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 February 1, 1998 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) 366-2000
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 March 12, 1998 was 19,588,674.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- February 1, 1998 and November 2, 1997.
Consolidated statements of operations -- Quarters ended February 1,
1998 and February 2, 1997.
Consolidated statements of cash flows -- Quarters ended February 1,
1998 and February 2, 1997.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
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
February 1, November 2,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,189 $ 24,029
Accounts and notes receivable, net 281,461 341,124
Inventory, net 600,361 478,532
Other 11,183 11,662
----------- -----------
Total current assets 932,194 855,347
Property and equipment, net 85,731 73,975
Intangible assets, net 70,412 43,766
Other 13,877 12,826
----------- -----------
Total assets $ 1,102,214 $ 985,914
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 732,986 $ 680,648
Accrued liabilities 18,470 22,527
Current portion of long-term obligations 3,027 2,744
Other 3,517 3,951
----------- -----------
Total current liabilities 758,000 709,870
Line of credit 69,650 30,650
Long-term obligations 4,802 4,537
Other long-term liabilities 8,884 1,239
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: February 1, 1998 - 19,574,852
November 2, 1997 - 18,451,653 196 184
Additional paid-in capital 174,468 148,329
Retained earnings 86,380 91,922
Treasury stock, at cost;
Shares: February 1, 1998 - 16,378
November 2, 1997 - 80,378 (166) (817)
----------- -----------
Total stockholders' equity 260,878 239,618
----------- -----------
Total liabilities and stockholders' equity $ 1,102,214 $ 985,914
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended
---------------------------
February 1, February 2,
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 1,179,011 $ 897,420
Cost of sales 1,105,186 834,510
----------- -----------
Gross profit 73,825 62,910
Operating expenses 73,061 49,273
----------- -----------
Operating income 764 13,637
Other expenses - net 10,239 4,881
----------- -----------
Income (loss) before income taxes (9,475) 8,756
Income tax provision (benefit) (4,061) 3,719
----------- -----------
Net income (loss) ($ 5,414) $ 5,037
=========== ===========
Net income (loss) per common and common equivalent share:
Basic ($ 0.28) $ 0.29
=========== ===========
Diluted ($ 0.28) $ 0.28
=========== ===========
Weighted average common and common equivalent shares outstanding:
Basic 19,456 17,174
=========== ===========
Diluted 19,456 18,160
=========== ===========
</TABLE>
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>
Quarter ended
--------------------------
February 1, February 2,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,414) $ 5,037
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 8,042 5,749
Provision for losses on accounts and notes receivable 2,300 1,694
Changes in assets and liabilities, net of business acquisitions:
Accounts and notes receivable 84,545 67,643
Inventory (112,240) (149,237)
Other current assets 661 588
Other assets (5,953) (961)
Accounts payable 17,943 (10,121)
Accrued liabilities (7,045) 146
Other liabilities 7,819 8,869
----------- -----------
Net cash used in operating activities (9,342) (70,593)
Cash flows from investing activities:
Purchases of property and equipment (15,401) (5,928)
----------- -----------
Net cash used in investing activities (15,401) (5,928)
Cash flows from financing activities:
Proceeds from issuance of stock - stock option and
employee stock purchase plans 1,802 2,628
Net borrowings under line of credit 39,000 62,735
Amounts received from ESOT -- 123
Shareholder distributions - pooled companies (128) --
Net change in long-term obligations (771) 899
----------- -----------
Net cash provided by financing activities 39,903 66,385
----------- -----------
Net increase (decrease) in cash and cash equivalents 15,160 (10,136)
Cash and cash equivalents at beginning of period 24,029 22,261
----------- -----------
Cash and cash equivalents at end of period $ 39,189 $ 12,125
=========== ===========
</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. Certain prior year amounts have been reclassified to conform
with current year financial statement presentation. Operating results for the
quarter ended February 1, 1998 are not necessarily indicative of the results
that may be expected for the year ending November 1, 1998. 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 2, 1997.
On November 14, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a reseller. 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 February 2, 1997:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ --------
Revenue $890,748 $ 6,672 $897,420
Net income $ 4,857 $ 180 $ 5,037
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended
--------------------------
February 1, February 2,
1998 1997
----------- -----------
Interest expense $ 2,346 $ 595
Expenses from sales of
accounts receivable 5,577 4,264
Amortization expense 1,415 392
Other 901 (370)
----------- -----------
$ 10,239 $ 4,881
=========== ===========
5
<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 vendors;
potential fluctuations in quarterly results; risks of declines in inventory
values; no assurance of successful acquisitions or investments; the capital
intensive nature of the Company's business; dependence on information systems;
year 2000 issues; dependence on independent shipping companies; rapid
technological change; and possible volatility of stock price. Reference is made
to Exhibit 99.1 of the Company's Report on Form 10-K for the year ended November
2, 1997 for additional discussion of the foregoing factors. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
On November 14, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a 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
-----------------------------------------------------------------------------
Feb. 1, Nov. 2, Aug. 3, May 4, Feb. 2,
1998 1997 1997 1997 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $ 1,179,011 $ 1,331,502 $ 1,161,839 $ 1,101,107 $ 897,420
Cost of sales 93.7% 93.1% 92.8% 92.9% 93.0%
------------ ------------ ------------ ------------ ------------
Gross profit 6.3 6.9 7.2 7.1 7.0
Operating expenses 6.2 5.3 5.6 5.4 5.5
------------ ------------ ------------ ------------ ------------
Operating income 0.1 1.6 1.6 1.7 1.5
Other expenses - net 0.9 0.6 0.6 0.7 0.5
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (0.8) 1.0 1.0 1.0 1.0
Income tax provision (benefit) (0.3) 0.4 0.4 0.4 0.4
============ ============ ============ ============ ============
Net income (loss) (0.5)% 0.6% 0.6% 0.6% 0.6%
============ ============ ============ ============ ============
</TABLE>
6
<PAGE>
Total Revenue. Total revenue of $1.2 billion increased $282 million, or 31%, for
the quarter ended February 1, 1998 as compared to the quarter ended February 2,
1997. This revenue increase included a $197 million, or 37%, increase in
distribution business revenue and an $84 million, or 23%, increase in systems
integration business revenue. The increase in revenue was attributable to sales
to resellers added since February 2, 1997, increased demand for the Company's
major suppliers' products, the Company's addition of new product offerings, the
growth of the microcomputer products industry and acquisitions of reseller
locations.
Total revenue decreased $152 million, or 12%, when compared to the quarter ended
November 2, 1997. This revenue decrease included a $108 million, or 13%,
decrease in distribution business revenue and a $43 million, or 9%, decrease in
systems integration business revenue. The distribution business was impacted by
competitive issues (see Gross Profit Percentage below) and the integration
business was impacted by issues related to the purchases of company-owned
locations. During the calendar year ended December 31, 1997, the Company added
32 company-owned locations. The process of assimilating the new locations
diverted management time from sales and profit momentum to internal systems and
organizational issues.
Gross Profit Percentage. The Company's gross profit percentage was 6.3% for the
quarter ended February 1, 1998 and 7.0% for the quarter ended February 2, 1997.
The decrease in the Company's gross profit percentage was primarily in the
Company's distribution business. In an effort to reduce inventory levels and
reduce price protection risk, the Company initially decided not to participate
in inventory buy-in opportunities offered by certain key suppliers in the first
fiscal quarter of 1998. Certain competitors that did participate in the buy-in
opportunities received more of the products that were in high demand and had
supplier incentive funds which allowed them to aggressively price products to
customers. This affected both the Company's sales volume and margins as prices
were reduced to maintain market share. In response to the competitive situation,
the Company did elect to participate in the buy-in opportunities mid-way through
the quarter, however, executing these buy-ins mid-quarter resulted in the
Company not achieving certain suppliers' sales out objectives, which would have
generated additional incentive funds.
Operating Expenses. As a percentage of revenue, operating expenses were 6.2% for
the quarter ended February 1, 1998 compared to 5.5% for the quarter ended
February 2, 1997. Operating expenses increased $23.8 million to $73.1 million
for the quarter ended February 1, 1998, as compared to the quarter ended
February 2, 1997. The increase in operating expenses was primarily attributable
to acquisitions of reseller locations (which generally have higher gross margin
and operating expense percentages than the Company's other businesses),
increased spending in support of electronic commerce initiatives and capacity
expansion in personnel, systems and facilities.
Other Expenses - Net. Other expenses - net increased to $10.3 million for the
quarter ended February 1, 1998 from $4.9 million for the quarter ended February
2, 1997. This increase was primarily due to increases in average daily
borrowings to support higher inventory and accounts receivable levels and to
increased amortization expense associated with goodwill from acquisitions.
7
<PAGE>
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. A large portion of the incentives are passed on to the Company's
customers. However, a portion of the incentives positively impact the Company's
income. 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
In February, 1998, the Company announced a plan to restructure the Company into
two independent businesses - a distribution business and an integration
business. These businesses will have separate management teams, will operate
autonomously in their respective marketplaces, and will contract with
headquarters for a limited number of services, such as payroll processing,
employee benefits and information services. Restructuring and other one-time
charges will be recognized in the second quarter of fiscal 1998 to reflect
employee termination benefits and other costs related to the restructuring. The
amount of the charges has not yet been determined.
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, the amount of supplier
incentive funds received by the Company, the results of acquired businesses,
product availability, competitive conditions, new product introductions, changes
in customer order patterns 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.
8
<PAGE>
The Company has acquired or invested in, and intends to acquire or invest in,
resellers to increase core service competencies, expand the Company's geographic
coverage in key market areas, and strengthen the Company's direct relationships
with end-user customers. During the quarter ended February 1, 1998, the Company
completed three acquisitions in exchange for 1,632,382 shares of common stock.
See Part II, Item 2(c) below for additional information about these
acquisitions. The Company's future acquisitions or investments may be made
utilizing cash, stock, or a combination of cash and stock.
Cash used in operating activities was $9 million for the quarter ended February
1, 1998 as compared to $71 million for the quarter ended February 2, 1997. The
decrease was primarily due to a change in cash used by inventory and accounts
payable. During the quarter ended February 1, 1998, $94 million was used in
operating activities for inventory and accounts payable compared to $159 million
during the quarter ended February 2, 1997. In addition, cash provided by
accounts receivable increased from $68 million to $85 million.
The number of days cost of sales in ending inventory increased from 35 days at
November 2, 1997 to 49 days at February 1, 1998. This increase in inventory was
due to inventory buy-ins executed during the quarter (see discussion above under
Gross Profit Percentage). The number of days' cost of sales in ending accounts
payable increased from 49 days at November 2, 1997 to 60 days at February 1,
1998. The number of days' sales in ending accounts receivable was 22 days at
February 1, 1998 and November 2, 1997. The receivables days adjusted for sold
receivables were 45 days and 41 days at February 1, 1998 and November 2, 1997,
respectively.
Cash used in investing activities increased from $6 million during the quarter
ended February 2, 1997 to $15 million during the quarter ended February 1, 1998
due to increased purchases of property and equipment as a result of increased
spending for electronic commerce initiatives and capacity expansion in systems
and facilities.
Cash provided by financing activities was $40 million during the quarter ended
February 1, 1998 compared to $66 million during the quarter ended February 1,
1997. This change was primarily due to a smaller increase in borrowings under
the Company's line of credit.
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 February 1, 1998, the net
amount of sold accounts receivable was $296 million.
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.
Amounts borrowed under the Supplemental Line of Credit may remain outstanding
until the expiration date of the Agreements (August 2000). No interest or
finance charges are payable on the Inventory Lines of Credit if payments are
made when due. At February 1, 1998, the Company had $47 million outstanding
under the Inventory Lines of Credit (included in accounts payable
9
<PAGE>
in the accompanying Balance Sheets), and $70 million outstanding under the
Supplemental Line of Credit.
Of the $675 million of financing capacity represented by the Agreements, $262
million was unused as of February 1, 1998. 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 tangible net worth requirements and ratios of debt to tangible net
worth and current assets to current liabilities. At February 1, 1998, the
Company was in compliance with these covenants.
In addition to the financing facilities discussed above, the Company maintains
an accounts receivable purchase agreement (the "Purchase Agreement") with a
commercial credit corporation (the "Buyer") whereby the Buyer agrees to
purchase, from time to time at its option, on a limited recourse basis, certain
accounts receivable of the Company. Under the terms of the Purchase Agreement,
no finance charges are assessed if the accounts are settled within forty days.
At February 1, 1998, the net amount of sold accounts receivable under the
Purchase Agreement was $6.1 million.
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 second
quarter of fiscal 1998.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations.
10
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities
(a) None
(b) None
(c) On November 5, 1997, the Company issued 814,458 shares of Common Stock
to three individuals in connection with their sale to the Company of a
previously franchised corporate reseller. On November 14, 1997, the Company
issued 601,724 shares of Common Stock to four individuals in connection with
their sale to the Company of a previously franchised corporate reseller. On
November 17, 1997, the Company issued 207,200 shares of Common Stock to two
individuals in connection with their sale to the Company of a previously
franchised corporate reseller.
In each of the above transactions, 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
10.1 MicroAge, Inc. Compensation Trust dated February 1,
1998 by and between MicroAge, Inc. and Northern Trust
Bank of Arizona, N.A.
10.2 Endorsement Split-Dollar Insurance Agreement dated
November 25, 1997 by and between MicroAge, Inc. and
Jeffrey D. McKeever
11 EPS Detail Calculation
27 Financial Data Schedule
(b) During the quarter ended February 1, 1998, the Company filed
one report on Form 8-K, dated and filed December 10, 1997, pursuant to Items 5
and 7, to file a copy of the Company's press release entitled, "Strong Fourth
Quarter Highlights Fiscal 1997 Financial Results."
<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: 3-17-98 By:
/s/ Jeffrey D. McKeever
-------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: 3-17-98 By:
/s/ James R. Daniel
-------------------------------------
James R. Daniel
Senior Vice President
Chief Financial Officer and Treasurer
MICROAGE, INC. COMPENSATION TRUST
DATED: February 1, 1998
<PAGE>
MICROAGE, INC. COMPENSATION TRUST
THIS TRUST AGREEMENT is made and entered into by and between
MICROAGE, INC., a Delaware corporation (the "Company") and NORTHERN TRUST BANK
OF ARIZONA, N.A. (the "Trustee").
WHEREAS, the Company has adopted certain plans or agreements
for JEFFREY D. McKEEVER (hereinafter collectively referred to as the "Plan")
attached as Appendix A and incorporated herein by this reference;
WHEREAS, the Company has incurred or expects to incur
liability under the terms of the Plan with respect to individuals participating
in the Plan;
WHEREAS, the Company wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of the
Company's Insolvency, as herein defined, until paid to Plan participants and
their beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a source of funds to assist it
in meeting its liabilities under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
2
<PAGE>
SECTION 1
ESTABLISHMENT OF TRUST
----------------------
1.1 The Company hereby deposits with the Trustee in trust Ten Dollars
($10.00), which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
1.2 The Trust hereby established shall be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part 1, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
1.4 The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3.1 herein.
1.5 The Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits.
SECTION 2
PAYMENTS TO PLAN PARTICIPANTS
-----------------------------
AND THEIR BENEFICIARIES
-----------------------
2.1 The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to
3
<PAGE>
the Plan participants and their beneficiaries in accordance with such Payment
Schedule. The Company shall have the sole responsibility for all tax withholding
filings and reports. The Trustee shall withhold such amounts from distributions
as the Company directs and shall follow the instructions of the Company with
respect to remission of such withheld amounts to appropriate governmental
authorities.
2.2 The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan shall be determined by the Company or such party as
it shall designate under the Plan, and any claim for such benefit shall be
considered and reviewed under the procedures set out in the Plan.
2.3 The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan. The Company shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, the Company shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company where principal and earnings are
not sufficient.
SECTION 3
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
-----------------------------------------
TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
----------------------------------------------
3.1 The Trustee shall cease payment of benefits to Plan participants
and their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject to
a pending proceeding as a debtor under the United States Bankruptcy Code.
3.2 At all times during the continuance of this Trust, as provided in
Section 1.4 hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(a) The Board of Directors and the Chief Executive Officer of
the Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to Plan
participants or their beneficiaries.
4
<PAGE>
(b) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(c) If at any time the Trustee has determined that the Company
is Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the benefit of
the Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to pursue
their rights as general creditors of the Company with respect to benefits due
under the Plan or otherwise.
(d) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
3.3 Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3.2
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
SECTION 4
PAYMENTS TO THE COMPANY
-----------------------
4.1 Except as provided in Section 3 hereof, the Company shall have no
right or power to direct the Trustee to return to the Company or to divert to
others any of the Trust assets before all payment of benefits have been made to
Plan participants and their beneficiaries pursuant to the terms of the Plan.
SECTION 5
INVESTMENT AUTHORITY
--------------------
5.1 In no event may the Trustee invest in securities (including stock
or rights to acquire stock) or obligations issued by the Company, other than a
de minimus amount held
5
<PAGE>
in common investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the Trustee or the
person designated by the Trustee, and shall in no event be exercisable by or
rest with Plan participants.
5.2 The Company shall have the right at anytime, and from time to time,
in its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Company in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
SECTION 6
DISPOSITION OF INCOME
---------------------
6.1 During the term of this Trust, all income received by the Trust,
net of expenses and taxes, shall be accumulated and reinvested.
SECTION 7
ACCOUNTING BY THE TRUSTEE
-------------------------
7.1 The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within 60 days following the close of each calendar
year and within 60 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
SECTION 8
RESPONSIBILITY OF THE TRUSTEE
-----------------------------
8.1 The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any
6
<PAGE>
action taken pursuant to a direction, request or approval given by the Company
which is contemplated by, and in conformity with, the terms of the Plan or this
Trust and is given in writing by the Company. In the event of a dispute between
the Company and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute. The Trustee shall not be liable, to the
extent permitted by law, for compliance with the investment directions as
communicated to the Trustee by the Company.
8.2 The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
8.3 The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
8.4 The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy or collateral assignment interest
therein is held as an asset of the Trust, the Trustee shall have no power to
name a beneficiary of the policy other than the Trust, to assign the policy or
collateral assignment interest therein (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy or collateral
assignment interest therein.
8.5 However, notwithstanding the provisions of Section 8.4 above, the
Trustee may loan to the Company the proceeds of any borrowing against an
insurance policy or collateral assignment interest therein held as an asset of
the Trust, provided the Plan participant or policy owner authorizes such loan in
writing.
8.6 Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
8.7 Any cost or expense incurred in connection with the performance of
the Trustee's responsibilities under this Section 8 (including the hiring of
agents, attorneys, accountants, etc.) shall be a proper expense of this Trust
and the Trustee shall not be liable for the payment of such costs or expenses.
The Company shall reimburse the Trustee for any such cost or expense incurred by
the Trustee in connection with the performance of its duties and
responsibilities under this Section 8.
7
<PAGE>
8.8 The Company (which has the authority to do so under the laws of its
state of incorporation) shall indemnify the Trustee, and defend it and hold it
harmless from and against any and all liabilities, losses, claims, suits or
expenses (including attorneys' fees) of whatsoever kind and nature which may be
imposed upon, asserted against or incurred by the Trustee at any time by reason
of its provision of services under this Trust Agreement, its status as Trustee,
or by reason of any act or failure to act under the Trust Agreement, except to
the extent that any such liability, loss claim, suit or expense arises directly
from the Trustee's negligence or willful misconduct in the performance of
responsibilities specifically allocated to it under the Trust Agreement. This
paragraph shall survive the termination of this Trust Agreement.
SECTION 9
COMPENSATION AND EXPENSES OF THE TRUSTEE
----------------------------------------
9.1 The Company shall pay all expenses associated with the
administration of the Trust including the Trustee's fees and expenses. If not so
paid, the fees and expenses shall be paid from the Trust.
SECTION 10
RESIGNATION AND REMOVAL OF THE TRUSTEE
--------------------------------------
10.1 The Trustee may resign at any time by written notice to the
Company, which shall be effective 30 days after receipt of such notice unless
the Company and the Trustee agree otherwise.
10.2 The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee.
10.3 Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
10.4 If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under Section 10.1 or 10.2. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
8
<PAGE>
SECTION 11
APPOINTMENT OF SUCCESSOR
------------------------
11.1 If the Trustee resigns or is removed in accordance with Section
10.1 or 10.2 hereof, the Company may appoint only a corporate trustee as a
successor to replace the Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by the Company or the successor Trustee to evidence the
transfer.
11.2 The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes the successor
Trustee.
SECTION 12
AMENDMENT OR TERMINATION
------------------------
12.1 This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of a Plan or shall make the Trust
revocable.
12.2 The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Company.
12.3 Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Company may terminate
this Trust prior to the time all benefit payments under the Plan have been made.
All assets in the Trust at termination shall be returned to the Company.
9
<PAGE>
SECTION 13
MISCELLANEOUS
-------------
13.1 Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
13.2 Benefits payable to the Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
13.3 This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona.
SECTION 14
EFFECTIVE DATE
--------------
14.1 The effective date of this Trust Agreement shall be as of February
1, 1998.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed by their duly authorized representatives on the 1st day
of February 1, 1998.
MICROAGE, INC.
By: /s/ Jeffrey D. McKeever
----------------------------------
Its:
-----------------------------
NORTHERN TRUST BANK OF ARIZONA, N.A.
By: /s/ Cynthia Hazeltine
----------------------------------
Its:
-----------------------------
10
<PAGE>
APPENDIX A
----------
1. Jeffrey D. McKeever Supplemental Executive Retirement Plan, dated
October 1, 1992, as amended from time to time.
2. Jeffrey D. McKeever Amended & Restated Split Dollar Insurance
Agreement, dated December 14, 1994.
* * *
11
ENDORSEMENT SPLIT-DOLLAR INSURANCE AGREEMENT
--------------------------------------------
THIS AGREEMENT is made as of this 25th day of November, 1997, by and
between MICROAGE, INC., a Delaware corporation (hereinafter referred to as
"Corporation") and JEFFREY D. McKEEVER (hereinafter referred to as "Insured").
WHEREAS, Corporation plans to acquire insurance on the Insured's life
under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter
referred to as "Insurer"); and
WHEREAS, Corporation wants to assist Insured by paying all premiums due
on the policy; and
WHEREAS, Corporation will be the owner of the insurance policy and as
such, will possess all incidents of ownership in and to the policy;
The parties, therefore, in consideration of the mutual promises
contained herein, hereby agree as follows:
ARTICLE I
A. The Corporation plans to acquire from the Insurer a policy on the
life of the Insured in the face amount of $2,444,336.00 (hereinafter referred to
as the "Policy"). The policy number, face amount and plan of insurance will be
recorded on Schedule A attached to this Agreement and the Policy will then be
subject to the terms of this Agreement. The Corporation shall be the sole and
absolute owner of the Policy, and may exercise all ownership rights granted to
the owner thereof by the terms of the Policy, except as provided herein.
<PAGE>
B. The Insured may select the settlement option for payment of the
death benefit provided under the Policy and the beneficiary or beneficiaries to
receive the portion of policy proceeds to which the Insured is entitled
hereunder, by specifying the same in a written notice to the Corporation. Upon
receipt of such notice, the Corporation shall execute and deliver to the Insurer
the forms necessary to elect the requested settlement option and to designate
the requested person, persons or entity as the beneficiary or beneficiaries to
receive the death proceeds of the Policy in excess of the amount to which the
Corporation is entitled hereunder. The parties hereto agree to take all action
necessary to cause the beneficiary designation and settlement election
provisions of the Policy to confirm to the provisions hereof. The Corporation
shall not terminate, alter or amend such designation or election without the
express written consent of the Insured.
ARTICLE II
All premiums due on the Policy which shall be FORTY-FOUR THOUSAND
DOLLARS ($44,000.00) per year, shall be paid by Corporation until the first to
occur of (i) the death of the Insured, or (ii) Insured's termination of
employment with Corporation. The Corporation shall annually furnish the Insured
a Statement of the amount of income reportable by the Insured for federal and
state income tax purposes.
ARTICLE III
A. Any dividend declared on the Policy shall be applied, under the
fifth dividend option, to purchase one (1) year term insurance on the life of
the Insured, in an amount equal to the cash value of the Policy (as defined
therein), as of the next anniversary date thereof. If the premium for such term
insurance is less than the amount of such dividend, then the balance of such
dividend shall be used to reduce the premiums payable on the Policy. If such
dividend is not adequate to purchase
2
<PAGE>
the required amount of one (1) year term insurance on the life of the Insured,
then the entire dividend shall be applied to purchase such term insurance on the
life of the Insured. The parties hereto agree that the dividend election
provisions of the Policy shall conform to the provisions hereof.
B. Contemporaneously with the execution of this Agreement, the
Corporation has executed a beneficiary designation for and/or an endorsement to
the Policy, under the form used by the Insurer for such designations, in order
to secure the Corporation's recovery of the amount of the premiums on the Policy
paid by the Corporation hereunder. Such beneficiary designation or endorsement
shall not be terminated, altered or amended by the Corporation, without the
express written consent of the Insured. The parties hereto agree to take all
action necessary to cause such beneficiary designation or endorsement to conform
to the provisions of this Agreement.
C. Except as otherwise provided herein, the Corporation shall not sell,
assign, transfer, surrender or cancel the Policy, change the beneficiary
designation provision thereof, nor terminate the dividend election thereof
without, in any such case, the express written consent of the Insured.
D. The Corporation may pledge or assign the Policy, subject to the
terms and conditions of this Agreement, for the sole purpose of securing a loan
from the Insurer or from a third party. The amount of such loan, including
accumulated interest thereon, shall not exceed the lesser of (i) the amount of
the premiums on the Policy paid by the Corporation hereunder, or (ii) the cash
surrender value of the Policy (as defined therein) as of the date to which
premiums have been paid. Interest charges on such loan shall be paid by the
Corporation. If the Corporation so encumbers the Policy, other than by a policy
loan from the Insurer, then, upon the death of the Insured or upon the election
of the Insured hereunder to purchase the Policy from the Corporation, the
Corporation shall promptly take all action necessary to secure the release or
discharge of such encumbrance.
3
<PAGE>
ARTICLE IV
In the event of the death of Insured, the proceeds of the Policy shall
be divided into two parts and paid by Insurer as follows:
Part A - Upon the death of the Insured, the Corporation shall have the
unqualified right to receive a portion of such death benefit
equal to the total amount of premiums paid, the then cash
surrender value of the Policy, or the amount by which the
death benefit exceeds $2,000,000, whichever is greater,
reduced by any indebtedness against the Policy existing at the
death of the Insured (including any interest due on such
indebtedness). In no event shall the amount payable to the
Corporation hereunder exceed the Policy proceeds payable at
the death of the Insured. No amount shall be paid from such
death benefit to the beneficiary or beneficiaries designated
by the Corporation at the direction of the Insured, until the
full amount due the Corporation hereunder has been paid. The
parties hereto agree that the beneficiary designation
provision of the Policy shall conform to the provisions
hereof.
Part B - The balance of the death benefit shall be paid to the
beneficiary designated by the Insured.
ARTICLE V
A. This Agreement shall terminate, during the Insured's lifetime,
without notice, upon the occurrence of any of the following events: (a) total
cessation of the Corporation's business; (b)
4
<PAGE>
bankruptcy, receivership or dissolution of the Corporation or (c) termination of
Insured's employment by the Corporation (other than by reason of his death).
ARTICLE VI
A. For sixty (60) days after the date of the termination of this
Agreement during the Insured's lifetime, the Insured shall have the assignable
option to purchase the Policy from the Corporation. The purchase price for the
Policy shall be the greater of the total amount of the premium payments made by
the Corporation hereunder or the then cash surrender value of the Policy, less
any indebtedness secured by the Policy which remains outstanding as of the date
of such termination, including interest on such indebtedness. Upon receipt of
such amount, the Corporation shall transfer all of its right, title and interest
in and to the Policy to the Insured or his assignee, by the execution and
delivery of an appropriate instrument of transfer.
B. If the Insured or his assignee fails to exercise such option within
such sixty (60) day period, then the Corporation may enforce its right to be
repaid for the premiums which it paid hereunder by surrendering or canceling the
Policy for its cash surrender value, or it may change the beneficiary
designation provisions of the Policy, naming itself or any other person or
entity as revocable beneficiary thereof, or exercise any other ownership rights
in and to the Policy, without regard to the provisions hereof. Thereafter,
neither the Insured, his assignee nor their heirs, assigns or beneficiaries
shall have any further interest in and to the Policy, either under the terms
thereof or under this Agreement.
ARTICLE VII
Insurer is not a party to this Agreement and the obligations of Insurer
are those set forth in the Policy.
5
<PAGE>
ARTICLE VIII
This Agreement shall be binding upon the parties hereto, their heirs,
legal representatives, successors and assigns.
ARTICLE IX
This Agreement may be altered, amended or modified only by written
instrument signed by Corporation and the Insured.
ARTICLE X
This Agreement shall be construed according to the laws of the State of
Arizona.
ARTICLE XI
Insured may add a rider to the Policy for the benefit of his
beneficiaries. Upon written request by Corporation, Insured will add a rider to
the Policy for the benefit of Corporation. The additional premium for any rider
which is added to the Policy will be paid by the party entitled to received the
proceeds of the rider.
ARTICLE XXI
A. The party designated as the "named fiduciary" for the Split-Dollar
Plan established by this Agreement shall have the authority to control and
manage the operation and administration of such plan; provided however, the
Insurer shall be the fiduciary of the plan solely with regard to the review and
final decision on a claim or benefits under its Policy as provided in Article
XIII Claims Procedure, set forth below.
B. The Fiduciary may allocate his responsibilities or the operation and
administration of the Split-Dollar Plan, including the designation of persons to
carry out fiduciary responsibilities under any such plan. He shall erect such
allocation of his responsibilities by delivering to the
6
<PAGE>
Corporation a written instrument signed by him that specifies the nature and
extent of the responsibilities allocated, including, the persons who are
designated to carry out these fiduciary responsibilities under the Split-Dollar
Plan, together with a signed acknowledgment of their acceptance.
ARTICLE XIII
The following claims procedure shall apply to the Split-Dollar Plan:
A. The beneficiary of such Policy shall make a claim for the benefits
provided under the Policy in the manner provided in the Policy.
B. With respect to a claim for benefits under said Policy, the Insurer
shall be the entity which reviews and makes decisions on claim denials.
C. If a claim is wholly or partially denied, notice of the decision,
meeting the requirements of paragraph D below, shall be furnished to the
claimant within a reasonable period of time after the claim has been filed.
D. The Insurer shall provide to any claimant who is denied a claim for
benefits, written notice setting forth in a manner calculated to be understood
by the claimant, the following:
1. The specific reasons for the denial;
2. Specific reference to the pertinent Policy or plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary;
7
<PAGE>
4. An explanation of the plan's claim review procedure,
as set forth in paragraph E and F below.
E. The purpose of the review procedure set forth in this paragraph and
in paragraph F below, is to provide a procedure by which a claimant under the
Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a
claim for a full and fair review. To accomplish that purpose, the claimant or
his duly authorized representative:
1. May request a review upon written application to the
Insurer;
2. May review pertinent plan documents or agreements;
and
3. May submit issues and comments in writing.
A claimant (or his duly authorized representative)
shall request a review by filing a written
application for review at any time within sixty (60)
days after receipt by the claimant of written notice
of the denial of his claim.
F. A decision on review of a denial of a claim shall be made in the
following manner:
1. The decision on review shall be made by the Insurer,
which may in its discretion hold a hearing on the
denied claim. The Insurer shall make its decision
promptly, unless special circumstances (such as the
need to hold a hearing) require an extension of time
for processing, in which case a decision shall be
rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the
request for review.
2. The decision on review shall be in writing and shall
include specific reasons for the decisions, written
in a manner calculated to be understood by the
8
<PAGE>
claimant, and specific references to the pertinent
Policy or plan provision on which the decision is
based.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MICROAGE, INC., a Delaware Corporation
By /s/ Jeffrey D. McKeever
--------------------------------------
Its
--------------------------------
By /s/ Jeffrey D. McKeever
--------------------------------------
JEFFREY D. McKEEVER
9
<PAGE>
SCHEDULE A
Face Amount $2,444,336
Policy Number 14431834
Plan of Insurance The Northwestern Mutual Life
Insurance Company
10
<PAGE>
ENDORSEMENT FORM
Appin. No., Contract No. Date this form is signed:
or Policy No.: 14431834 November 25, 1997
Insured: JEFFREY D. McKEEVER
Insurance Company: The Northwestern Mutual Life Insurance Company
The undersigned request and direct the Insurance Company to make the provisions
of this form a part of the policy.
All previous designations of payees are hereby revoked. It is hereby requested
and directed that:
BENEFICIARIES
(1) In the event of the death of the Insured, MicroAge, Inc., a Delaware
corporation, or its successors ("Corporation"), will be the direct beneficiary
of an amount equal to the greater of (i) the premiums paid to the Insurance
Company by Corporation for the Policy, (ii) the cash surrender value of the
Policies, or (iii) the amount by which the death benefit exceeds $2,000,000,
reduced by any indebtedness against the Policy existing at the death of the
Insured (including any interest due on such indebtedness).
In the event of Corporation's cessation of business, bankruptcy,
receivership or dissolution, Corporation will be the direct beneficiary of an
amount equal to the greater of (i) the premiums paid to the Insurance Company by
Corporation for the Policy or (ii) the then cash surrender value of the Policy,
less any indebtedness secured by the Policy which remains outstanding as of such
date (including interest due on such indebtedness).
It is understood and agreed that the Insurance Company will have the right to
rely on any statement signed by said Corporation setting forth said
Corporation's share of the premium payments referred to above, and any decision
made by Insurance Company in reliance upon such statement will be conclusive and
will fully protect the Insurance Company.
(2) Jeffrey D. McKeever Revocable Trust (Name of spouse or primary beneficiary)
if living and married to the Insured on (his/her) date of death will be the
direct beneficiary of any remaining proceeds, and if (he/she) is either not
married to Insured or living on Insured's date of death, ______________________
_____________________ (Name of children or secondary beneficiaries) will share
equally or by right of representation of any remaining proceeds.
11
<PAGE>
The Insurance Company will be fully discharged of liability for any action taken
by the Insured and for all amounts paid to, or at the direction of, the Insured
and will have no obligation as to the use of the amounts. In all dealings with
the Insured, the Insurance Company will be fully protected against the claims of
every other person. The Insurance Company will not be charged with notice of a
change of beneficiary unless written evidence of the change is received at the
Insurance Company's Home Office.
OWNERSHIP
(3) The owner of the Policy shall be the Corporation. The Corporation alone may
exercise all the rights and privileges specified in the Policy.
MODIFICATION OF ASSIGNMENT PROVISIONS
Upon death of the Insured, the interest of any collateral assignee of
Corporation will be limited to the portion of the proceeds described in (1)
above.
MICROAGE, INC., a Delaware corporation
By /s/ Jeffrey D. McKeever
--------------------------------------
Officer
/s/ Jeffrey D. McKeever
----------------------------------------
JEFFREY D. McKEEVER
12
EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
MICROAGE, INC
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
(in thousands)
<TABLE>
<CAPTION>
Quarter ended
----------------------------
February 1, February 2,
1998 1997
----------- -----------
<S> <C> <C>
Basic
Weighted average common shares 19,456 17,174
----------- -----------
Diluted
Weighted average shares from primary
calculation 19,456 17,174
Dilutive effect of stock options and warrants -- 986
----------- -----------
Weighted average common and common
equivalent shares outstanding - diluted 19,456 18,160
----------- -----------
Net income (loss) $ (5,414) $ 5,037
Net income (loss) per common and common equivalent share:
Basic $ (0.28) $ 0.29
=========== ===========
Diluted $ (0.28) $ 0.28
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets (Unaudited) as of February 1, 1998 and November 2,
1997 and the Consolidated Statements of Operations (Unaudited) for the quarters
ended February 1, 1998 and February 2, 1997
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-START> NOV-03-1997
<PERIOD-END> FEB-01-1998
<EXCHANGE-RATE> 1
<CASH> 39,189
<SECURITIES> 0
<RECEIVABLES> 294,213
<ALLOWANCES> 12,752
<INVENTORY> 600,361
<CURRENT-ASSETS> 932,194
<PP&E> 169,587
<DEPRECIATION> 83,856
<TOTAL-ASSETS> 1,102,214
<CURRENT-LIABILITIES> 758,000
<BONDS> 0
0
0
<COMMON> 196
<OTHER-SE> 260,682
<TOTAL-LIABILITY-AND-EQUITY> 1,102,214
<SALES> 1,179,011
<TOTAL-REVENUES> 1,179,011
<CGS> 1,105,186
<TOTAL-COSTS> 1,105,186
<OTHER-EXPENSES> 73,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,346
<INCOME-PRETAX> (9,475)
<INCOME-TAX> (4,061)
<INCOME-CONTINUING> (5,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,414)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
