGE>
5. MANAGEMENT OF THE CENTER/
CONFLICTING AND COMPETING INTERESTS.
-----------------------------------
You will at all times faithfully, honestly and diligently perform your
obligations under this Agreement, will continuously exert your best efforts to
promote and enhance the business of the Center, and will not engage in any other
business or activity that requires substantial management responsibilities or
otherwise may conflict with your obligations under this Agreement, unless you
have obtained prior written approval from the Company in its sole discretion.
You will not divert elsewhere any trade or business which could be transacted by
you in or from the Center.
6. INSURANCE.
---------
You must, at all times during the term of the Franchise, maintain in
force at your sole expense, comprehensive public, product and motor vehicle
liability insurance against claims for bodily and personal injury, death and
property damage caused by or occurring from the operation of the Center or the
conduct of business by you pursuant to the Franchise, in the policy amount
specified by the Company. All liability insurance policies must name the Company
as an additional insured, contain a waiver by the insurance carrier of all
subrogation rights against the Company and provide that the Company receive 30
days prior written notice of termination, expiration or cancellation or
modification of any policy. Upon 30 days prior notice to you, the Company may
increase the minimum protection requirement as of the renewal date of any
policy, and require different or additional kinds of insurance at any time. You
must furnish to the Company annually a copy of the certificate of or other
evidence of the renewal or extension of each insurance policy.
8. ADVERTISING AND PROMOTION.
-------------------------
You will list and advertise the Center in the principal regular (White
Pages) telephone directory distributed within your primary trading area. Prior
to their use by you, samples of all advertising and promotional materials not
prepared or previously approved by the Company must be submitted to the Company
for approval, which approval will not be unreasonably withheld. If you have not
received written disapproval within 5 days from the date of receipt by the
Company of the materials, the Company will be deemed to have given the required
approval. To safeguard against misrepresentations and to protect the integrity
of the MicroAge Computer Center Network, and without limiting any other remedies
available to the Company, the Company may require that any non-approved
advertising and promotional material be changed, recalled or removed from
circulation at your expense.
9. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
--------------------------------------------
You will establish and maintain, at your own expense, an automated
accounting and recordkeeping system conforming to the requirements and formats
prescribed by the Company.
7
<PAGE>
Upon written request, you will furnish reports and financial statements to the
Company in the formats and on a periodic basis reasonably prescribed by the
Company.
10. INSPECTIONS AND AUDITS.
----------------------
The Company or its designated agents will have the right, at any
reasonable time upon prior notice, to inspect the Center and its equipment,
supplies and inventory and to audit your books and records, including inventory
records, to insure conformity and compliance with the Company's standards and
specifications as described in this Agreement and the Operating Manual. You
shall cooperate with the Company in all inspections and audits.
11. TRANSFER.
--------
1. BY THE COMPANY.
--------------
This Agreement and the Franchise is fully transferable by the Company
and will be for the benefit of any transferee or other legal successor to the
interest of the Company in this Agreement.
2. YOU MAY NOT TRANSFER
WITHOUT APPROVAL OF THE COMPANY.
-------------------------------
The rights and duties created by this Agreement are personal to you
(or, if you are conducting business as a corporation or a partnership, to the
"Owners") and the Company has granted the Franchise in reliance upon your
individual or collective character, skill, aptitude, attitude, business ability
and financial capacity. Accordingly, neither this Agreement, the Franchise, the
Center (or any interest therein), the assets of the Center, nor any part or all
of your ownership, may be transferred without the prior written approval of the
Company, which approval will not be unreasonably withheld. Any transfer without
approval will constitute a breach of this Agreement and be void and of no
effect. As used in this Agreement, the term "transfer" means and includes the
voluntary, involuntary, direct or indirect assignment, sale, gift or other
transfer by you (or any of the Owners) of any interest in: (1) this Agreement;
(2) the Franchise; (3) your ownership; (4) the Center; or (5) the assets of the
Center, including without limitation, any dealer authorizations.
3. CONDITIONS FOR APPROVAL OF TRANSFER.
-----------------------------------
If you (and, if you are a corporation or partnership, the Owners) are
in full compliance with this Agreement, the Company will not unreasonably
withhold its approval of a transfer that meets all of the applicable
requirements of this Section 14C. If the transfer is of the Franchise or a
controlling interest, or is 1 of a series of transfers which, in the aggregate,
constitute the transfer of the Franchise or a controlling interest, all of the
following conditions must be met prior to, or concurrently with, the effective
date of the transfer:
8
<PAGE>
1. the transferee must meet the Company's standards for
MicroAge Computer Center franchisees;
2. you must pay all amounts due and owing the Company,
its related companies and third-party creditors which are then
due and unpaid;
3. the transferee must agree to execute the Company's
then current standard franchise agreement;
4. you or the transferee must pay the Company 50% of the
initial franchise fee, if any, then charged by the Company for
MicroAge Computer Center franchises;
5. you (and the Owners) and the Company must execute a
mutual general release, in form satisfactory to the Company,
of any and all claims either party may have against the other
and their respective related com panies and their officers,
directors, employees and agents;
6. you must provide the Company with a copy of the final
purchase contract relating to the proposed transfer with all
supporting documents and schedules; and
7. you and the Owners must execute a noncompetition
covenant in favor of the Company and the transferee agreeing
that, for a period of 6 months commencing on the effective
date of the transfer, you, the Owners and members of your
immediate family and each of the Owner's immediate families
will not hold any direct or indirect interest as a disclosed
or beneficial owner, investor, partner, director, officer,
employee, consultant, rep resentative or agent, or in any
other capacity, in any Competing Business located or operating
within a radius of 50 miles of the Center or of any other
MicroAge Computer Center in operation or under construction on
the effective date of transfer, or in any entity which is
granting franchises or licenses to others to operate any
Competing Business.
If the proposed transfer is to or among the Owners, Subparagraph (4) of
the above requirements will not apply.
4. TRANSFER TO A CORPORATION OR PARTNERSHIP.
----------------------------------------
If you are in full compliance with this Agreement, the Company will not
unreasonably withhold its approval of a proposed assignment or transfer of this
Agreement and the Franchise to a corporation or partnership which conducts no
business other than the Center and in which you maintain management control and
own and control 67% of the general partnership interest or equity and voting
power of all issued and outstanding capital stock. Transfers of shares or
partnership interests in the corporation or partnership will be subject to the
provisions of this
9
<PAGE>
Section 14D. You will remain personally liable under this Agreement as if the
transfer to the corporation or partnership has not occurred.
5. DEATH OR DISABILITY OF FRANCHISEE.
---------------------------------
Upon your death or permanent disability or, if you are a corporation or
partnership, the owner of a controlling interest in you, the executor,
administrator, conservator or other personal representative of such person,
within a reasonable time, must assign his interest in the Franchise or you to a
third party approved by the Company. The disposition of this Agreement and the
Franchise must be completed within a reasonable time, not to exceed 6 months
from the date of death or permanent disability and is subject to all of the
terms and conditions of transfer set forth in this Section 14. Failure to so
dispose of your interest or the interest of the principal Owner within said
period of time will constitute a breach of this Agreement.
6. THE COMPANY'S RIGHT OF FIRST REFUSAL.
------------------------------------
If you (or the Owners) at any time determine to sell an interest in
this Agreement, the Franchise, the Center, the assets of the Center or an
ownership interest in you, you must obtain a bona fide, executed written offer
and an earnest money deposit of at least 10% of the offering price from a
responsible and fully disclosed purchaser and must submit a true and correct
copy of the offer to the Company. The Company will have the right, exercisable
by written notice delivered to you (or the Owners) within 30 days from the date
of delivery of the offer to the Company, to purchase this interest in this
Agreement, the Franchise, the Center, the assets of the Center or an ownership
interest in you for the price and on the terms and conditions contained in the
offer (provided that the Company may substitute cash for any proposed form of
payment). If the Company does not exercise its right of first refusal, you (or
the Owners) may complete the sale on the terms of the offer, subject to the
Company's approval of the purchaser as provided in Sections 14B and 14C. If the
sale to this purchaser is not completed within 120 days after deliv ery of the
offer to the Company, or there is a material change in the terms of the sale,
the Company will again have a right of first refusal.
12. RENEWAL OF FRANCHISE.
--------------------
1. MUTUAL AGREEMENT TO RENEW.
-------------------------
If, upon expiration of the initial term of the Franchise, you have
substantially complied with all provisions of this Agreement, you may request
renewal of the Franchise for an additional term equal to the customary initial
term granted under the Company's then current form of franchise agreement. Your
request to renew must be in writing and received by the Company at least 180
days but no more than 270 days before the expiration of the initial term of this
Agreement. The Company, in its sole discretion, may choose to accept or deny
your request. If the Company chooses to accept your request for renewal, the
Company will send you written notice of the acceptance within 30 days from
receipt of your request. If the Company does not
10
<PAGE>
send you an acceptance notice, then the Company will be deemed to have denied
the request for renewal.
2. RENEWAL AGREEMENTS/RELEASES.
---------------------------
To renew the Franchise, the Company and you (and the Owners) must
execute the current form of franchise agreement and ancillary agreements as are
then used by the Company in offering franchises for MicroAge Computer Centers
(with appropriate modifications to reflect that it is a renewal franchise). The
renewal agreements may contain provisions substantially different from this
Agreement. You (and the Owners) and the Company must also execute a mutual
general release, in form satisfactory to the Company, of all claims either party
may have against the other and their respective related companies and their
officers, directors, employees and agents. Failure by you (and the Owners) to
sign the agreement(s) and release(s) within 60 days after delivery to you will
be deemed an election by you not to renew the Franchise.
13. TERMINATION OF THE FRANCHISE.
----------------------------
1. TERMINATION WITHOUT CAUSE.
-------------------------
Both you and the Company will have the right to terminate this
Agreement, without cause, on 180 days' notice to the other party; however, if
you obtained dealer status authorization from IBM, Apple, Compaq or
Hewlett-Packard during the term of this Agreement, you may terminate without
cause only after 12 months' prior notice. If any law, statute, regulation, code
or governmental authority prohibit the Company from terminating under this
Section 16A, then you will not have any right to terminate under this Section
16A. If the Agreement is terminated under this Section 16A, you (and the Owners)
and the Company will execute a mutual general release, in form satisfactory to
the Company and effective as of the date of termination, of any and all claims
either party may have against the other and their respective related companies
and their officers, directors, employees and agents.
2. TERMINATION BY THE COMPANY.
--------------------------
The Company will have the right to terminate this Agreement effective
upon delivery of notice of termination to you, if you (or the Owners): (1)
abandons or fails actively to operate the Center for 3 consecutive business days
unless the Center has been closed for a purpose approved by the Company; (2)
have made any material misrepresentation or omission in your application for the
Franchise; (3) are convicted of, or plead, or have pleaded no contest to a
felony or other crime or offense; (4) violate the restrictions on competition
described in Section 7; (5) fail to meet the minimum quarterly dollar
requirement for the purchase of products from the Company; (6) make an
unauthorized transfer as described in Section 14; (7) make any unauthorized use
or disclosure of any Confidential Information; (8) fail to make payment of any
amounts due the Company or its related companies hereunder and do not correct
this failure within 10 days after written notice of failure is delivered to you;
(9) fail to purchase from the Company as your primary source of supply as
described in Section 9A; (10) fail to comply with any other provision
11
<PAGE>
of this Agreement and do not: (a) correct this failure within 5 days if the
failure relates to the use of any Mark, otherwise 30 days after written notice
of the failure to comply is delivered to you or (b) provide proof acceptable to
the Company of efforts which are reasonably calculated to correct the failure if
the failure cannot reasonably be corrected within 30 days after written notice
of the failure to comply is delivered to you; or (11) fail on 2 or more separate
occasions within any period of 12 consecutive months or on 3 occasions during
the term of this Agreement to submit when due reports or other data, information
or supporting records or to pay amounts due to the Company or its related
companies or otherwise fail to comply with this Agreement, whether or not these
failures to comply are corrected after notice is delivered to you.
14. RIGHTS AND OBLIGATIONS
UPON TERMINATION OR EXPIRATION OF THE FRANCHISE.
-----------------------------------------------
1. PAYMENT OF AMOUNTS OWED TO THE COMPANY.
--------------------------------------
You will pay to the Company within 15 days after the effective date of
termination or expiration of the Franchise, or any later date that the amounts
due are determined, amounts due for products you have purchased from the Company
or its related companies, interest due and all other amounts owed to the Company
and its related companies which are then unpaid.
2. MARKS.
-----
You agree that, upon the termination or expiration of the Franchise,
you will:
1. not directly or indirectly, at any time or in any
manner, identify yourself or any business as a current or
former MicroAge Computer Center, or as a franchisee, licensee
or dealer of or as otherwise associated with the Company, or
use any Mark, any colorable imitation thereof or other indicia
of a MicroAge Computer Center in any manner or for any
purpose, or utilize any trade name, trade or service mark or
other commercial symbol that suggests or indicates a
connection or association with the Company;
2. return to the Company (or destroy at the Company's
direction) all signs, sign-faces, catalogues, forms, invoices
and other materials containing any Mark and allow the Company
to remove all of these items from the Center;
3. take any action required to cancel all fictitious or
assumed name registrations relating to your use of any Mark;
4. notify the telephone company and all listing agencies
of the termi nation or expiration of your right to use any
regular, classified or other telephone directory listings
associated with any Mark and to authorize
12
<PAGE>
transfer of same to or at the direction of the Company. If you
fail to so notify the telephone company and all listing
agencies, the Company has the right to notify these parties
and to take whatever action necessary to change the listings;
and
5. furnish to the Company, within 60 days after the
effective date of termination or expiration, evidence
satisfactory to the Company of your compliance with the
foregoing obligations.
3. CONFIDENTIAL INFORMATION.
------------------------
Upon termination or expiration of the Franchise, you will immediately
cease to use the Confidential Information of the Company disclosed to you
pursuant to this Agreement and return to the Company all copies of the Operating
Manual (whether in written form or in other media) which have been provided to
you by the Company.
4. COVENANT NOT TO COMPETE.
-----------------------
Upon termination or expiration of this Agreement, you and the Owners
agree that, for a period of 6 months commencing on the effective date of
termination or the date on which you cease to conduct business, whichever is
later, neither you nor the Owners will have any direct or indirect interest
(through a member of your immediate family or the immediate family of the Owners
or otherwise) as a disclosed or beneficial owner, investor, partner, director,
officer, employee, consultant, representative or agent or in any other capacity
in: (1) any Competing Business located or operating at or from the premises of
the Center; (2) any Competing Business located or operating within a radius of
50 miles of the premises of the Center or any other MicroAge Computer Center in
operation or under construction on the effective date of termination; or (3) any
entity which is granting franchises or licenses to others to operate a Competing
Business.
You and the Owners acknowledge that you both possess skills and
abilities of a general nature and have other opportunities for exploiting these
skills and that enforcement of the covenants made in this Section 17D will not
deprive any of you of your personal goodwill or ability to earn a living. This
Section 17D will not apply to ownership of shares of a class of securities of a
Competing Business listed on a stock exchange or traded on the over-the-counter
market that represent 1% or less of the number of shares of that class of
securities issued and out standing.
5. CONTINUING OBLIGATIONS.
----------------------
All obligations of the Company, you or the Owners, which expressly or
by their nature survive the expiration or termination of this Agreement, will
continue in full force and effect subsequent to its expiration or termination
until they are satisfied in full or expire.
13
<PAGE>
15. MISCELLANEOUS PROVISIONS.
------------------------
1. JUDICIAL ENFORCEMENT, INJUNCTION
AND SPECIFIC PERFORMANCE.
------------------------
The Company will be entitled, without bond, to the entry of temporary,
preliminary and permanent orders of specific performance enforcing the
provisions of this Agreement or any other related agreement relating to: your
use of the Marks; the non-competition restrictions applicable to you or the
Owners; your obligations upon termination or expiration of this Agreement; and
transfer or attempted transfer of this Agreement, the Franchise, the Center, the
assets of the Center or your ownership. If the Company secures any injunction or
order of specific performance, you will pay to the Company an amount equal to
the aggregate of its costs of obtaining this relief, including, without
limitation, reasonable attorneys' fees, costs and expenses as provided in
Section 18K, and any damages incurred by the Company as a result of the breach
of any provision.
2. ARBITRATION.
-----------
ALL CONTROVERSIES, DISPUTES OR CLAIMS ARISING BETWEEN THE COMPANY, ITS
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND ATTORNEYS (IN THEIR REPRESENTATIVE
CAPACITY) AND YOU (THE OWNERS AND GUAR ANTORS, IF APPLICABLE) ARISING OUT OF OR
RELATED TO: (1) THIS AGREEMENT OR ANY OF ITS PROVISIONS OR ANY RELATED
AGREEMENT; (2) THE RELATIONSHIP OF THE PARTIES; OR (3) THE VALIDITY OF THIS
AGREEMENT OR ANY RELATED AGREEMENT, WILL BE SUBMITTED FOR ARBITRATION TO BE
ADMINISTERED BY THE PHOENIX OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON
DEMAND OF EITHER PARTY, UNLESS THE COMPANY ELECTS TO ENFORCE THIS AGREEMENT OR
ANY OTHER RELATED AGREEMENT BY JUDICIAL PROCESS. THE ARBITRATION PROCEEDINGS
WILL BE CONDUCTED IN PHOENIX, ARIZONA AND, EXCEPT AS OTHERWISE PROVIDED IN THE
AGREEMENT, WILL BE CONDUCTED IN ACCORDANCE WITH THE THEN CURRENT COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR WILL
HAVE THE RIGHT TO AWARD OR INCLUDE IN HIS AWARD ANY RELIEF WHICH HE DEEMS PROPER
IN THE CIRCUMSTANCES, INCLUDING WITHOUT LIMI TATION, MONEY DAMAGES (WITH
INTEREST ON UNPAID AMOUNTS FROM DATE DUE), SPECIFIC PERFORMANCE, INJUNCTIVE
RELIEF, AND ATTORNEYS' FEES AND COSTS IN ACCORDANCE WITH SECTION 18K. THE AWARD
AND DECISION OF THE ARBITRATOR WILL BE CONCLUSIVE AND BINDING UPON ALL PARTIES
AND JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT
JURISDICTION. THE PARTIES FURTHER AGREE TO BE BOUND BY THE PROVISIONS OF ANY
APPLICABLE LIMITATION ON THE PERIOD OF TIME IN WHICH THE CLAIMS MUST BE BROUGHT.
THE PARTIES FURTHER AGREE THAT, IN CONNECTION WITH ANY ARBITRATION PROCEEDING,
EACH WILL FILE ANY COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE
14
<PAGE>
FEDERAL RULES OF CIVIL PROCEDURE) WITHIN 30 DAYS OF THE DATE OF THE FILING OF
THE CLAIM TO WHICH IT RELATES. THIS SECTION 18B WILL CONTINUE IN FULL FORCE AND
EFFECT SUBSEQUENT TO AND NOTWITHSTANDING EXPIRATION OR TERMINATION OF THIS
AGREEMENT. YOU AND THE COMPANY AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN
INDIVIDUAL, NOT A CLASS WIDE BASIS.
3. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.
-------------------------------------------------
All provisions of this Agreement are severable and this Agreement will
be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained in this Agreement, and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. To
the extent that Section 7, Section 14C(7) or Section 17D is deemed unenforceable
by virtue of its scope in terms of area or length of time, but may be made
enforceable by reductions of either or both you and the Company agree that same
will be enforced to the fullest extent permissible under the laws and public
policies applied in the jurisdiction in which enforcement is sought. If any
applicable law or rule of any jurisdiction requires a greater prior notice of
the termination of or refusal to renew this Agreement than is required in this
Agreement or the taking of some other action not required under this Agreement,
or if under any applicable and binding law or rule of any jurisdiction, any
provision of this Agreement is invalid or unenforceable, the prior notice and/or
other action required by this law or rule shall be substituted or the invalid or
unenforceable provision will be modified to the extent required to be valid and
enforceable. Any modifications to this Agreement will be effective only in the
applicable jurisdiction and will be enforced as originally made and entered into
in all other jurisdictions.
4. WAIVER OF OBLIGATIONS.
---------------------
The Company and you may by written instrument unilaterally waive any
obligation of or restriction upon the other under this Agreement. No acceptance
by the Company of any payment by you or any other person or entity and no
failure, refusal or neglect of the Company or you to exercise any right under
this Agreement or to insist upon full compliance by the other with its
obligations will constitute a waiver of any provision of this Agreement.
5. RESERVATION OF RIGHTS.
---------------------
The Company and its related companies retain the right to: (1) sell the
products and services authorized for MicroAge Computer Centers under the Marks
and other trademarks and service marks, through similar or dissimilar channels
of distribution, and pursuant to any terms and conditions the Company deems
appropriate; (2) sell any other products or services under the Marks; (3) own,
operate or franchise MicroAge Computer Centers or other computer sales
businesses at locations as the Company, in its sole discretion, deems
appropriate; and (4) offer other franchise programs which may allow for
purchases of differing product lines.
15
<PAGE>
6. YOU MAY NOT WITHHOLD
PAYMENTS DUE THE COMPANY.
------------------------
You will not withhold payment of any amount owed to the Company or its
related companies on grounds of the alleged nonperformance by the Company of any
of its obligations under this Agreement.
7. RIGHTS OF PARTIES ARE CUMULATIVE.
--------------------------------
All rights under this Agreement are cumulative and no exercise or
enforcement of any right or remedy will preclude the exercise or enforcement by
the Company or you of any other right or remedy under this Agreement or which
the Company or you are entitled by law to enforce.
8. WAIVER OF PUNITIVE DAMAGES.
--------------------------
The Company and you hereby waive to the fullest extent permitted by law
any right to or claim for any punitive or exemplary damages against the other
and agree that, in the event of a dispute between them, each will be limited to
the recovery of actual damages.
9. WAIVER OF JURY TRIAL.
--------------------
The Company and you irrevocably waive trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either of
them.
10. LIMITATION OF CLAIMS.
--------------------
Any and all claims arising out of or relating to this Agreement or the
relationship of the parties in connection with your operation of the Center will
be barred unless an action or proceeding is commenced within 1 year from the
date you or the Company knew or, by the exercise of reasonable diligence, should
have known of the facts giving rise to these claims.
11. COSTS AND ATTORNEYS' FEES.
-------------------------
If a claim for amounts you owe the Company or its related companies is
asserted in any legal proceeding before a court of competent jurisdiction or an
arbitrator, or if the Company or you are required to enforce this Agreement in a
judicial or arbitration proceeding, the party prevailing in the proceeding will
be entitled to recover from the other its costs and expenses, including
reasonable accounting, paralegal, legal, expert witness, attorneys' fees and
arbitrator fees, whether incurred prior to, in preparation for or in
contemplation of the filing of any proceeding. If the Company is required to
engage legal counsel in connection with any failure by you to pay when due
amounts due the Company or to submit when due any reports, informa tion or
supporting records, or in connection with any failure to otherwise comply with
this Agreement, you will reimburse the Company for any of the above listed costs
and expenses incurred by it.
16
<PAGE>
12. GOVERNING LAW.
-------------
THIS AGREEMENT, THE FRANCHISE AND THE RELATIONSHIP OF THE PARTIES WILL
BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA, EXCEPT TO THE EXTENT
GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15 U.S.C. {{
1051 ET SEQ.) AND EXCEPT THAT ALL ISSUES RELATING TO ARBITRABILITY OR THE
ENFORCEMENT OR INTERPRETATION OF THE AGREEMENT TO ARBITRATE DESCRIBED IN SECTION
18B WILL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT (9 U.S.C. {1 ET. SEQ.)
AND THE FEDERAL COMMON LAW RELATING TO ARBITRATION.
13. CONSENT TO JURISDICTION AND VENUE.
---------------------------------
THE COMPANY MAY INSTITUTE ANY ACTION AGAINST YOU ARISING OUT OF OR
RELATING TO THIS AGREEMENT (WHICH IS NOT REQUIRED TO BE ARBITRATED) IN ANY STATE
OR FEDERAL COURT OF GENERAL JURISDICTION IN THE COUNTY OF MARICOPA IN THE STATE
OF ARIZONA, AND YOU IRREVOCABLY SUBMIT TO THE JURISDICTION OF THESE COURTS AND
WAIVE ANY OBJECTION YOU MAY HAVE TO EITHER THE JURISDICTION OR VENUE OF ANY
COURT.
14. FORCE MAJEURE.
-------------
Neither the Company nor you will be liable for loss or damage or deemed
to be in breach of this Agreement if its failure to perform its obligations
results from: (1) transportation shortages, inadequate supply of labor, material
or energy, or the voluntary foregoing of the right to acquire or use any of the
foregoing in order to accommodate or comply with the orders, requests,
regulations, recommendations or instructions of any federal, state or municipal
government or any department or agency; (2) compliance with any law, ruling,
order, regulation, requirement or instruction of any federal, state or municipal
government or any department or agency; (3) acts of God; (4) fires, strikes,
embargoes, war or riot; or (5) any other similar event or cause. Any delay
resulting from any of said causes will extend performance or excuse performance,
in whole or in part, as may be reasonable.
15. CONSTRUCTION.
------------
The preambles are a part of this Agreement, which constitutes the
entire agreement of the parties, and there are no other oral or written
understandings or agreements between the Company and you relating to the subject
matter of this Agreement. This Agreement may not be modified except in a writing
signed by both parties. This Agreement is binding upon the parties and their
respective heirs, assigns and successors in interest. The headings of the
several sections and para graphs are for convenience only and do not define,
limit or construe the contents of any section or paragraph. The term "you" is
applicable to one or more persons, a corporation or a partnership, as the case
may be, and the singular usage includes the plural and the masculine and
17
<PAGE>
neuter usages include the other and the feminine. References to "you" applicable
to an individual or individuals means the principal owner or owners of the
equity or operating control of you if you are a corporation or partnership.
Reference to "immediate family" means parents, spouses, offspring and siblings,
and the parents, offspring and siblings of spouses.
16. NOTICES.
-------
All written notices and reports permitted or required to be delivered
by this Agreement or the Operating Manual will be deemed so delivered at the
time delivered by hand, 1 business day after being placed in the hands of a
commercial courier service or United States Postal Service for overnight
delivery or 3 days after placed in the Mail by Registered or Certified Mail,
Return Receipt Requested, postage prepaid and addressed to the party to be
notified at its most current principal business address of which the notifying
party has been notified.
18
<PAGE>
The parties have executed and delivered this Agreement as of the date
listed on page 1 of this Agreement.
MicroAge Computer Centers, Inc. FRANCHISEE ("you")
(the "Company")
If a corporation:
By:_________________________________ ____________________________________
Title:______________________________ By:_________________________________
ATTEST: Title: President
____________________________________ If an individual:
____________________________________
____________________________________
[Print Name]
____________________________________
____________________________________
[Print Name]
____________________________________
____________________________________
[Print Name]
19
<PAGE>
GUARANTY
--------
FOR VALUE RECEIVED, each of the undersigned (collectively "Guarantor")
does hereby personally, unconditionally and irrevocably guaranty the payment and
performance by ___________________________________, a __________________________
corporation ("FRANCHISEE") of each and every undertaking, agreement and covenant
set forth in that certain MicroAge Computer Centers Franchise Agreement by and
between MicroAge Computer Centers, Inc. and FRANCHISEE of even date herewith
(the "Agreement"), including but not limited to Sections 6 and 17C concerning
confidential information, Sections 7, 14C(7) and 17D concerning restrictive
covenants and Section 18B concerning arbitration, and agrees to be personally
bound by and liable for the breach of each and every provision of the Agreement.
Guarantor agrees that this Guaranty is directly enforceable against
Guarantor without first resorting to and exhausting remedies against Franchisee,
and any indulgences, forbearances or extensions of time for performance will not
in any way release Guarantor from liability hereunder. Guarantor waives any and
all notices and legal or equitable defenses to which the Guarantor may be
entitled, except as otherwise expressly provided in the Agreement. This is an
absolute and continuing guaranty and shall remain in full force and effect
during the term of the Agreement.
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the same day and year as the Agreement was executed.
GUARANTOR(S)
_______________________________
and his/her spouse
_______________________________
_______________________________
and his/her spouse
_______________________________
EXHIBIT 11 - CALCULATION OF NET INCOME PER COMMON SHARE
MICROAGE, INC
NET INCOME PER COMMON SHARE CALCULATION
(in thousands)
<TABLE>
<CAPTION>
Quarter ended 39 weeks ended
---------------------- ----------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
Primary
Weighted average common shares 15,561 15,073 15,450 15,013
Dilutive effect of stock options and warrants 778 601 783 296
Weighted average common and common ------- ------- ------- -------
equivalent shares outstanding - primary 16,338 15,674 16,233 15,309
Fully Diluted (1)
Weighted average shares from primary
calculation 16,338 15,674 16,233 15,309
Additional dilutive effect of stock options
and warrants 51 26 68 328
Weighted average common and common ------- ------- ------- -------
equivalent shares outstanding - fully diluted 16,389 15,701 16,301 15,638
Net income $ 6,398 $ 3,841 $17,069 $ 8,586
Net income per common and common equivalent share:
Primary $ 0.39 $ 0.25 $ 1.05 $ 0.56
Fully Diluted $ 0.39 $ 0.24 $ 1.05 $ 0.55
</TABLE>
(1) Fully diluted share information is presented in accordance with Regulation
S-K of the Securities Exchange Act of 1934. The amounts of per share
earnings on the fully diluted basis are not required to be presented in the
consolidated statements of income under the provisions of APB No. 15 since
the additional dilution is less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Consolidated Balance Sheets (Unaudited)
as of August 3, 1997 and November 3, 1996 and the
Consolidated Statements of Income (Unaudited) for the
quarters ended August 3, 1997 and July 28, 1996 contained in
the Form 10-Q for the quarter ended August 3, 1997, and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> MAY-05-1997
<PERIOD-END> AUG-03-1997
<EXCHANGE-RATE> 1
<CASH> 36,265
<SECURITIES> 0
<RECEIVABLES> 263,018
<ALLOWANCES> (13,200)
<INVENTORY> 417,586
<CURRENT-ASSETS> 714,223
<PP&E> 133,432
<DEPRECIATION> (68,514)
<TOTAL-ASSETS> 817,413
<CURRENT-LIABILITIES> 602,086
<BONDS> 0
0
0
<COMMON> 158
<OTHER-SE> 210,900
<TOTAL-LIABILITY-AND-EQUITY> 817,413
<SALES> 1,093,484
<TOTAL-REVENUES> 1,093,484
<CGS> 1,020,484
<TOTAL-COSTS> 1,020,484
<OTHER-EXPENSES> 54,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,456
<INCOME-PRETAX> 11,047
<INCOME-TAX> 4,649
<INCOME-CONTINUING> 6,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,398
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
