SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICROAGE, INC.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
<PAGE>
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MICROAGE (R), INC.
2400 SOUTH MICROAGE WAY
TEMPE, ARIZONA 85282-1896
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 1, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
MicroAge, Inc., a Delaware corporation (the "Company"), will be held at the
Company Sales Center, 3015 South Priest Drive, Tempe, Arizona 85282, on
Wednesday, April 1, 1998, at 4:00 p.m., Arizona time, for the following
purposes:
1. to elect two Class III Directors to serve until the 2001
Annual Meeting of Stockholders or until their successors are
elected and qualified;
2. to approve the MicroAge, Inc. 1997 Long-Term Incentive Plan;
3. to approve the MicroAge, Inc. 1995 Director Incentive Plan, as
amended; and
4. to transact such other business as may properly come before
the meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Company's Audited Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations are included in Appendix A to the Proxy Statement.
Only stockholders of record at the close of business on February 6,
1998 are entitled to notice of and to vote at the meeting. A complete list of
the stockholders entitled to vote at the meeting will be open for examination by
any stockholder, for any purposes germane to the meeting, at the offices of the
Company, at 2400 South MicroAge Way, Tempe, Arizona 85282-1896, during normal
business hours commencing March 20, 1998.
YOUR VOTE IS IMPORTANT!
By order of the Board of Directors,
/s/ Alan P. Hald
Tempe, Arizona Alan P. Hald
February 25, 1998 Secretary
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT................................................................1
ELECTION OF DIRECTORS.....................................................2
NOMINEES.............................................................2
DIRECTORS CONTINUING IN OFFICE.......................................2
SECURITY OWNERSHIP OF MANAGEMENT
AT DECEMBER 31, 1997.................................................4
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS........................5
PRINCIPAL STOCKHOLDERS....................................................7
EXECUTIVE COMPENSATION....................................................8
SUMMARY COMPENSATION TABLE...........................................8
OPTION/SAR GRANTS IN LAST FISCAL YEAR...............................10
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES..........................11
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PENSION BENEFITS.............11
EMPLOYMENT CONTRACTS AND RELATED MATTERS............................12
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION......................................13
STOCK PERFORMANCE GRAPH..................................................16
APPROVAL OF THE MICROAGE, INC. 1997 LONG-TERM INCENTIVE PLAN.............17
DESCRIPTION OF THE AVAILABLE AWARDS.................................17
APPROVAL OF THE MICROAGE, INC. 1995 DIRECTOR INCENTIVE PLAN, AS
AMENDED.............................................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................25
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE REQUIREMENTS..................................25
AUDITORS.................................................................26
STOCKHOLDER NOMINATIONS AND PROPOSALS....................................26
OTHER INFORMATION........................................................26
APPENDIX A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.........................................................A-1
REPORT OF INDEPENDENT ACCOUNTANTS.......................................A-8
CONSOLIDATED FINANCIAL STATEMENTS.......................................A-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................A-13
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................A-35
APPENDIX B
MICROAGE, INC. 1997 LONG-TERM INCENTIVE PLAN............................B-1
APPENDIX C
MICROAGE, INC. 1995 DIRECTOR INCENTIVE PLAN, AS AMENDED.................C-1
i
<PAGE>
MICROAGE, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 1, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of MicroAge, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders to be
held on Wednesday, April 1, 1998, at 4:00 p.m., Arizona time (the "1998 Annual
Meeting"), and at any adjournment or adjournments thereof. Only stockholders of
record at the close of business on February 6, 1998 (the "Record Date") will be
entitled to notice of and to vote at the meeting. On the Record Date, the
Company had outstanding 19,558,474 shares of Common Stock, par value $.01 per
share ("Common Stock"). There are no other voting securities outstanding.
Each stockholder is entitled to one vote per share for the election of
directors and on each proposal as well as on all other matters that may be
properly brought before the meeting. If the accompanying proxy is signed and
returned, the shares represented thereby will be voted in accordance with any
directions on the proxy. If a proxy does not specify how the shares represented
thereby are to be voted in connection with the election of the director
nominees, it is intended that it will be voted for the director nominees named
herein. A stockholder may revoke the proxy at any time prior to the voting
thereof by giving due notice of such revocation to the Company, by executing and
duly delivering a subsequent proxy, or by attending the 1998 Annual Meeting and
voting in person. This Proxy Statement and the enclosed proxy are first being
mailed to stockholders on or about February 25, 1998.
The presence in person or by proxy of holders of a majority of the
outstanding shares of Common Stock entitled to vote will constitute a quorum for
the transaction of business at the 1998 Annual Meeting. If a quorum is present,
a plurality of the votes cast at the 1998 Annual Meeting is required for the
election of directors. Each other matter being submitted to the stockholders for
approval requires the affirmative vote of a majority of the aggregate number of
shares present at the 1998 Annual Meeting and entitled to vote on that matter.
Abstentions are counted as "shares present" for purposes of determining the
presence of a quorum and have the effect of a vote "against" any matter as to
which they are specified. Broker non-votes with respect to any matter are not
considered "shares present" and will not affect the outcome of the vote on such
matter.
In addition to the use of the mails, proxies may be solicited by
directors, officers, or regular associates (employees) of the Company in person,
by telegraph, telecopy, telephone, or electronic mail. The Company has retained
American Stock Transfer and Trust Company ("AST") to assist in the distribution
of proxy solicitation materials and the solicitation of proxies for an
anticipated fee of $4,200, plus out-of-pocket expenses. The Company will pay all
expenses of the solicitation.
As of the date of this Proxy Statement, the Company knows of no matters
to be brought before the meeting other than those referred to in the
accompanying notice of annual meeting. If, however, any other
1
<PAGE>
matters properly come before the meeting, it is intended that proxies in the
accompanying form will be voted thereon in accordance with the judgment of the
persons voting such proxies.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for the
division of the Board of Directors into three classes: Class I, Class II, and
Class III. Each director is elected for three years and the terms are staggered
so that only one class is elected by the stockholders annually. At the 1998
Annual Meeting, two Class III directors will be elected to serve until the 2001
Annual Meeting of Stockholders or until their successors are duly elected and
qualified.
It is the intention of those persons named in the accompanying form of
proxy or their substitutes to vote for the election of the nominees listed below
unless instructed to the contrary. However, if any nominee named herein at the
time of the election becomes unavailable to serve (which is not anticipated)
and, as a consequence, other nominees are designated, the persons named in the
proxy or their substitutes will have the discretion or authority to vote or
refrain from voting in accordance with their judgment with respect to the other
nominees.
NOMINEES
NOMINEES FOR ELECTION AS CLASS III DIRECTORS
(TERM TO EXPIRE AT 2001 ANNUAL MEETING)
ROY A. HERBERGER, JR., 55, was elected a director of the
Company effective January 18, 1996. Since 1989, Mr. Herberger has served as
President of Thunderbird, the American Graduate School of International
Management. Mr. Herberger is also a director of Pinnacle West Capital
Corporation and Pilgrim America Capital Corporation.
CYRUS F. FREIDHEIM, JR., 62, was elected a director of the
Company effective January 29, 1998. Since 1990, Mr. Freidheim has served as Vice
Chairman of Booz Allen & Hamilton, Inc., an international management and
technology consulting firm. Mr. Freidheim is also a director of Household
International, Inc., Security Capital Group, and LaSalle St. Fund.
DIRECTORS CONTINUING IN OFFICE
CLASS I DIRECTORS
(TERM TO EXPIRE AT 1999 ANNUAL MEETING)
WILLIAM H. MALLENDER, 62, was elected a director of the
Company in 1987. From 1983 until June 1997, Mr. Mallender served as Chairman of
the Board of Directors and Chief Executive Officer
2
<PAGE>
of Talley Industries, Inc., a publicly-held company that designs, manufactures,
and supplies aerospace, industrial, and commercial products and services.
LYNDA M. APPLEGATE, 48, was elected a director of the Company
effective January 18, 1996. Since 1986, Ms. Applegate has served as a Professor
at the Harvard Business School.
CLASS II DIRECTORS
(TERM TO EXPIRE AT 2000 ANNUAL MEETING)
JEFFREY D. MCKEEVER, 55, has served as Chief Executive Officer
of the Company since February 1987 and as Chairman of the Board since October
1991. He co-founded the Company in August 1976 and has served as a director of
the Company since October 1976. He also served as President from June 1995 to
January 1996, January 1993 to February 1993, and February 1987 to October 1991,
Chairman of the Board and Secretary from October 1976 to February 1987, and as
Treasurer from October 1976 to February 1983 and from February 1987 to December
1988. Pursuant to his employment agreement, the Company has agreed to have the
Board of Directors nominate Mr. McKeever for election to the Board of Directors
of the Company as long as he owns at least 80,000 shares of Common Stock. See
"Employment Contracts and Related Matters" for additional information regarding
Mr. McKeever's employment agreement.
STEVEN G. MIHAYLO, 54, was elected a director of the Company
in 1988. Since 1969, Mr. Mihaylo has served as Chief Executive Officer and since
1983 as Chairman of the Board of Inter-Tel, Incorporated, a publicly-held
company that designs, manufactures, and services digital and analog telephone
systems and voice processing systems, and provides long distance services.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Shares Percentage of
of Common Stock Common Stock
Beneficially Beneficially
Name Owned(1) Owned
- ---- ---------------- -------------
<S> <C> <C>
Jeffrey D. McKeever
Chairman of the Board and Chief Executive Officer.................. 481,053(2) 2.5%
Lynda M. Applegate
Director........................................................... 2,334 (3)
Cyrus F. Freidheim, Jr.
Director........................................................... 0(4) (3)
Roy A. Herberger, Jr.
Director........................................................... 2,834 (3)
Fred Israel (5)
Director........................................................... 133,499 (3)
William H. Mallender
Director........................................................... 11,500(2) (3)
Steven G. Mihaylo
Director........................................................... 10,000 (3)
Robert G. O'Malley
President.......................................................... 23,207 (3)
Alan P. Hald
Secretary; and President, MicroAge
Enterprises, Inc................................................... 363,891 1.9%
James R. Daniel
Senior Vice President, Chief Financial Officer and
Treasurer; and President, Headquarters Services.................... 42,578 (3)
Christopher J. Koziol
Senior Vice President -- Sales; and President,
Distribution Group................................................. 62,966 (3)
All executive officers and directors
as a group (18 persons)............................................ 1,180,886 6.0%
</TABLE>
- -------------------------
(1) Includes shares, if any, held by spouse; held in joint tenancy with
spouse; held by or for the benefit of the listed individual (or group
member) or one or more members of his immediate family; with respect to
which the listed individual (or group member) has or shares voting or
investment powers (including shares allocated to the listed
4
<PAGE>
individual's (or group member's) account under the MicroAge, Inc.
Retirement Savings and Employee Stock Ownership Plan and Trust);
subject to stock options that were exercisable on December 31, 1997 or
within 60 days thereafter, or in which the listed individual (or group
member) otherwise has a beneficial interest. At December 31, 1997, all
directors and executive officers as a group owned beneficially an
aggregate of 1,180,886 shares (6.0%), of which 315,925 shares,
including 136,846 shares for Mr. McKeever, 334 shares for Ms.
Applegate, 334 shares for Mr. Herberger, 1,000 shares for Mr. Israel,
1,000 shares for Mr. Mallender, 1,000 shares for Mr. Mihaylo, 20,000
shares for Mr. O'Malley, 6,000 shares for Mr. Daniel, 65,960 shares for
Mr. Hald, and 49,645 shares for Mr. Koziol, are subject to stock
options granted by the Company that were exercisable on December 31,
1997 or within 60 days thereafter.
(2) Mr. McKeever disclaims beneficial ownership in 12,400 of these shares
held by family members. Mr. Mallender disclaims beneficial ownership in
1,000 of these shares held by his wife.
(3) Common Stock beneficially owned does not exceed one percent of the
outstanding Common Stock at December 31, 1997.
(4) Mr. Freidheim was elected a director of the Company effective January
29, 1998. Mr. Freidheim beneficially owned 2,500 shares of Common Stock
at January 31, 1998.
(5) Mr. Israel's term expires at the 1998 Annual Meeting. In accordance
with the Company's By-Laws, Mr. Israel will not stand for re-election
because his 70th birthday occurred before the date of the 1998 Annual
Meeting.
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
Board of Directors' Meetings, Audit, Compensation, and Corporate
Governance Committees. The Company's Board of Directors met in person or acted
by written consent six times during the fiscal year ended November 2, 1997
("fiscal year 1997"). The Board of Directors maintains a standing Audit
Committee, Compensation Committee, and Corporate Governance Committee. Directors
who are not officers or associates (employees) of the Company receive an $18,000
annual retainer fee and $1,500 for attendance at regular Board meetings, $1,000
for attendance at special Board meetings, and $1,000 for attendance at meetings
of committees of which they are members. Each Committee Chairperson receives an
additional annual retainer fee of $3,000. Directors are reimbursed for
reasonable travel expenses incurred to attend Board or Committee meetings.
The Audit Committee is responsible for appointing the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls. The Audit
Committee met two times during fiscal year 1997, and consisted of Messrs.
Mallender (Chairman), Mihaylo, Herberger, and Israel.
The Compensation Committee acts on matters relating to the compensation
of directors, senior management, and key associates (employees) of the Company,
including the granting of stock options and the approval of employment
agreements. The Compensation Committee met in person or acted by written consent
six times during fiscal year 1997, and consisted of Messrs. Mihaylo (Chairman),
Mallender, and Israel, and Ms. Applegate.
The Corporate Governance Committee makes recommendations to the full
Board of Directors with respect to director nominees and officer appointments.
The Corporate Governance Committee met three times during fiscal year 1997, and
consisted of Messrs. Herberger (Chairman), Mihaylo, and Mallender, and Ms.
Applegate.
5
<PAGE>
1995 Director Incentive Plan. Under the Company's 1995 Director
Incentive Plan (the "Director Plan"), on November 1 of each year, beginning in
1995 and ending in 2004, each person serving as a director of the Company who is
not also an associate (employee) of the Company is automatically granted (i)
1,000 shares of Common Stock, subject to certain restrictions as described below
("Director Restricted Stock"), and (ii) options to purchase 1,000 shares of
Common Stock ("Director Options"). Messrs. Mihaylo, Mallender, Herberger, and
Israel, and Ms. Applegate were each granted 1,000 shares of Director Restricted
Stock and 1,000 Director Options on November 1, 1997.
The restrictions on the Director Restricted Stock will lapse on the
later of (i) the date the director owns (for one year) shares of Common Stock,
but the restrictions will lapse on one share of Director Restricted Stock for
each two shares of unrestricted stock the director owns; and (ii) the date the
shares of Director Restricted Stock "vest." The Director Restricted Stock has
two vesting hurdles. First, the Director Restricted Stock vests in one-third
increments over the three years following the date of grant. Second, the
Director Restricted Stock vests in one-third increments following the date of
grant only if the Common Stock trades above certain specified prices after the
first vesting hurdle occurs. In the case of the Director Restricted Stock
granted on November 1, 1997, the Common Stock must trade at or above (i) $24.20
on or after November 1, 1998; (ii) $26.62 on or after November 1, 1999; and
(iii) $29.28 on or after November 1, 2000.
The exercise price of the Director Options is the fair market value of
the Common Stock on the relevant grant date (i.e., each November 1). In the case
of the Director Options granted on November 1, 1997, the exercise price is
$22.00 per share. Each Director Option has two vesting hurdles. First, the
Director Options vest in one-third increments over the three-year period
following the date of grant. Second, the Director Options vest in one-third
increments over the three years following the date of grant only if the Common
Stock trades at or above certain specified prices after the first vesting hurdle
occurs. In the case of the Director Options granted on November 1, 1997, the
Common Stock must trade at or above (i) $24.20 on or after November 1, 1998;
(ii) $26.62 on or after November 1, 1999; and (iii) $29.28 on or after November
1, 2000.
See Proposal 3 below for a discussion of proposed amendments to the
Director Plan that are being submitted for approval to the Company's
stockholders at the 1998 Annual Meeting.
Voting Agreement. On April 27, 1990, Mr. Fred Israel entered into an
agreement with the Company pursuant to which Mr. Israel agreed that, during the
period described in such agreement, in circumstances in which he, or his
Purchaser Affiliates (as such term is defined in the agreement), does not or do
not vote all shares of the Voting Securities (as defined in such agreement and
which includes the Common Stock) beneficially owned by him in favor of the
position on any matter adopted by the majority of the Board of Directors, he
will vote such shares in the same manner and in the same proportion as are voted
by the other stockholders of the Company on such matter. At December 31, 1997,
Mr. Israel beneficially owned approximately 0.7% of the outstanding shares of
Common Stock. See "Security Ownership of Management at December 31, 1997" and
"Certain Relationships and Related Transactions."
6
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock by each person who is known to the Company
to own beneficially more than 5% of the outstanding Common Stock:
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percentage of
Beneficially Common Stock
Name and Address of Beneficial Owner Owned (1) Beneficially Owned (2)
- ---------------------------------------- --------------------- ------------------------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc.(3)
One State Street Plaza, New York, N.Y. 1,059,800 5.4%
10004-1545
</TABLE>
-----------------
(1) The beneficial ownership information regarding Sanford C. Bernstein &
Co., Inc. is as of February 4, 1998. For certain additional information
with respect to beneficial ownership of the Common Stock, see "Security
Ownership of Management at December 31, 1997," "Executive
Compensation," and "Certain Relationships and Related Transactions."
(2) The percentage of Common Stock beneficially owned is based on the
number of shares of Common Stock outstanding on February 6, 1998.
(3) Sanford C. Bernstein & Co., Inc. is an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940. Sanford C.
Bernstein & Co., Inc. has sole dispositive power with respect to
1,059,800 shares and shared voting power with respect to 18,600 shares.
The information contained in this section was obtained from a Schedule
13G dated February 5, 1998 filed by Sanford C. Bernstein & Co., Inc.
with the Securities and Exchange Commission. The Company makes no
representation as to the accuracy or completeness of the information
reported.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to or paid by the Company and its subsidiaries to the chief executive
officer and the four most highly compensated executive officers of the Company
for services rendered during the fiscal years ended November 2, 1997, November
3, 1996, and October 29, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ---------------------------- -------
Other Annual Restricted Securities LTIP All Other
Salary Bonus Compensation Stock Underlying Payouts Compensation
Name and Principal Position Year ($)(1) ($)(1) ($) Award(s)($) Options/SARs(3) ($) ($)(4)
- --------------------------- ---- -------- ------- ------------ ----------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey D. McKeever 1997 $587,500 $371,321 0 0 0 0 $ 93,310
Chairman of the Board of 1996 $460,962 $ 87,121 0 0 306,611 0 $ 98,670
Directors and Chief Executive 1995 $462,500 $606,315(2) 0 0 0 0 $122,973
Officer
Robert G. O'Malley 1997 $300,000 $129,021 0 0 155,035 0 $ 24,127
President 1996 $245,128 $ 69,883 0 0 65,000 0 $ 6,631
1995 $130,577 $ 25,000 0 0 15,000 0 $ 7,794
Alan P. Hald 1997 $318,500 $105,880 0 0 5,000 0 $ 73,454
Secretary; and President, 1996 $282,173 $ 46,654 0 0 135,638 0 $ 73,190
MicroAge Enterprises, Inc. 1995 $282,500 $586,831(2) 0 0 0 0 $ 44,814
James R. Daniel 1997 $322,833 $196,399 0 0 10,000 0 $ 23,667
Senior Vice President, Chief 1996 $285,582 $ 77,527 0 0 114,698 0 $ 18,511
Financial Officer, and 1995 $304,167 $ 16,738 0 0 0 0 $ 21,932
Treasurer; and President,
Headquarters Services
Christopher J. Koziol 1997 $208,833 $159,200 0 0 10,000 0 $ 20,747
Senior Vice President - Sales; 1996 $161,539 $ 77,190 0 0 71,192 0 $ 15,065
and President, Distribution 1995 $138,551 $ 20,741 0 0 0 0 $ 12,357
Group
</TABLE>
(1) See footnote 3 below for a discussion of (a) the MicroAge, Inc. 1994
Management Equity Program (the "1994 MEP"), under which each of the
named individuals (other than Mr. O'Malley) received option grants by
agreeing to reduce his compensation and (b) the MicroAge, Inc. 1997
Management Equity Program (the "1997 MEP"), under which Mr. O'Malley
received options by agreeing to reduce his compensation.
(2) Includes a one-time Warrant Restitution and Founder's Bonus in the
amount of $569,194 paid to each of Mr. McKeever and Mr. Hald prior to
the March 29, 1995 expiration of warrants held by each of them. The
Company issued these warrants to Messrs. McKeever and Hald in 1985, and
the warrants were originally to have expired on March 29, 2005. As a
condition to the Company effecting its initial public offering in 1987,
state regulatory authorities required the expiration date of the
warrants to be reduced by ten years to March 29, 1995. In recognition of
(i) the substantial economic
8
<PAGE>
benefits that Messrs. McKeever and Hald were required to forego as a
result of the reduction of the exercise period of the warrants, (ii) the
substantial personal investments that Messrs. McKeever and Hald have
made in the Company through Common Stock purchases and on-going
commitments to purchase Common Stock under the MEP, and (iii) the record
financial results achieved by the Company in fiscal year 1993 and fiscal
year 1994, the Compensation Committee approved the payment of the
Warrant Restitution and Founder's Bonuses in the indicated amounts. The
Warrant Restitution and Founder's Bonuses were used to reimburse Messrs.
McKeever and Hald for the warrant exercise price and their personal tax
obligations resulting from the warrant exercise and bonus payment. The
breakdown of each Warrant Restitution and Founder's Bonus is as follows:
warrant exercise price ($208,709); and tax obligations ($360,485). The
balance of the bonus amounts paid to Mr. McKeever ($37,121) and to Mr.
Hald ($17,637) and disclosed in the above table represents annual fixed
cash bonuses payable under their respective employment agreements.
(3) The 1996 totals include options granted to each named individual under
the 1994 MEP (other than Mr. O'Malley, who did not participate in the
1994 MEP because he was not employed by the Company at the time the 1994
MEP was adopted) as a result of his election to restructure his
compensation package by reducing his calendar year 1993, 1994, 1995,
1996, and 1997 compensation. The total number of 1994 MEP options
granted to each of the named individuals (other than Mr. O'Malley) under
the 1994 MEP and the compensation amounts waived by each of the named
individuals (other than Mr. O'Malley) under the 1994 MEP are as follows:
Mr. McKeever (241,611; $600,000); Mr. Hald (125,638; $312,000); Mr.
Daniel (104,698; $260,000); and Mr. Koziol (43,692; $108,000). In
accordance with Securities and Exchange Commission rules, the 1994 MEP
options originally granted during fiscal year 1994 are reported under
fiscal year 1996 as a result of the MEP option repricing that occurred
in fiscal year 1996. Mr. O'Malley's 1997 total includes options granted
to him under the 1997 MEP as a result of his election to restructure his
compensation package by reducing his fiscal year 1997, 1998, and 1999
compensation. The total number of 1997 MEP options granted to Mr.
O'Malley under the 1997 MEP and the compensation amounts waived by him
under the 1997 MEP are as follows: (135,035; $340,000).
During the 1995, 1996, and 1997 fiscal years, the 1994 MEP compensation
reductions for each of the named individuals (other than Mr. O'Malley)
were as follows: Mr. McKeever (1995: $62,500 salary reduction; 1996:
$78,125 salary reduction and $250,000 bonus reduction; 1997: $12,500
salary reduction); Mr. Hald (1995: $32,500 salary reduction; 1996:
$40,625 salary reduction and $45,000 bonus reduction; 1997: $6,500
salary reduction); Mr. Daniel (1995: $10,833 salary reduction; 1996:
$13,542 salary reduction and $65,000 bonus reduction; 1997: $2,167
salary reduction); and, Mr. Koziol (1995: $5,833 salary reduction; 1996:
$7,292 salary reduction and $15,000 bonus reduction; 1997: $1,167 salary
reduction). During the 1997 fiscal year, the 1997 MEP compensation
reduction for Mr. O'Malley was as follows: (1997: $40,000 salary
reduction and $70,000 bonus reduction). No SARs were granted during
fiscal years 1995 - 1997.
(4) The 1997 amounts include, as to each named individual, the following
amounts for the indicated purposes: Mr. McKeever (life insurance
premiums: $85,886 and the Company's contribution to the Amended and
Restated MicroAge Inc., Retirement Savings and Employee Stock Ownership
Plan and Trust (the "401(k) Plan"): $7,424); Mr. Hald (life insurance
premiums: $65,204 and 401(k) Plan contribution: $8,250); Mr. O'Malley
(life insurance premiums: $15,877 and 401(k) Plan contribution: $8,250);
Mr. Daniel (life insurance premiums: $15,417 and 401(k) Plan
contribution: $8,250); and Mr. Koziol (life insurance premiums: $12,497
and 401(k) Plan contribution: $8,250).
9
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the named executive officers of the Company during the fiscal year
ended November 2, 1997:
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options/ Annual Rate of Stock
Underlying SARs Exercise Appreciation for
Options/ Granted to Price Expira- Option Term(2)
SARs Associates in (Per tion ------------------------
Name Granted(1) Fiscal Year Share) Date 5% 10%
------------------- ------------ ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey D. McKeever -- -- -- -- -- --
Robert G. O'Malley 135,035 18.29% $17.63 10/25/06 $1,497,189 $3,794,170
20,000 2.71% $24.00 12/04/06 $301,869 $764,996
Alan P. Hald 5,000 0.68% $24.00 12/04/06 $75,467 $191,249
Jim Daniel 10,000 1.35% $24.00 12/04/06 $150,935 $382,498
Chris Koziol 10,000 1.35% $24.00 12/04/06 $150,935 $382,498
----------------------------------------------------------------------------------------------------
</TABLE>
(1) The figure in the first row of this column for Mr. O'Malley includes
1997 MEP options. See footnote 3 to the "Summary Compensation Table" for
additional information regarding the 1997 MEP.
(2) In accordance with Securities and Exchange Commission rules, the figures
in the first row of the "5%" and "10%" columns of this table for Mr.
O'Malley assume compounded annual stock price appreciation of 5% and
10%, respectively, based on a stock price of $17.63 per share, which was
the market price of the Common Stock on October 25, 1996. Subtracting
from the potential realizable value the compensation amounts waived
under the 1997 MEP (but not subtracting any additional amounts for the
time value of the waived compensation), the potential realizable value
of the MEP options for Mr. O'Malley, assuming an annual stock price
appreciation of 10% through October 25, 2006, the termination date of
the 1997 MEP options, is $3,454,170.
10
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information concerning option exercises
by the named executive officers of the Company during the fiscal year ended
November 2, 1997 and the value of such officers' unexercised options at November
2, 1997. There were no outstanding SARs as of November 2, 1997.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at In-The-Money Options/
Acquired Fiscal Year-End SARs at Fiscal Year-End
on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey D. McKeever 52,500 $ 832,838 127,846 288,765 $1,561,780 $3,450,716
Alan P. Hald 7,500 $ 118,350 67,460 135,678 $ 899,055 $1,726,374
Robert G. O'Malley 6,000 $ 80,856 13,000 216,035 $ 160,110 $1,356,933
James R. Daniel 97,960 $1,889,661 2,000 129,738 $ 26,500 $1,589,709
Christopher J. Koziol 1,500 $ 23,610 44,945 77,247 $ 546,441 $ 820,553
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PENSION BENEFITS
PENSION TABLE YEARS
OF SERVICE
------------------------------
FINAL AVERAGE PAY 5 10 15
----------------- -------- -------- --------
$250,000................ $ 57,609 $115,218 $172,844
$300,000................ $ 70,108 $140,215 $210,344
$350,000................ $ 82,606 $165,213 $247,844
$400,000................ $ 95,105 $190,210 $285,344
$450,000................ $107,604 $215,208 $322,844
$500,000................ $120,103 $240,205 $360,344
$550,000................ $132,602 $265,202 $397,844
$600,000................ $145,101 $290,199 $435,344
$650,000................ $157,600 $315,196 $472,844
$700,000................ $170,099 $340,193 $510,344
The Company maintains a non-qualified deferred compensation plan for
certain executives who are selected for participation by the Board and who have
attained age 50 and completed 10 years of service with the Company (the
"Supplemental Executive Retirement Plan" or "SERP"). Under the SERP, retirement
income commencing at age 65 equals 75% of the average of a participant's
compensation (generally defined as "wages" under Internal Revenue Code (the
"Code") Section 3401(a)) for the highest
11
<PAGE>
five calendar years out of the fifteen calendar years preceding retirement or
termination, reduced by the participant's annual Social Security benefit and the
employer contribution (annuitized) to the 401(k) Plan on behalf of the
participant. The retirement income payable under the SERP is reduced
proportionately if the participant terminates (for any reason other than death)
employment with less than 15 years of "Benefit Accrual Service" (service after
age 50). The table above shows estimated annual income on a life-annuity basis,
although the SERP provides for payment in the form of an actuarially-equivalent
lump sum. Messrs. McKeever and Hald are currently the only participants in the
SERP. Mr. McKeever has five years, and Mr. Hald has one year, of Benefit Accrual
Service and both are expected to have 15 years of Benefit Accrual Service at
normal retirement at age 65. The retirement benefit is to be funded, in part,
through life insurance policies issued in accordance with the employment
agreements of Messrs. McKeever and Hald, respectively, which provide a
pre-retirement death benefit of $5,000,000 and $3,000,000, respectively. The
imputed income for the death coverage is included in the insurance premiums paid
on behalf of Messrs. McKeever and Hald and referenced in footnote 4 to the
Summary Compensation Table.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
Messrs. McKeever, Hald, O'Malley, Daniel, and Koziol are each employed
pursuant to an employment agreement with the Company for a period of three years
for each of Messrs. McKeever and Hald, two years for each of Messrs. O'Malley
and Daniel, and one year for Mr. Koziol. Each agreement is terminable by either
party at any time and provides for an automatic renewal of the agreement unless
otherwise terminated so that the remaining term of the agreement is always the
length of each of the named officer's original terms described immediately
above. Each agreement includes restrictions and noncompetition covenants during
the term of the agreement and for a period of 24 months after termination of
employment for Messrs. McKeever, Hald, O'Malley, and Daniel, and 12 months for
Mr. Koziol. Upon the Company's termination of the executive's employment without
cause following a change of control or, under certain circumstances, upon the
executive's termination of employment following a change of control, the Company
must pay a lump sum severance pay benefit equal to, for each of Messrs. McKeever
and Hald: three times (i) his base salary and (ii) his incentive bonus for the
prior fiscal year; for Messrs. O'Malley and Daniel: two times (i) his base
salary and (ii) his incentive bonus for the prior fiscal year; and for Mr.
Koziol: one-and-one half times (i) his base salary for the prior fiscal year and
(ii) the average of his incentive bonuses for the two prior fiscal years. Upon
the Company's termination of the executive's employment without cause prior to a
change of control or, under certain circumstances, upon the executive's
termination of employment prior to a change of control, the Company must pay a
severance pay benefit equal to, for each of Messrs. McKeever and Hald: three
times (i) his base salary and (ii) the average of his incentive bonus for the
three prior fiscal years; for each of Messrs. O'Malley and Daniel two times: (i)
his base salary and (ii) the average of his incentive bonus for the two prior
fiscal years; and for Mr. Koziol: (i) his base salary and (ii) the average of
his incentive bonus for the two prior fiscal years.
In addition, the Company may elect, during the term of the
noncompetition covenant, to pay supplementary severance pay to Messrs. McKeever
and Hald in an amount equal to their respective monthly pay. Also, upon
termination of Messrs. McKeever and Hald's employment for specified
circumstances, including a material change in the employment relationship, a
change in control of the Company, or termination by the Company without cause,
the terminated executive has certain additional rights including the following:
(i) the right to sell to the Company all Common Stock beneficially owned by the
executive as of the executive's termination date, at the fair market value of
the Common Stock on
12
<PAGE>
the termination date, subject to certain limitations; and (ii) should the
executive hold any stock options which have not vested, receive, as additional
severance pay, a lump sum payment in an amount equal to the excess, if any, of
the fair market value of the shares subject to outstanding stock options over
the exercise price specified in all non-vested stock options, subject to certain
limitations.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's Executive Compensation program is administered by the
Compensation Committee of the Board of Directors. The members of the
Compensation Committee are not employees of the Company. The Compensation
Committee determines the compensation of the Company's executive officers,
approves any employment agreements with executive officers, and administers the
Company's stock option plans and certain of the Company's other benefit plans.
Executive Compensation Policies
Overview. Incentive compensation arrangements are the cornerstone of the
Compensation Committee's executive compensation policies. These incentive
compensation arrangements reward those executive officers who achieve individual
and Company objectives that increase stockholder value.
The Company's executive compensation package consists of three
components: base salary and related benefits; annual cash bonus incentives; and
stock-based compensation incentives. The Compensation Committee reviews each of
these components and develops an incentive compensation package for each of the
Company's executive officers based, in part, upon the review of competitive
compensation information and the recommendations of compensation consultants and
senior management. The Compensation Committee strives to develop individual
compensation packages for the Company's executive officers that will encourage
superior individual and Company-wide performance, serve to retain those
executive officers that perform well, and lead to increased stockholder value.
Each component of the Company's executive compensation package is discussed in
detail below.
Base Salary and Benefits. The first component of the Company's executive
compensation package is base salary and related benefits. Each executive officer
receives a base salary and benefits based on competitive compensation
information and his or her responsibilities and performance. The Compensation
Committee, with the assistance of an independent compensation consultant,
compares the Company's compensation levels with leading published surveys of
executive compensation levels in the high technology industry and in
organizations comparable in terms of industry and scope, as well as with recent
proxy data for eleven publicly-traded companies also involved in the
manufacturing, integration, and distribution of computer information technology
products and services. In order to maximize the incentive elements of the
executive officers' total compensation packages, the Compensation Committee
attempts to set the base salary and benefits component of these packages within
the competitive range of salary and benefits levels of the executive officers of
the eleven comparative companies. The Compensation Committee reviews each
executive officer's base salary and benefits on at least an annual basis.
Annual Incentive Bonus. The second component of the Company's executive
compensation package is an annual incentive bonus. Consistent with prior years,
in the beginning of fiscal year 1997, the
13
<PAGE>
Compensation Committee established bonus compensation formulas for the Company's
executive officers that gave each executive officer the ability to earn a cash
bonus calculated as a percentage of his base salary. This is consistent with the
Compensation Committee's overriding policy of incentive compensation
arrangements.
The Compensation Committee's fiscal year 1997 bonus plan (the "1997
Bonus Plan") established a formula by which executive officer bonus awards were
tied directly to the Company's success in achieving targeted goals of income and
return on equity. In accordance with this formula, if, at fiscal year 1997 year
end, actual Company income was less than 50% of targeted income, the executive
officers would not receive a bonus award. If, on the other hand, actual Company
earnings were 50% or more of targeted earnings, each of Messrs. McKeever,
O'Malley, and Daniel, would receive a bonus award calculated pursuant to a
formula based upon (i) the actual Company earnings as compared to target
earnings, and (ii) the particular executive officer's annual base salary. Under
this formula, if actual Company earnings equaled targeted Company earnings, each
of Messrs. McKeever, O'Malley, and Daniel would receive a bonus equivalent to
50% of his annual base salary. For Messrs. Hald and Koziol, their bonus award
would be calculated (A) in part based upon (i) the actual Company earnings as
compared to target earnings, and (ii) the particular executive officer's annual
base salary, and (B) in part based upon (i) actual Business Group income as
compared to target Business Group income and (ii) the particular executive
officer's annual base salary. Under this formula, if actual Company earnings
equaled targeted Company earnings and actual Business Group income equaled
targeted Business Group income, each of Messrs. Hald and Koziol would receive a
bonus equivalent to 50% of his annual base salary. The named executive officers
received the cash incentive bonuses reflected in the Summary Compensation Table
on page 7 of this Proxy Statement (such amounts also include fixed bonuses of
$35,321, $14,880, $8,621, and $14,399 for Messrs. McKeever, Hald, O'Malley, and
Daniel, respectively).
Stock-Based Compensation Incentives. The third component of the
Company's executive compensation package is stock-based compensation incentives,
traditionally stock options. This compensation component is an important
incentive tool designed to more closely align the interests of the executive
officers of the Company with the long-term interests of the Company's
stockholders and to encourage its executive officers to remain with the Company.
The Compensation Committee traditionally grants options to the Company's
executive officers and key associates (employees) on an annual basis. In
selecting recipients and the size of option grants during fiscal year 1997, the
Compensation Committee considered the recommendations of the Company's Chief
Executive Officer and Chairman of the Board, Jeffrey D. McKeever; the other
components of the recipients' compensation packages; the recipients'
responsibilities and performance; the Company's performance during the preceding
fiscal year; and prior option grants. The Compensation Committee gave a great
deal of weight to Mr. McKeever's recommendations.
Compensation of Chief Executive Officer
In fiscal year 1997, the Chief Executive Officer of the Company, Jeffrey
D. McKeever, was compensated pursuant to an employment agreement. Under the
agreement, Mr. McKeever was entitled to receive a base salary of $600,000
($12,500 of which he waived under the 1994 MEP) plus a fixed cash bonus of
$35,321. In arriving at Mr. McKeever's base salary, the Compensation Committee,
with the assistance of an independent compensation consultant, compared Mr.
McKeever's compensation level to
14
<PAGE>
the compensation levels paid to chief executive officers of a group of ten
companies that are also involved in the manufacturing, integration, and
distribution of computer information technology products and services. The
Compensation Committee set Mr. McKeever's base salary at approximately the
median level within the salary range of chief executive officers in the
comparative group.
Under the 1997 Bonus Plan discussed above under "Annual Incentive
Bonus," Mr. McKeever received an incentive bonus of $336,000. Mr. McKeever chose
to participate in the 1994 MEP during fiscal year 1993 and at that time
irrevocably waived $600,000 of salary and bonuses in return for options on
241,611 shares of Common Stock. See footnote 3 to the "Summary Compensation
Table" for a discussion of the 1994 MEP. During fiscal year 1997, Mr. McKeever
satisfied his compensation waiver amounts under the 1994 MEP.
Overall, the Compensation Committee believes that Mr. McKeever has
managed the Company well in a challenging business climate and achieved
excellent results in fiscal year 1997. The Company's annual revenues increased
from approximately $3.7 billion to approximately $4.4 billion, and the Company
earned $25.0 million in fiscal year 1997 compared to approximately $14.1 million
in fiscal year 1996.
In light of the Company's performance during fiscal year 1997 and Mr.
McKeever's contributions to that performance, the Compensation Committee
increased Mr. McKeever's base salary from $600,000 per year to $650,000 per
year, effective November 3, 1997. Based on the comparative group compensation
levels, this places Mr. McKeever's base salary at approximately the median level
within the salary range of chief executive officers in the comparative group.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Code, adopted as part of the Revenue
Reconciliation Act of 1993, generally limits to $1 million the deduction that
can be claimed by any publicly-held corporation for compensation paid to any
"covered employee" in any taxable year. The term "covered employee" for this
purpose is defined generally as the chief executive officer and the four other
highest paid employees of the corporation.
Performance-based compensation is outside the scope of the $1 million
limitation and, hence, generally can be deducted by a publicly-held corporation
without regard to amount; provided that, among other requirements, such
compensation is approved by stockholders. It is the general policy of MicroAge,
Inc. to comply with Section 162(m), and it will continue to do so to the extent
such compliance is consistent with the best interest of the Company's
stockholders.
STEVEN G. MIHAYLO, CHAIRMAN
LYNDA M. APPLEGATE
FRED ISRAEL
WILLIAM H. MALLENDER
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the total cumulative stockholder return on
the Company's Common Stock for the period September 30, 1992 through November 2,
1997 with the cumulative total return on the (a) Nasdaq Index and (b) Standard &
Poor's MidCap Index that includes 400 companies with a total capitalization of
$681 billion. The comparison assumes that $100 was invested on September 30,
1992 in the Company's Common Stock and in each of the comparison indices, and
assumes reinvestment of dividends.
STOCK PERFORMANCE
Year-end Cumulative Returns
9-30 9-30 10-30 10-29 11-3 11-2
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
MICA 100 270 197 136 324 368
NASDAQ 100 131 133 178 209 273
S&P400 MIDCAP 100 122 122 146 168 219
16
<PAGE>
PROPOSAL 2
APPROVAL OF THE MICROAGE, INC. 1997 LONG-TERM INCENTIVE PLAN
The Board of Directors of the Company has approved and recommends that
the stockholders approve adoption of the MicroAge, Inc. 1997 Long-Term Incentive
Plan (the "Incentive Plan") for officers and other key associates, including
officers who are also directors, of the Company and its subsidiaries. The
Incentive Plan authorizes grants of Incentive Stock Options ("ISOs"),
Non-Qualified Stock Options ("NQSOs"), Stock Appreciation Rights ("SARs"),
Performance Shares, and Restricted Stock to officers and key associates.
Historically, approximately 250 officers and key associates have participated in
prior incentive plans. The total number of shares of Common Stock available for
awards under the Incentive Plan is 2,000,000. The closing price for the Common
Stock on February 6, 1998, as reported on the Nasdaq National Market, was $12.50
per share.
The Board of Directors believes the Incentive Plan will promote the
success and enhance the value of the Company by (i) linking the personal
interests of participants to those of the Company's stockholders and (ii)
providing participants with an incentive for outstanding performance. The
Incentive Plan, if approved by stockholders, will have an effective date of
September 25, 1997. The following summary of the Incentive Plan is qualified in
its entirety by reference to the plan, a copy of which is attached as Appendix
B.
The Incentive Plan will be administered by a committee (the "Committee")
appointed by the Board consisting of at least two (2) non-employee directors.
The Committee has the exclusive authority to administer the Incentive Plan,
including the power to determine eligibility, the types of awards to be granted,
the price and the timing of awards.
DESCRIPTION OF THE AVAILABLE AWARDS
Incentive Stock Options
An ISO is a stock option that satisfies the requirements specified in
Section 422 of the Internal Revenue Code (the "Code"). Under the Code, ISOs may
only be granted to employees. In order for an option to qualify as an ISO, the
price payable to exercise the option must equal or exceed the fair market value
of the stock at the date of the grant, the option must lapse no later than 10
years from the date of the grant, and the stock subject to ISOs that are first
exercisable by an employee in any calendar year must not have a fair market
value of more than $100,000 as of the date of grant. Certain other requirements
must also be met.
With respect to an ISO, an employee is not taxed for regular income tax
purposes either at the time of the award or the time of exercise of the option.
The difference between the exercise price and the fair market value of the stock
at the time of exercise, however, constitutes income for alternative minimum tax
purposes, assuming the stock is either transferable or is not subject to a
substantial risk of forfeiture. Generally, the issuing corporation is not
entitled to a deduction with respect to an ISO.
17
<PAGE>
If an employee holds the stock acquired upon exercise of the ISO for at
least two (2) years from the date of the grant and at least one (1) year
following the date of exercise, the difference between the amount paid for the
stock and the subsequent sales price is treated as long-term capital gain or
loss. If these holding period requirements are not satisfied, the employee is
taxed, at ordinary income tax rates, on the difference between the exercise
price and the fair market value of the stock as of the date of exercise and the
issuer of the ISO is then entitled to a corresponding deduction.
Non-Qualified Stock Options
An NQSO is any stock option other than an Incentive Stock Option. Such
options are referred to as "non-qualified" because they do not meet the
requirements of, and are not eligible for, the favorable tax treatment provided
by Section 422 of the Code.
If an employee is granted an NQSO, the grant itself typically does not
produce any taxable income for the employee, and the issuing corporation is not
entitled to a deduction at that time. On the date the NQSO is exercised, the
employee recognizes ordinary income in an amount equal to the difference between
the fair market value of the underlying stock at the date of exercise and the
exercise price set forth in the option agreement between the issuing corporation
and the employee. The issuing corporation is generally entitled to a
corresponding deduction in the same amount and in the same year in which the
employee recognizes such income.
When an employee sells the stock acquired through an NQSO, the employee
recognizes capital gain equal to the difference between the sales price and the
fair market value of the stock as of the date of exercise. If the employee holds
the stock for more than one (1) year following the exercise of the option, the
gain is treated as mid-term capital gain. An 18 month or greater holding period
results in any gain being treated as long-term capital gain.
Stock Appreciation Rights
An SAR is the right granted to an employee to receive the appreciation
in the value of a share of Common Stock over a certain period of time. Under the
Incentive Plan, the Company may pay that amount in cash, or in Common Stock, or
in a combination of both.
If an employee receives the appreciation inherent in the SARs in cash,
the cash is compensation income, taxable to the employee. If the employee
receives the appreciation in the form of Common Stock, the stock received is
taxable to the employee to the extent of its fair market value. An issuer of an
SAR generally receives a deduction in the amount equal to the amount that is
taxable to the employee in the year in which the employee recognizes taxable
income with respect to the SAR.
Performance Shares
Under the Incentive Plan, the Committee may grant performance share
units to an eligible employee. Typically, each performance share unit will be
deemed to be the equivalent of one share of Common Stock. An award of
performance shares does not entitle an employee to any ownership, dividend,
voting or other rights of a shareholder until distribution is made in the form
of shares of stock, if the award is paid in stock. The value of the employee's
performance share units is generally measured
18
<PAGE>
by the fair market value of an equivalent number of shares of the Common Stock.
At the end of the performance period, if the employee has satisfied certain
performance criteria established by the Committee, the employee will be entitled
to payment in accordance with the terms of the award. The award may be payable
in either cash, Common Stock or a combination of both.
An employee who has been granted a performance share award of this kind
does not realize taxable income at the time of grant and the issuing corporation
is not entitled to a deduction at that time. However, the employee will
recognize income in the year the award is paid equal to the amount of cash and
the fair market value of the Common Stock issued to the employee. The issuing
corporation generally is entitled to a corresponding deduction.
Restricted Stock Awards
Under the Restricted Stock feature of the Incentive Plan, an eligible
employee may be granted a specified number of shares of the Common Stock.
However, vested rights to such stock are subject to certain restrictions or are
conditioned on the attainment of certain performance goals. If the employee
violates any of the restrictions during the period specified by the Committee or
the performance standards fail to be satisfied, the stock is forfeited.
In the year in which the applicable restrictions lapse or the applicable
performance standard is satisfied, Section 83 of the Code requires an employee
to include in taxable income the excess of the fair market value of restricted
stock received over the amount, if any, paid for the restricted stock. The
issuer of restricted stock generally is entitled to a corresponding deduction at
the same time, provided that it satisfies applicable withholding tax
liabilities.
Instead of postponing the tax consequences of a Restricted Stock award
until the applicable restrictions lapse or until the applicable performance
standard is satisfied, an employee may elect to include the fair market value of
the stock in income in the year of the award by filing an appropriate election
with the IRS within 30 days of the date of the award agreement. This election is
made under Section 83(b) of the Code.
Section 162(m)
Section 162(m) of the Code, adopted as part of the Revenue
Reconciliation Act of 1993, generally limits to $1 million the deduction that
can be claimed by any publicly-held corporation for compensation paid to any
"covered employee" in any taxable year beginning after December 31, 1993. The
term "covered employee" for this purpose is defined generally as the chief
executive officer and the four other highest paid employees of the corporation.
Performance-based compensation is outside the scope of the $1 million
limitation and, hence, generally can be deducted by a publicly-held corporation
without regard to amount; provided that, among other requirements, such
compensation is approved by stockholders. Among the items of performance-based
compensation that can be deducted without regard to amount (assuming stockholder
approval and other applicable requirements are satisfied) is compensation
associated with the exercise price of a stock option so long as the option has
an exercise price equal to or greater than the fair market value of the
underlying stock at the time of the option grant. All options granted under the
Incentive Plan will
19
<PAGE>
have an exercise price at least equal to the fair market value of the underlying
stock on the date of grant. Under the Incentive Plan, the Committee may qualify
Restricted Stock Awards or Performance Shares as "performance-based
compensation."
Of the total 2,000,000 shares of Common Stock available for awards under
the Incentive Plan, the maximum number that may be awarded over the term of the
Incentive Plan to any employee in the eligible class of officers and key
associates, either as awards of ISOs, NQSOs, MEP awards, performance shares,
restricted stock and dividend equivalent rights, or any combination of each, is
200,000.
Approval of the Long-Term Incentive Plan requires the vote of the
holders of a majority of the outstanding shares of Company Common Stock present
for this proposal at the 1998 Annual Meeting. Abstentions are considered present
for this proposal, so they will have the same effect as votes against the
proposal. Broker non-votes are not considered present for this proposal.
The Board of Directors recommends a vote for Proposal 2.
- --------------------------------------------------------
20
<PAGE>
PROPOSAL 3
APPROVAL OF THE MICROAGE, INC. 1995 DIRECTOR INCENTIVE PLAN, AS AMENDED
The MicroAge, Inc. 1995 Director Incentive Plan (the "Director Plan")
authorizes grants of Director Options and shares of Director Restricted Stock to
all non-employee directors of the Company. Currently, the Company's Board of
Directors is composed of five (5) non-employee directors. The stockholders of
the Company approved the Director Plan on March 15, 1995, and the Director Plan
became effective November 1, 1995. The closing price for the Common Stock on
February 6, 1998, as reported on the Nasdaq National Market, was $12.50 per
share.
The Company's Board of Directors has approved and recommends that the
stockholders approve amendments to the Director Plan (the "1998 Amendments").
These 1998 Amendments include (1) increasing the number of shares of Common
Stock available for awards under the Director Plan from 80,000 to 250,000; (2)
creating grants of 1,000 shares of Director Restricted Stock and 2,500 Director
Options to an individual upon first becoming a non-employee director; (3)
increasing the number of annual grants of Director Options from 1,000 to 2,500;
(4) permitting the Company's Board of Directors or a committee of the Board to
grant Director Options and Director Restricted Stock at its discretion; (5)
allowing non-vested Director Restricted Stock to continue to vest for up to
three years following the cessation of an individual's service as a director;
and (6) allowing Director Options to continue to vest following the cessation of
an individual's service as a director.
The Company's Board of Directors believes these changes will enhance the
value of the Company by (i) strengthening the Company's ability to attract and
retain the services of experienced and knowledgeable persons as directors of the
Company, and (ii) more closely linking the personal interest of directors to
those of the Company's stockholders. The following summary of the Director Plan
and the 1998 Amendments is qualified in its entirety by reference to the
Director Plan, as amended, a copy of which is attached to this proxy statement
as Appendix C.
Description of the Available Awards
The amended Director Plan provides that on November 1 of each year,
commencing in 1998 and ending in 2004, each person serving as a director of the
Company on that date, who is not also an employee of the Company, will
automatically be granted (i) 1,000 shares of Director Restricted Stock, and (ii)
2,500 Director Options. The amended Director Plan also provides that on the date
of the first Board meeting at which a non-employee director first serves on the
Company's Board of Directors that person will automatically be granted 1,000
shares of Director Restricted Stock and 2,500 Director Options.
21
<PAGE>
Director Restricted Stock
The restrictions on the Director Restricted Stock will lapse subject to
one ownership hurdle and two vesting hurdles as follows:
a. The ownership hurdle requires that the director own (for at
least one year) unrestricted Company Common Stock equal to at least two
times the combined number of shares of Director Restricted Stock that
will lapse and that have previously lapsed under the Director Plan; and
b. The Director Restricted Stock has two vesting hurdles.
First, the Director Restricted Stock vests in one-third increments over
the three years following the date of grant. Second, the Director
Restricted Stock vests in one-third increments following the date of
grant only if the Company's Common Stock trades above certain specified
prices after the first vesting hurdle occurs. The stock price hurdles
are determined by reference to the fair market value of the Common Stock
on the date of grant increased by 10 percent for each of the one-third
increments following the date of grant.
If the director granted shares of Director Restricted Stock under the
Director Plan ceases to be a director, the Director Restricted Stock will
continue to vest subject to the restriction hurdles until three years after the
director's service terminates, at which time any remaining Director Restricted
Stock shall be forfeited. In the year in which the restrictions lapse, Section
83 of the Internal Revenue Code ("Code") requires the director to include in
taxable income the fair market value of the Common Stock received. The Company
is entitled to a corresponding deduction at the same time. Instead of postponing
the tax consequences of a Director Restricted Stock award until the applicable
restrictions lapse, a director may elect to include in taxable income the fair
market value of the Director Restricted Stock received in the year of the award
by filing an appropriate election with the Internal Revenue Service within
thirty days of the date of the award. The election is made under Section 83(b)
of the Code.
Director Options
The option price for the Director Options is the fair market value of
the Common Stock on the relevant grant date, which for annual grants is November
1, and for initial grants is the date the director begins service on the Board.
Each Director Option has two vesting hurdles. First, the Director Options vest
in one-third increments over the three-year period following the date of grant.
Second, the Director Options vest in one-third increments over the three years
following the date of grant only if the Common Stock trades above a certain
price after the first vesting hurdle occurs. The stock price hurdles are
determined by reference to the fair market value of the Common Stock on the date
of grant increased by 10 percent for each of the one-third increments following
the date of grant. The Director Options will, in any event, vest nine years
after the date of grant even if the stock price hurdles are not met.
If a director granted Director Options under the Director Plan ceases to
be a director for any reason, those Director Options that are fully vested and
exercisable will remain fully vested and exercisable and those Director Options
that are not fully vested and exercisable will continue to vest according to the
vesting hurdles.
22
<PAGE>
The grant of an Director Option to a non-employee director under the
Director Plan will not produce any taxable income to the director, and the
Company will not be entitled to a deduction at that time. On the date the
Director Option is exercised, the director recognizes ordinary income equal to
the difference between the fair market value of the Common Stock at the date of
exercise and the exercise price. The Company is entitled to a corresponding
deduction in the same amount and in the same year in which the director
recognizes income.
The following table shows the grants that will be made during fiscal
year 1998 under the Director Plan assuming that the plan is approved by the
Stockholders and that the current compensation of the Board does not change.
- --------------------------------------------------------------------------------
Name and Position Dollar Values ($) Number of Units
- --------------------------------------------------------------------------------
Jeffrey D. McKeever 0 0(1)
Chairman of the Board and
Chief Executive Officer
- --------------------------------------------------------------------------------
Robert G. O'Malley 0 0(1)
President
- --------------------------------------------------------------------------------
Alan P. Hald 0 0
Secretary; and
President, MicroAge Enterprises, Inc.
- --------------------------------------------------------------------------------
James R. Daniel 0 0(1)
Senior Vice President, Chief Financial
Officer, and Treasurer; and
President, Headquarters Services
- --------------------------------------------------------------------------------
Christopher J. Koziol 0 0(1)
Senior Vice President - Sales; and
President, Distribution Group
- --------------------------------------------------------------------------------
Executive Group 0 0(1)
(12 persons)
- --------------------------------------------------------------------------------
Non-Employee Director Group $75,000(2) 21,000(3)
(6 persons)
- --------------------------------------------------------------------------------
Non-Executive Officer 0 0(1)
Employee Group
- --------------------------------------------------------------------------------
(1) These individuals and groups would not be participants in the Director
Plan, as amended, but are required by Securities and Exchange Commission
rules to be listed in this table.
(2) Based on the closing price of a share of the Company's Common Stock on
February 6, 1998 ($12.50) multiplied by 6,000, 5,000 of which is the
aggregate number of Director Restricted Stock shares to be granted to
the Company's non-employee directors (except Mr. Israel whose term will
expire at the 1998 Annual Meeting) on November 1, 1998, and 1,000 of
which is the number of Director Restricted Stock shares to be granted to
Mr. Freidheim as an individual first serving as a
23
<PAGE>
non-employee director in 1998. On November 1 of each year beginning in
1998 and ending in 2004, each non-employee director would be granted
1,000 Director Restricted Shares.
(3) Reflecting 1,000 shares of Director Restricted Stock and 2,500 Director
Options to be granted to each of the Company's non-employee directors on
November 1, 1998, and 1,000 Director Restricted Stock Shares and 2,500
Director Options to be granted to Mr. Freidheim as an individual first
serving as a non-employee director in 1998. On November 1 of each year
beginning in 1998 and ending in 2004, each non-employee director would
be granted 1,000 Director Restricted Stock Shares and 2,500 Director
Options. Each individual first serving as a non-employee director during
the period beginning in 1998 and ending in 2004 would receive 1,000
Director Restricted Stock and 2,500 Director Options upon first becoming
a non-employee director.
The Board of Directors recommends a vote for Proposal 3.
- --------------------------------------------------------
24
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 27, 1990, the Company and Mr. Israel entered into the Company
and Purchasers Rights Agreement (the "Rights Agreement"), pursuant to which Mr.
Israel agreed with the Company that neither he nor his affiliates (as defined in
the Rights Agreement) would for a period from April 27, 1990 until such time as
he and his affiliates beneficially own less than 25,000 shares, acquire more
than 5% of the Company's outstanding capital stock without the Company's prior
consent. Mr. Israel also agreed, and agreed to cause his Purchaser Affiliates
(as such term is defined in the Rights Agreement), not to enter into voting
agreements, participate in proxy solicitations or similar activities intended to
cause shares of the Company's stock to be voted contrary to the recommendation
of the Board of Directors of the Company, or to challenge the performance of the
Company's management in order to acquire control of the Company, to call or seek
to call any meeting of stockholders of the Company, to form or join a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
or to engage in certain other activities with a similar purpose. Mr. Israel (and
his Purchaser Affiliates) also agreed not to dispose of his shares except
subject to certain limitations. The Rights Agreement also contains certain other
covenants by the parties thereto, including the granting by the Company to Mr.
Israel of certain registration rights with respect to the Common Stock and the
voting agreements with respect to the Company's Voting Stock (as defined in the
Rights Agreement). Mr. Israel (and his Purchaser Affiliates) also granted the
Company a right of first refusal to repurchase shares of Common Stock that are
subject to the agreement if he wishes (or certain of his transferees wish) to
dispose of them, all as provided in the Rights Agreement. Mr. Israel also agreed
to vote his shares of Common Stock as described under "Other Information
Regarding the Board of Directors -- Voting Agreement."
The Company has entered into employment agreements with Messrs.
McKeever, Hald, O'Malley, Daniel, and Koziol. See "Executive Compensation --
Employment Contracts and Related Matters."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Based solely on its review of the copies of such forms received by it, the
Company believes that, except as discussed below, during fiscal year 1997 all
filing requirements applicable to its directors, officers, and greater than 10%
beneficial owners were complied with. A Form 4 was not timely filed (although
such Form 4 was subsequently filed) for a single grant of 1997 MEP options to
each of John S. Lewis, James G. Manton, Robert G. O'Malley, and Jeffrey M.
Swanson. See footnote 3 to the "Summary Compensation Table" for a discussion of
the 1997 MEP.
25
<PAGE>
AUDITORS
The Board of Directors has appointed Price Waterhouse LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
November 1, 1998. Representatives of Price Waterhouse LLP are expected to be
present at the meeting and will be available to respond to appropriate questions
and may make a statement if they so desire.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Company's By-Laws require that there be furnished to the Company
written notice with respect to the nomination of a person for election as a
director (other than a person nominated at the direction of the Board of
Directors), as well as the submission of a proposal (other than a proposal
submitted at the direction of the Board of Directors), at a meeting of
stockholders. In order for any such nomination or submission to be proper, the
notice must contain certain information concerning the nominating or proposing
stockholder, and the nominee or the proposal, as the case may be, and must be
furnished to the Company generally not less than 60 nor more than 90 days prior
to the first anniversary date of the preceding year's annual meeting. To
properly bring a director nomination or other matter before the 1999 Annual
Meeting of Stockholders, the nomination or proposal must be received by February
1, 1999. A copy of the applicable By-Law provision may be obtained, without
charge, upon written request to the Secretary of the Company at its principal
executive offices in Tempe, Arizona.
In addition to the foregoing, in accordance with the rules of the
Securities and Exchange Commission, any proposal that a stockholder intends to
present at the 1999 Annual Meeting of Stockholders must be received by the
Company by October 21, 1998 to be eligible for inclusion in the proxy statement
and proxy form relating to such meeting.
OTHER INFORMATION
The Company's consolidated financial statements are included in Appendix
A to this Proxy Statement and in the Annual Report on Form 10-K for the fiscal
year ended November 2, 1997 (the "1997 Form 10-K") that the Company has filed
with the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549.
A COPY OF THE 1997 FORM 10-K IS AVAILABLE UPON WRITTEN REQUEST AT NO
CHARGE TO STOCKHOLDERS BY CONTACTING MICROAGE, INC. INVESTOR RELATIONS, 2400
SOUTH MICROAGE WAY, TEMPE, ARIZONA 85282-1896, (602) 929-2414.
26
<PAGE>
APPENDIX A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During fiscal 1997, the Company made several acquisitions, three of which have
been accounted for as poolings of interest. Accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of the pooled companies for all periods presented. See Note 3 to the
Company's Consolidated Financial Statements on page A-15.
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. 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.
A-1
<PAGE>
Results of Operations
The following table sets forth, for the indicated periods, data as
percentages of total revenue:
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------------------------
Nov. 2, Nov. 3, Oct. 29,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue $ 4,446,308 $ 3,696,160 $ 3,098,976
Cost of sales 93.0% 93.9% 94.3%
-------------- -------------- --------------
Gross profit 7.0 6.1 5.7
Operating and other expenses
Operating expenses 5.4 5.0 4.7
Restructuring and other one-time charges -- -- 0.3
-------------- -------------- --------------
Total 5.4 5.0 5.0
-------------- -------------- --------------
Operating income 1.6 1.1 .7
Other expenses - net .6 .4 .5
-------------- -------------- --------------
Income before income taxes 1.0 .7 .2
Provision for income taxes .4 .3 .1
-------------- -------------- --------------
Net income .6% .4% .1%
============== ============== ==============
</TABLE>
Fiscal Year Ended November 2, 1997 Versus Fiscal Year Ended November 3, 1996
The fiscal year ended November 2, 1997 included 52 weeks, while the fiscal year
ended November 3, 1996 included 53 weeks. See Note 1 to the Company's
Consolidated Financial Statements on page A-12.
Total Revenue. Total revenue during fiscal 1997 was $4.4 billion, $2.8 billion
(63%) of which was attributable to the Company's distribution business, and $1.6
billion (37%) of which was attributable to the Company's systems integration
business. The Company's distribution business is conducted through the MicroAge
Distribution Group, which provides more than 20,000 technology hardware and
software products and value-added services to reseller customers worldwide. The
Company's systems integration business is conducted through the MicroAge
Integration Group, which provides distributed computing solutions to large
corporations, government agencies, and educational institutions worldwide
through a global network of qualified resellers, which includes affiliated
branches and Company-owned resellers.
Total revenue increased $750 million, or 20%, for the fiscal year ended November
2, 1997 as compared to the fiscal year ended November 3, 1996. This revenue
increase included a $633 million, or 30%, increase in distribution business
revenue and a $106 million, or 7%, increase in systems integration business
revenue.
The increase in revenue was attributable to sales to resellers added since
November 3, 1996, increased demand for the Company's major suppliers' products,
improved product availability, the Company's addition of new product offerings,
the growth of the microcomputer products industry and acquisitions of reseller
locations.
Gross Profit Percentage. The Company's gross profit percentage was 7.0% for the
fiscal year ended November 2, 1997 and 6.1% for the fiscal year ended November
3, 1996.
The increase in the Company's gross profit percentage results primarily from a
higher service content in revenues, which generates higher margins, the growth
of the Company's integration business, including acquisitions of reseller
locations (which generally have higher gross margin and operating expense
percentages than the Company's other business groups), and increasing supplier
incentives and early pay discounts.
A-2
<PAGE>
Supplier incentives recognized by the Company in fiscal 1997 have increased
significantly from 1996 levels. The Company believes that this increase is a
result of suppliers attempting to be more price competitive without lowering
suggested prices. For the most part, these incentives are based on sales volume.
A large portion of the incentives are passed on to the Company's customers.
However, a portion of the incentives have positively impacted the Company's
income. There can be no assurance that supplier incentive funds will continue at
levels experienced in fiscal 1997. A substantial reduction in the supplier funds
available to the Company would have a material adverse effect on the Company's
results of operations.
Future gross profit percentages may be affected by market pressures, the
introduction of new Company initiatives, changes in revenue mix, future
acquisitions, changes in supplier incentive funds, the Company's utilization of
early payment discount opportunities, supplier pricing actions, and other
competitive and economic pressures. See "Potential Fluctuations in Operating
Results" below for information regarding industry trends that may affect future
gross profit percentages.
Operating Expense Percentage. As a percentage of revenue, operating expenses
increased to 5.4% for the fiscal year ended November 2, 1997 compared to 5.0%
for the fiscal year ended November 3, 1996. The increase in operating expenses
as a percentage of revenue was primarily due to acquisitions of reseller
locations (which generally have higher gross margin and operating expense
percentages than the Company's other business groups) and to increased spending
in support of electronic commerce initiatives and capacity expansion in
personnel, systems and facilities.
Other Expenses - Net. Other expenses - net increased to $27.4 million for the
fiscal year ended November 2, 1997 from $13.8 million for the fiscal year ended
November 3, 1996. The increase was primarily attributable to increases in
average daily borrowings to support higher inventory and accounts receivable
levels and to take advantage of early payment discount opportunities. The early
pay discounts are reflected in the Company's gross profit.
UPS Strike - Impact on Earnings Per Share. 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
transportation costs and decreased call center revenue and profit. Because of
the brevity of the strike, the higher transportation costs were not passed on by
the Company to its customers. The UPS strike resulted in approximately a $0.03
decrease in earnings per share for fiscal 1997.
Fiscal Year Ended November 3, 1996 Versus Fiscal Year Ended October 29, 1995
The fiscal year ended November 3, 1996 included 53 weeks, while the fiscal year
ended October 29, 1995 included 52 weeks. See Note 1 to the Company's
Consolidated Financial Statements on page A-12.
Total Revenue. Total revenue increased $597 million, or 19%, to $3.7 billion for
the fiscal year ended November 3, 1996 as compared to the fiscal year ended
October 29, 1995. This revenue increase included a $422 million, or 25%,
increase in distribution business revenue and a $236 million, or 18%, increase
in systems integration business revenue, partially offset by a decrease in
revenue due to the sale of the Company's memory distribution business in the
fourth quarter of fiscal year 1995.
These revenue increases were primarily due to sales to resellers (primarily
non-franchised resellers) added since October 29, 1995, the Company's focus on
large account sales, increased demand for the Company's major vendors' products
and the Company's addition of new product lines.
Gross Profit Percentage. The Company's gross profit percentage was 6.1% for the
fiscal year ended November 3, 1996 and 5.6% for the fiscal year ended October
29, 1995. This increase was primarily due to the growth of the Company's
integration business.
A-3
<PAGE>
Operating Expense Percentage. As a percentage of revenue, operating expenses
were 5.0% for the fiscal years ended November 3, 1996 and October 29, 1995.
Operating expenses increased from $153.4 million for fiscal 1995 to $186.3
million for fiscal 1996. The increase was primarily due to increased costs as a
result of higher volumes.
Restructuring and Other One-Time Charges. During the fourth quarter of fiscal
1995, the Company approved and implemented actions targeted at reducing the
Company's future cost structure and improving its profitability. These actions
included, among other things, (i) the sale of the Company's memory distribution
business, (ii) outsourcing a certain business function and (iii) a reduction in
the number of the Company's employees. The Company's consolidated statement of
income for fiscal 1995 includes $9.0 million of pretax charges ($5.4 million net
of tax benefits, or $0.38 per share) for restructuring and other one-time
charges. See Note 15 of the Company's Consolidated Financial Statements on page
A-25 for additional information regarding the 1995 restructuring charges.
Other Expenses - Net. Other expenses - net decreased to $13.8 million for the
fiscal year ended November 3, 1996 from $15.9 million for the fiscal year ended
October 29, 1995. The decrease is primarily attributable to a decrease in net
financing costs during the year as a result of the Company's focus on inventory
management during the 1996 fiscal year. Days cost of sales in ending inventory
decreased from 38 days at October 29, 1995 to 33 days at November 3, 1996.
Potential Fluctuations in Operating 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
vendor 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 will continue to increase.
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 fiscal 1997, the Company completed seven
acquisitions. In addition to cash and other consideration, the Company issued
2,617,007 shares of common stock in connection with the acquisitions. See Note 3
to the Company's Consolidated Financial Statements on page A-15 for additional
information regarding these acquisitions. The Company has completed three
additional acquisitions since the end of fiscal 1997 in exchange for 1,623,382
shares of common stock. In addition to these acquisitions, the Company made
investments in or loans to companies totaling $2.4 million during fiscal 1997.
See Note 13 to the Company's Consolidated Financial Statements on page A-24 for
information regarding non-cash investment activities. The Company's future
acquisitions or investments may be made utilizing cash, stock or a combination
of cash and stock.
Cash provided by operating activities was $9.4 million in 1997 as compared to
$44.7 million in 1996. The decrease was primarily due to a change in cash used
by inventory and accounts payable. During fiscal 1997, $5.6 million was used
A-4
<PAGE>
in operating activities for inventory and accounts payable compared to $77.3
million provided by inventory and accounts payable during 1996. The cash
provided in 1996 was the result of a decrease in days cost of sales in ending
inventory from 37 days at the end of 1995 to 33 days at the end of 1996, while
accounts payable days increased from 47 days to 48 days for the same period.
Days cost of sales in ending inventory increased from 33 days at November 3,
1996 to 35 days at November 2, 1997, while days cost of sales in ending accounts
payable increased from 48 days to 49 days for the same period.
The change in cash provided by inventory and accounts payable was partially
offset by a decrease in cash used by accounts receivable from $84.8 million for
1996 to $32.7 million for 1997. The change in cash used by accounts receivable
was primarily due to an increase in receivables sold under a financing facility
(see discussion below) from $190.8 million at November 3, 1996 to $278.8 million
at November 2, 1997. Days sales in ending receivables adjusted for the sold
receivables were 42 days at November 2, 1997 compared to 43 days at November 3,
1996.
Cash used in investing activities increased from $28.9 million in 1996 to $38.3
million in 1997 due to an $11.7 million increase in 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 $30.8 million in 1997 compared to cash
used in 1996 of $8.0 million. The change was primarily due to increased
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 November 2, 1997, the net
amount of sold accounts receivable was $278.8 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 November 2, 1997, the Company had $76.6 million outstanding
under the Inventory Lines of Credit (included in accounts payable in the
accompanying Balance Sheets), and $30.7 million outstanding under the
Supplemental Line of Credit.
Of the $675 million of financing capacity represented by the Agreements, $288.9
million was unused as of November 2, 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
November 2, 1997, 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.
A-5
<PAGE>
Under the terms of the Purchase Agreement, no finance charges are assessed if
the accounts are settled within forty days. At November 2, 1997, the net amount
of sold accounts receivable under the Purchase Agreement was $10.9 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 $30 to $35 million in the next fiscal
year.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations or liquidity to date.
A-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MicroAge, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
MicroAge, Inc. and its subsidiaries at November 2, 1997 and November 3, 1996,
and the results of their operations and their cash flows for the fiscal years
ended November 2, 1997, November 3, 1996, and October 29, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
December 9, 1997
A-7
<PAGE>
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
November 2, November 3,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,029 $ 22,078
Accounts and notes receivable, net 330,172 290,115
Inventory, net 478,089 331,743
Other 11,560 11,495
------------ ------------
Total current assets 843,850 655,431
Property and equipment, net 73,747 54,049
Intangible assets, net 43,766 17,499
Other 12,770 9,342
------------ ------------
Total assets $ 974,133 $ 736,321
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 672,158 $ 511,167
Accrued liabilities 22,545 25,464
Current portion of long-term obligations 2,744 2,121
Other 3,545 3,627
------------ ------------
Total current liabilities 700,992 542,379
Line of credit 30,650 --
Long-term obligations 4,537 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: November 2, 1997 -- 17,849,929
November 3, 1996 -- 16,578,451 178 165
Additional paid-in capital 148,201 124,332
Retained earnings 90,392 66,484
Loan to ESOT -- (207)
Treasury stock, at cost;
Shares: November 2, 1997 -- 80,378
November 3, 1996 -- 97,029 (817) (724)
------------ ------------
Total stockholders' equity 237,954 190,050
------------ ------------
Total liabilities and stockholders' equity $ 974,133 $ 736,321
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
A-8
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $4,446,308 $3,696,160 $3,098,976
Cost of sales 4,136,628 3,471,009 2,924,652
---------- ---------- ----------
Gross profit 309,680 225,151 174,324
Operating and other expenses
Operating expenses 238,977 186,387 144,341
Restructuring and other one-time charges -- -- 9,029
---------- ---------- ----------
Total 238,977 186,387 153,370
---------- ---------- ----------
Operating income 70,703 38,764 20,954
Other expenses - net 27,366 13,755 15,854
---------- ---------- ----------
Income before income taxes 43,337 25,009 5,100
Provision for income taxes 18,372 10,899 1,466
---------- ---------- ----------
Net income $ 24,965 $ 14,110 $ 3,634
========== ========== ==========
Net income per common and
common equivalent share $ 1.40 $ 0.84 $ 0.22
========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 17,810 16,781 16,236
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
A-9
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------
November 2, November 3, October 29,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 24,965 $ 14,110 $ 3,634
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,002 20,837 15,593
Provision for losses on accounts and notes receivable 9,208 8,944 6,280
Non-cash restructuring and other one-time charges -- -- 7,410
Changes in assets and liabilities
net of business acquisitions:
Accounts and notes receivable (32,705) (84,825) (59,159)
Inventory (144,640) (24,861) 4,798
Other current assets (35) 1,933 (5,188)
Other assets (5,763) (3,817) (1,722)
Accounts payable 139,047 102,192 59,310
Accrued liabilities (3,979) 9,920 2,707
Other liabilities (656) 225 391
--------- --------- ---------
Net cash provided by operating activities 9,444 44,658 34,054
Cash flows from investing activities:
Purchases of property and equipment (36,488) (24,770) (23,229)
Purchases of businesses and investments
in unconsolidated companies, net of cash acquired (1,810) (4,150) (6,099)
--------- --------- ---------
Net cash used in investing activities (38,298) (28,920) (29,328)
Cash flows from financing activities:
Amounts received from ESOT 207 561 640
Proceeds from issuance of stock, net of issuance costs 5,886 1,856 1,004
Net borrowings under lines of credit 30,349 -- --
Shareholder distributions - pooled companies (1,057) (2,245) (1,510)
Principal payments on long-term obligations (4,580) (8,156) (2,043)
--------- --------- ---------
Net cash provided by (used in) financing activities 30,805 (7,984) (1,909)
--------- --------- ---------
Net increase in cash and cash equivalents 1,951 7,754 2,817
Cash and cash equivalents at beginning of period 22,078 14,324 11,507
--------- --------- ---------
Cash and cash equivalents at end of period $ 24,029 $ 22,078 $ 14,324
========= ========= =========
Supplemental disclosure to cash flows - See Note 13
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
A-10
<PAGE>
MICROAGE, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
For the fiscal years ended November 2, 1997,
November 3, 1996 and October 29, 1995
----------------------------------------------------
Additional
Preferred Common paid-in Retained
stock stock capital earnings
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE at October 30, 1994 $ -- $ 161 $ 121,449 $ 52,513
Options for 192,147
common shares exercised -- 2 1,035 --
Contribution of 34,991 treasury shares to
employee benefit plan -- -- 115 --
Loan payments from ESOT -- -- -- --
Distributions to shareholders' - pooled companies -- -- -- (1,528)
Net income -- -- -- 3,634
-------- --------- --------- ---------
BALANCE at October 29, 1995 -- 163 122,599 54,619
Options for 108,861
common shares exercised -- 1 934 --
Contribution of 18,415 treasury shares to
employee benefit plan -- -- 5 --
Issuance of 110,932 shares under the
employee stock purchase plan -- 1 777 --
Contributed capital - pooled company -- -- 17 --
Cancellation of convertible subordinated
debentures due to acquisition -- -- -- --
Loan payments from ESOT -- -- -- --
Distributions to shareholders' - pooled companies -- -- -- (2,245)
Net income -- -- -- 14,110
-------- --------- --------- ---------
BALANCE at November 3, 1996 -- 165 124,332 66,484
Options for 445,579
common shares exercised -- 5 4,050 --
Contribution of 31,731 treasury shares to
employee benefit plan -- -- 205 --
Issuance of 99,703 shares under the
employee stock purchase plan -- 1 1,353 --
Loan payments from ESOT -- -- -- --
Issuance of 108,417 shares to acquire
KNB, Inc. -- 1 2,002 --
Issuance of 609,779 shares to acquire
Access MicroSystems, Inc. -- 6 15,894 --
Issuance of 8,000 restricted common shares
to outside directors -- -- 122 --
Unearned compensation -
restricted common shares issued to directors -- -- (122) --
Compensation expense-
restricted common shares issued to directors -- -- 40 --
Compensation expense-stock option excercise -- -- 325 --
15,080 shares of treasury stock acquired through
cashless stock option exercises -- -- -- --
Distributions to shareholders - pooled companies -- -- -- (1,057)
Net income -- -- -- 24,965
-------- --------- --------- ---------
BALANCE at November 2, 1997 $ -- $ 178 $ 148,201 $ 90,392
======== ========= ========= =========
<CAPTION>
For the fiscal years ended November 2, 1997,
November 3, 1996 and October 29, 1995
-----------------------------------------------------------
Note-stock Total
Loan to purchase Treasury stockholders'
ESOT agreement stock equity
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE at October 30, 1994 $ (1,408) $ (2,000) $ (1,123) $ 169,592
Options for 192,147
common shares exercised -- -- -- 1,037
Contribution of 34,991 treasury shares to
employee benefit plan -- -- 261 376
Loan payments from ESOT 640 -- -- 640
Distributions to shareholders' - pooled companies -- -- -- (1,528)
Net income -- -- -- 3,634
--------- --------- --------- ---------
BALANCE at October 29, 1995 (768) (2,000) (862) 173,751
Options for 108,861
common shares exercised -- -- -- 935
Contribution of 18,415 treasury shares to
employee benefit plan -- -- 138 143
Issuance of 110,932 shares under the
employee stock purchase plan -- -- -- 778
Contributed capital - pooled company -- -- -- 17
Cancellation of convertible subordinated
debentures due to acquisition -- 2,000 -- 2,000
Loan payments from ESOT 561 -- -- 561
Distributions to shareholders' - pooled companies -- -- -- (2,245)
Net income -- -- -- 14,110
--------- --------- --------- ---------
BALANCE at November 3, 1996 (207) -- (724) 190,050
Options for 445,579
common shares exercised -- -- -- 4,055
Contribution of 31,731 treasury shares to
employee benefit plan -- -- 262 467
Issuance of 99,703 shares under the
employee stock purchase plan -- -- -- 1,354
Loan payments from ESOT 207 -- -- 207
Issuance of 108,417 shares to acquire
KNB, Inc. -- -- -- 2,003
Issuance of 609,779 shares to acquire
Access MicroSystems, Inc. -- -- -- 15,900
Issuance of 8,000 restricted common shares
to outside directors -- -- -- 122
Unearned compensation -
restricted common shares issued to directors -- -- -- (122)
Compensation expense-
restricted common shares issued to directors -- -- -- 40
Compensation expense-stock option excercise -- -- -- 325
15,080 shares of treasury stock acquired through
cashless stock option exercises -- -- (355) (355)
Distributions to shareholders - pooled companies -- -- -- (1,057)
Net income -- -- -- 24,965
--------- --------- --------- ---------
BALANCE at November 2, 1997 $ -- $ -- $ (817) $ 237,954
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
A-11
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
- -----------------
MicroAge, Inc. ("MicroAge") is a global systems integrator and a full-line
distributor of information technology products and services. Information
technology solutions offered by the Company include servers, desktops, mobile
computing, mass storage, connectivity, imaging, peripherals, software, and
component products. Unless the context otherwise requires, references to the
"Company" include MicroAge, Inc. and its consolidated subsidiaries.
During fiscal 1997, the Company made several acquisitions which have been
accounted for as poolings of interest. Accordingly, the Company's consolidated
financial statements have been restated to include the accounts and operations
of the acquired companies for all periods presented (see Note 3 below).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal year
- -----------
The Company's fiscal year ends on the Sunday nearest October 31 in each calendar
year. The fiscal years ended November 2, 1997 and October 29, 1995 included 52
weeks. The fiscal year ended November 3, 1996 included 53 weeks.
Disclosures about fair value of financial instruments
- -----------------------------------------------------
Financial instruments that are subject to fair value disclosure requirements are
carried in the consolidated financial statements at amounts that approximate
fair value.
Cash equivalents
- ----------------
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Cash overdrafts
- ---------------
Under the Company's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes. Such
amounts, aggregating $45.4 and $65.0 million at November 2, 1997 and November 3,
1996, respectively, are included as a component of accounts payable in the
accompanying consolidated balance sheets.
Accounts and notes receivable
- -----------------------------
Accounts and notes receivable are comprised of amounts due from financing
companies, end-users, and resellers and are net of an allowance for doubtful
accounts of $10,933,000 and $8,731,000 at November 2, 1997 and November 3, 1996,
respectively.
A-12
<PAGE>
Inventory
- ---------
Inventory consisting of resale merchandise is stated at lower of cost (first-in,
first-out method) or market. International Business Machines Corporation ("IBM")
products totaling $79,436,000 and $43,231,000 included in inventory at November
2, 1997 and November 3, 1996, respectively, are subject to a reservation of the
title in IBM for the purpose of assuring that such products are sold and
delivered only to IBM-authorized personal computer dealers; such reservation
does not prohibit the Company from granting security interests to other parties.
During the fiscal year ended November 2, 1997, sales of COMPAQ Computer
Corporation, Hewlett-Packard Company and IBM products accounted for
approximately 23%, 20% and 14%, respectively, of the Company's revenue from
sales of merchandise. The sales of no other individual vendor's products
accounted for more than 10% of such revenue during the fiscal year ended
November 2, 1997.
Property and equipment
- ----------------------
Property and equipment are recorded at cost and are depreciated on the
straight-line method over their estimated useful lives. Equipment under capital
lease is recorded at the lower of fair market value or the present value of
future lease payments and is amortized on the straight-line method over the
estimated useful life or the term of the lease, whichever is less.
The following reflects the estimated lives by category of property and
equipment:
Furniture, fixtures, equipment and software 3 to 7 years
Equipment under capital lease 3 to 5 years
Leasehold improvements 3 to 5 years
Expenditures for maintenance and repairs are charged to operations in the year
in which the expense is incurred.
Intangible assets
- -----------------
Intangible assets are amortized over their economic lives ranging from three to
fifteen years using the straight-line method. For acquisitions accounted for
under the purchase method, the excess of cost over the fair value of net
identifiable assets acquired is classified as goodwill and is included in
intangible assets. On an ongoing basis, the Company reviews the valuation and
amortization of goodwill. As part of this review, the Company estimates the net
realizable value of goodwill and assesses whether the unamortized balance could
be recovered through expected future cash flows over the remaining life of the
asset. At November 2, 1997 and November 3, 1996, no impairment was indicated.
Intangible assets are net of $7,264,000 and $5,343,000 of accumulated
amortization at November 2, 1997 and November 3, 1996, respectively.
Revenue recognition
- -------------------
Revenue from product sales is recognized at the time of shipment. Revenue
associated with service contracts is deferred and recognized ratably over the
service period of the contract.
Supplier Incentive funds
- ------------------------
In general, suppliers provide the Company with various incentive programs. The
funds received under these programs are generally determined based on the
Company's purchases and/or sales of the suppliers' product. The funds are earned
through marketing programs or meeting purchasing or other objectives established
by the suppliers. Once earned, the funds are applied against product cost or
operating expenses.
A-13
<PAGE>
Accounting for stock based compensation
- ---------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") in 1997. As permitted by
SFAS 123, the Company continues to measure compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") but provides pro forma disclosures of net income and
earnings per share as if the fair value method (as defined in SFAS 123) had been
applied beginning in 1996 (see Note 8).
Income taxes
- ------------
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled.
Income per common share
- -----------------------
Income per common and common equivalent share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of stock options
and warrants using the treasury stock method. The weighted average common and
common equivalent shares consist of the following:
<TABLE>
<CAPTION>
Fiscal years ended
--------------------------------------
November 2, November 3, October 29,
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Weighted average common shares 16,906 16,307 16,031
Dilutive effect of stock options and warrants 904 474 205
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 17,810 16,781 16,236
========== ========== ==========
</TABLE>
The amounts of per share earnings on the fully diluted basis are not required to
be presented in the consolidated statements of income since the additional
dilution is less than 3%.
Franchising Activities
- ----------------------
MicroAge distributes its products and services through a network of franchised
and affiliated resellers and Company-owned locations. In fiscal 1997, 231
franchised resellers were added and 110 were eliminated due to transferring to
an affiliate agreement, closing or terminating their agreement or being acquired
by the Company, resulting in 900 franchised reseller locations at November 2,
1997. There were 40 Company-owned locations at November 2, 1997. In fiscal 1997,
total revenue and total cost of sales from Company-owned locations were
$810,275,000 and $699,980,000, respectively.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
A-14
<PAGE>
Use of Estimates
- ----------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 3 - ACQUISITIONS
- ---------------------
Poolings of Interest
- --------------------
During fiscal 1997, the Company completed three separate acquisitions of
resellers that were accounted for as poolings of interest. The Company issued an
aggregate 1,898,811 common shares in exchange for all of the outstanding shares
of these companies (the "Pooled Enterprises"). The Company's consolidated
financial statements have been restated to include the accounts and operations
of the Pooled Enterprises for all periods presented.
The results of operations previously reported by the Company and the Pooled
Enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below (in thousands).
Pooled
MicroAge, Inc. Enterprises Combined
-------------- ----------- --------
Fiscal year 1996:
Revenue $3,516,446 $ 179,714 $3,696,160
Net income $ 13,253 $ 857 $ 14,110
Fiscal year 1995:
Revenue $2,941,100 $ 157,876 $3,098,976
Net income $ 241 $ 3,393 $ 3,634
Purchases
- ---------
During fiscal 1997, the Company completed four separate acquisitions that were
accounted for using the purchase method of accounting. In each case, the
purchase price was allocated to the assets purchased and the liabilities assumed
based on fair values at the date of acquisition. These acquisitions are as
follows:
In December 1996, the Company acquired an imaging company for consideration of
$1.2 million consisting of cash and the forgiveness of debt. The excess of the
purchase price over the fair value of net assets acquired was approximately $1.3
million and is being amortized using the straight-line method over 7 years.
In February 1997, the Company acquired a reseller for consideration of $4.0
million consisting of the assumption of liabilities. The excess of the purchase
price over the fair value of net assets acquired was approximately $4.0 million
and is being amortized using the straight-line method over 15 years.
In July 1997, the Company acquired a reseller for consideration of $2.0 million
consisting of 108,417 common shares. The excess of the purchase price over the
fair value of net assets acquired was approximately $5.7 million and is being
amortized using the straight-line method over 15 years.
A-15
<PAGE>
In September 1997, the Company acquired a reseller for consideration of $16.4
million consisting of 609,779 shares of the Company's common stock. The excess
of the purchase price over the fair value of net assets acquired was
approximately $16.9 million and is being amortized using the straight-line
method over 15 years.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following: November 2, November 3,
1997 1996
---------- ----------
(in thousands)
Equipment, furniture, fixtures and software $115,269 $ 84,265
Equipment under capital lease 15,948 14,179
Leasehold improvements 16,235 14,186
Land 1,839 1,839
-------- --------
149,291 114,469
Less: accumulated depreciation and
amortization 75,544 60,420
-------- --------
$ 73,747 $ 54,049
======== ========
NOTE 5 - LEASES
- ---------------
The following is a schedule by year of future minimum lease obligations under
noncancelable leases together with the present value of the net minimum capital
lease obligations as of November 2, 1997:
Operating Capital
leases leases
----------- -----------
Fiscal year ending in: (in thousands)
1998 $11,440 $ 3,285
1999 10,505 2,479
2000 8,335 1,416
2001 6,856 1,024
2002 4,418 142
Thereafter 8,029 --
------- -------
Total minimum lease obligations $49,583 8,346
=======
Less: amount representing interest 1,065
-------
Present value of minimum lease obligations $ 7,281
=======
None of the leases contain significant restrictive provisions; however, some of
the leases contain renewal options and provisions for payment by the Company of
real estate taxes, insurance and maintenance costs. Total rent expense was (in
thousands):
Fiscal year ended:
October 29, 1995 $ 8,333
November 3, 1996 $11,126
November 2, 1997 $15,310
A-16
<PAGE>
NOTE 6 - FINANCING ARRANGEMENTS
- -------------------------------
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 November 2, 1997, the net
amount of sold accounts receivable was $279 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.
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 November 2, 1997, the Company had $77 million outstanding
under the Inventory Lines of Credit (included in accounts payable in the
accompanying Balance Sheets), and $31 million outstanding under the Supplemental
Line of Credit. As of November 2, 1997, the interest rate on the Supplemental
Line of Credit was LIBOR plus 2%.
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
November 2, 1997, 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 of the Company. Under the terms of the Purchase Agreement, no finance
charges are assessed if the accounts are settled within forty days. At November
2, 1997, the net amount of sold accounts receivable under the Purchase Agreement
was $10.9 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.
A-17
<PAGE>
NOTE 7 - LONG-TERM OBLIGATIONS
- ------------------------------
Long-term obligations consist of the following:
November 2, November 3,
1997 1996
----------- -----------
(in thousands)
Capital lease obligations $ 7,281 $ 6,013
Less: current portion 2,744 2,121
----------- -----------
$ 4,537 $ 3,892
=========== ===========
Following are the annual maturities of long-term obligations (in thousands):
Fiscal year ending in:
1998 $ 2,744
1999 2,163
2000 1,261
2001 973
2002 140
----------
$ 7,281
==========
NOTE 8 - STOCKHOLDERS' EQUITY
- -----------------------------
Employee stock option and award plans
- -------------------------------------
During fiscal 1994, the Board of Directors and stockholders of the Company
approved the adoption of the MicroAge Inc. Long-Term Incentive Plan (the
"Incentive Plan") for officers and other key employees of the Company. The
Incentive Plan authorizes grants of Incentive Stock Options (ISOs),
Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights, Performance
Shares, Restricted Stock, Dividend Equivalents and other Common Stock based
awards. The total number of shares of common stock available for awards under
the Incentive Plan is 1,800,000.
The Company has issued NQSOs and ISOs under the Incentive Plan at prices
representing the fair market value of the Company's common stock on the date of
the grant. The NQSOs and ISOs are granted for terms of five years and become
exercisable on a pro-rata basis on each anniversary of the grant over a
five-year period as long as the holder remains an employee of the Company. NQSOs
under the Incentive Plan were also granted in fiscal 1994 and fiscal 1997 to
selected employees in exchange for the employees' irrevocable waiver of a
specific amount of base salary or bonus otherwise payable by the Company during
a specific period. The options will vest in one-third increments beginning on
the January 1 which is three years following the January 1 of the calendar year
in which the participant elects to waive compensation. No other awards have been
made under the Incentive Plan.
In addition to the Incentive Plan, stock options are available under four plans
for grant to certain officers and employees of the Company at prices
representing the fair market value of the Company's common stock on the date of
the grant. Options under these plans are granted for terms of five years and
become exercisable on a pro-rata basis on each anniversary date of the grant
over a five-year period as long as the holder remains an employee of the
Company.
A-18
<PAGE>
Changes during fiscal 1995, 1996 and 1997 in options outstanding under the
employee stock option plans (including the Incentive Plan) were as follows:
Weighted
Average
Number Exercise Price
of Options per Share
---------- --------------
Outstanding at October 30, 1994 1,776,222 $ 9.01
Granted 162,750 $10.90
Exercised (120,900) $ 5.31
Canceled or expired (46,174) $10.01
----------
Outstanding at October 29, 1995 1,771,898 $ 9.51
Granted 339,000 $10.29
Exercised (97,125) $ 8.61
Canceled or expired (157,630) $10.93
----------
Outstanding at November 3, 1996 1,856,143 $ 9.58
Granted 788,379 $20.12
Exercised (438,079) $ 9.44
Canceled or expired (107,474) $14.02
----------
Outstanding at November 2, 1997 2,098,969 $13.28
==========
Exercisable at November 2, 1997 352,125
==========
The following table summarizes information about the Company's stock options at
November 2, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------------
Weighted Weighted
Avg. Avg.
Number Contractual Exercise Number Exercise
Range of Outstanding Years Price Exercisable Price
Exercise Prices (in thousands) Remaining per share (in thousands) per share
- --------------------- ---------------- ------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
$5.33 to $9.25 995 .67 $ 8.52 157 $ 7.58
$10.42 to $17.88 703 3.25 $14.54 179 $10.97
$23.83 to $31.75 401 3.15 $22.82 16 $24.30
------- -----
$5.33 to $31.75 2,099 2.31 $13.28 352 $10.09
======= =====
</TABLE>
A-19
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") in 1997. As permitted by
SFAS 123, the Company continues to measure compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Had the Company determined compensation cost in
accordance with SFAS No. 123, the Company's net income per share would have been
reduced to the pro-forma amounts indicated below (in thousands except per share
data):
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------
November 2, November 3,
1997 1996
------------ ------------
<S> <C> <C> <C>
Net Income As Reported $ 24,965 $ 14,110
Pro-forma 23,142 13,114
Net income per common and common equivalent share As Reported $ 1.40 $ 0.84
Pro-forma 1.30 0.78
</TABLE>
Pro forma net income reflects only options granted during the fiscal years ended
November 3, 1996 and November 2, 1997. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro-forma net income amounts presented above because compensation cost is
reflected over the options' vesting period and compensation for options granted
prior to October 30, 1995 is not considered.
The per share weighted-average fair value of the stock options granted under the
plan for the years ended November 3, 1996 and November 2, 1997 was $5.11 and
$8.35 respectively, based on the date of the grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for both
years: expected dividend yield of 0%, expected volatility of .523, a risk free
interest rate of 6.54%, and an expected life of 3.31 years.
Director stock plans
- --------------------
In March 1995, the Board of Directors and stockholders approved an incentive
plan for those Directors who are not officers or employees of the Company or its
subsidiaries (the "1995 Director Plan"). Under the 1995 Director Plan, on
November 1 of each year, commencing in 1995 and ending in 2004, each eligible
Director will automatically be granted (i) 1,000 shares of the Company's common
stock subject to certain restrictions and (ii) options to purchase 1,000 shares
of the Company's common stock. The options vest over three years and are subject
to certain stock price hurdles after each vesting date. As of November 2, 1997,
13,000 options had been granted under this plan at prices ranging from $8.38 to
$22.75 per share. There were 3,671 options exercisable as of November 2, 1997.
The aggregate number of shares of the Company's common stock available for
awards under the 1995 Director Plan is 80,000.
Restricted stock plan
- ---------------------
In accordance with the provisions of a restricted stock plan approved in fiscal
1982, 45,000 shares of common stock were reserved for issuance. At November 2,
1997, 39,938 shares had been awarded under the plan, and 5,062 additional shares
may be awarded under the plan.
Preferred stock purchase rights
- -------------------------------
In February 1989, as amended in November 1994, the Company's Board of Directors
adopted a Stockholder Rights Agreement (the "Rights Plan") and declared a
dividend distribution of one Right for each share of the Company's common stock
outstanding as of the close of business on March 7, 1989 and intends to issue
one Right for each share of common stock issued between March 7, 1989 and the
date of the distribution of the
A-20
<PAGE>
Rights. As amended, the Rights Plan provides that when exercisable, each Right
will entitle its holder to purchase from the Company one one-hundredth (.01) of
a share of Series C Junior Participating Preferred stock at a price of $19.90.
The Company has reserved 500,000 preferred shares for issuance upon exercise of
the Rights. Generally, the Rights become exercisable on the earlier of the date
a person or group of affiliated or associated persons acquires or obtains the
rights to acquire securities representing fifteen percent (15%) or more of the
common stock of the Company or on the tenth day following the commencement of a
tender or exchange offer which would result in the offeror beneficially owning
fifteen percent (15%) or more of the Company's common stock without the prior
consent of the Company. In the event that an unauthorized person or group of
affiliated persons becomes the beneficial owner of fifteen percent (15%) or more
of the common stock of the Company, proper provision shall be made so that each
holder of a Right will have the right to receive, upon exercise thereof and the
payment of the exercise price, that number of shares of common stock having a
market value of two times the exercise price of the Right. The Rights will
expire on February 23, 1999, unless redeemed earlier by the Company pursuant to
authorization by the Board of Directors.
Generally, in the event that the Company is involved in a merger or other
business combination transaction after the Rights become exercisable, provision
shall be made so that each holder of a Right shall have the right to receive,
upon the exercise thereof and the payment of the exercise price, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
Right.
Associate Stock Purchase Plan
- -----------------------------
In March 1995, the Board of Directors and stockholders approved an associate
stock purchase plan (the "Associate Plan"). The Associate Plan provides a means
for the Company's employees to authorize payroll deductions up to 10% of their
earnings to be used for the periodic purchase of the Company's common stock.
Under the Associate Plan, the Company will initially sell shares to participants
at a price equal to the lesser of 85% of the fair market value of the common
stock at the beginning of a six month subscription period or 85% of fair market
value at the end of the subscription period. The Associate Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The maximum number of shares that may be
purchased under the Associate Plan is 500,000. The initial subscription period
began July 1, 1995. As of November 2, 1997, 210,635 shares had been purchased
under the Associate Plan.
NOTE 9 - OTHER EXPENSES - NET
- -----------------------------
Other expenses - net consists of the following:
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Interest expense $ 5,882 $ 1,724 $ 3,672
Expenses from the sale of accounts
receivable 18,769 11,438 10,468
Other 2,715 593 1,714
------------- ------------- -------------
$ 27,366 $ 13,755 $ 15,854
============= ============= =============
</TABLE>
A-21
<PAGE>
NOTE 10 - INCOME TAXES
- ----------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 16,898 $ 7,621 $ 4,374
State 4,241 1,927 1,193
Deferred (2,767) 1,351 (4,101)
------------- ------------ -------------
$ 18,372 $ 10,899 $ 1,466
============= ============ =============
</TABLE>
The components of deferred income tax expense (benefit) from operations are as
follows:
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Allowance for doubtful accounts $ (209) $ 1,440 $ (2,014)
Software development costs 338 433 247
Depreciation and amortization (1,075) (429) (159)
Restructuring reserves 210 358 (533)
Inventory valuation allowance (190) (300) (112)
State deferral, net of federal benefit (488) 168 (528)
All other - net (1,353) (319) (1,002)
------------- ------------- ------------
$ (2,767) $ 1,351 $ (4,101)
============= ============= ============
</TABLE>
Deferred tax assets, which are recorded as a component of other assets or other
current assets, are comprised of the following:
<TABLE>
<CAPTION>
November 2, November 3,
1997 1996
------------- ------------
Gross deferred tax assets: (in thousands)
<S> <C> <C>
Depreciation and amortization $ 4,887 $ 4,213
Allowance for doubtful accounts 3,736 3,482
Inventory valuation 2,945 2,589
Deferred service revenue 918 773
Other 5,581 4,504
------------- ------------
Total gross deferred tax assets 18,067 15,561
------------- ------------
Gross deferred tax liabilities:
Software development 1,776 1,366
Other 370 1,041
------------- ------------
Total gross deferred tax liabilities 2,146 2,407
------------- ------------
Net deferred tax asset $ 15,921 $ 13,154
============= ============
</TABLE>
A-22
<PAGE>
In light of the Company's history of profitable operations, management has
concluded that it is more likely than not that the Company will ultimately
realize the full benefit of its deferred tax assets related to future deductible
items. Accordingly, the Company believes that no valuation allowance is required
for the deferred tax assets in excess of deferred tax liabilities.
The effective tax rate applied to income before income taxes differs from the
expected federal statutory rate as follows:
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
Addition (reduction) in taxes resulting
from:
State income taxes, net of
federal tax benefit 5.5 5.6 15.7
Non-deductible meals and
entertainment 0.7 0.7 13.8
Goodwill amortization 0.3 0.2 3.6
Impact of pooling of interests with
subchapter S corp. (0.3) 0.9 (49.6)
Other 1.2 1.2 11.2
------------- ------------- -------------
42.4% 43.6% 28.7%
============= ============= =============
</TABLE>
NOTE 11 - COMMITMENTS
- ---------------------
The Company has arrangements with major vendors and certain financing companies
to develop inventory and accounts receivable financing facilities for certain
reseller customers. These arrangements include repurchase agreements that would
require the Company to repurchase inventory which might be repossessed from a
reseller by the vendor or the financing company. As of November 2, 1997, such
repurchases have been insignificant.
The Company also provides a program whereby the Company may guarantee an
addition to a reseller's credit facility with certain finance companies. As of
November 2, 1997 losses related to the guarantee program have been
insignificant, and the Company's exposure for guaranteed amounts is not
material.
NOTE 12 - EMPLOYEE BENEFIT PLAN
- -------------------------------
In July 1988, a deferred compensation plan (the "Savings Plan") became effective
for all eligible employees of the Company under the provisions of Section 401(k)
of the Internal Revenue Code. Employees are eligible to participate after one
year of service and may contribute a percentage of their salary subject to
certain limitations. Subject to certain profitability requirements, the Company
has historically matched 25% of the employee contribution up to a maximum
employee contribution of 6%, as defined in the Savings Plan. Participants are at
all times fully vested in their contributions, and the Company contributions, if
any, become fully vested to the participant after five years of employment.
In addition to the Savings Plan, the Company has also adopted a supplemental
deferred compensation plan (the "Supplemental Savings Plan") for employees
holding key management positions or highly compensated employees for purposes of
Title I of ERISA. Eligible employees may contribute a percentage of their salary
subject to certain limitations as established by the Plan Administrator. The
Company has historically matched 25% of the employee contribution. Participants
are at all times fully vested in their contributions, and the company
contributions, if any, become fully vested to the participant after five years
of employment. Contributions to the Supplemental Savings Plan are held by a
Trustee, however it is not qualified under the
A-23
<PAGE>
provisions of Section 401(k) of the Internal Revenue Code. All benefits payable
under the Supplemental Savings Plan therefore are unsecured obligations of the
Company.
In April 1989, the Company amended and restated the Savings Plan to include a
leveraged Employee Stock Ownership Plan and Trust (the "ESOT") for eligible
employees. The ESOT used proceeds of loans from the Company to purchase 312,500
shares and 157,827 shares of the Company's common stock for $2,396,000 and
$1,105,000 during the years ended September 30, 1990 and 1989, respectively. As
of November 2, 1997, all loans have been repaid to the Company.
The Company's stock is held by the ESOT trustee as collateral for the loans from
the Company. The Company has made periodic contributions to the ESOT which were
used to make loan principal and interest payments. A portion of the common stock
is allocated to the accounts of participating employees annually based upon
principal and interest payments. The Company, using the shares allocated method,
recognized contribution expenses of $208,000, $510,000 and $675,000 during the
fiscal years ended November 2, 1997, November 3, 1996 and October 29, 1995,
respectively. As of November 2, 1997, all shares have been allocated under the
ESOT.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ----------------------------------------------------------
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------------------
November 2, November 3, October 29,
1997 1996 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Details of acquisitions:
Fair value of assets acquired $20,029 $ 2,000 $ 1,252
Liabilities assumed and acquisition-
related accruals $25,894 $ -- $ 383
Cash acquired $ 76 $ -- $ --
Note forgiven $ 124 $ 2,000 $ --
Purchase obligation forgiven $ -- $ 1,029 $ --
Details of other financing activities:
Capital lease obligations executed for
equipment $ 3,834 $ 2,303 $ 4,726
Cash paid for:
Interest $ 6,319 $ 3,486 $ 4,840
Income taxes $27,291 $ 6,079 $ 9,564
</TABLE>
NOTE 14 - 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
A-24
<PAGE>
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.
NOTE 15 - RESTRUCTURING AND OTHER ONE-TIME CHARGES
- --------------------------------------------------
During the fourth quarter of fiscal 1995, the Company approved and implemented
actions targeted at reducing expenses and improving profitability. The Company's
consolidated statement of income for fiscal 1995 includes $9.0 million of pretax
charges ($5.4 million net of tax benefits, or $0.38 per share) for restructuring
and other one-time charges, consisting of the following (in thousands):
<TABLE>
<S> <C>
Charges associated with the sale of a memory distribution business $5,563
Charges associated with outsourcing business function 1,517
Charges associated with staff reductions 1,170
Other one-time charges 779
------
Total restructuring and other one-time charges $9,029
======
</TABLE>
The charges associated with staff reductions consist primarily of severance pay
for 219 associates. The reductions occurred in virtually all areas of the
Company and were completed by October 29, 1995. The amount of benefits paid and
charged against the restructuring liability as of October 29, 1995 was $1.0
million. All actions related to the restructuring were implemented as of October
29, 1995, and the liability for restructuring activities at October 29, 1995 was
not material.
The revenue and net operating results of the activities that were not continued
are as follows (in millions):
1995
------
Revenue
Memory distribution business $70.5
Outsourced business function $ 3.5
Pretax loss
Memory distribution business $(1.7)
Outsourced business function $(1.6)
NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 is effective for financial statements for both interim and annual periods
ending after December 15, 1997. SFAS replaces the current presentation of
earnings per share with a dual presentation of Basic Earnings per Share and
Diluted Earnings per Share. The Company believes that SFAS 128 will not have a
material impact on previously reported earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") to establish standards for
reporting information about operating segments in annual financial statements,
selected information about operating segments in interim financial reports and
disclosures about products and services, geographic areas and major customers.
SFAS 131 may require the Company to report financial information on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments, which may result in more detailed information in
the notes to the Company's consolidated financial statements than is currently
required and provided under FASB Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business Enterprise". SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.
A-25
<PAGE>
NOTE 17 - SUBSEQUENT EVENT
- --------------------------
On November 5, 1997, the Company acquired all of the outstanding shares of a
reseller for consideration of $20.0 million consisting of 814,458 common shares.
This acquisition will be accounted for as a purchase. In addition, the agreement
contains an earnout provision, the payment of which is dependent on the
achievement of certain operating results by the acquired company over the next
three years. The earnout may be settled utilizing cash, common shares, or a
combination thereof. The Company has not yet completed the allocation of the
purchase price.
On November 14, 1997, the Company completed the acquisition of a reseller. Under
the terms of the agreement, to be accounted for as a pooling of interests, the
Company exchanged 601,724 common shares for all of the outstanding shares of the
acquired company. The financial position and results of operations of the
Company and the acquired company will be combined in fiscal 1998 retroactive to
November 3, 1997. In addition, all prior periods presented will be restated to
give effect to the merger. The impact of the combination on the previously
reported financial position and results of operations of the Company will not be
material.
On November 17, 1997, the Company completed the acquisition of a reseller. Prior
to the acquisition, the Company maintained a 19.9% ownership position in this
reseller. As consideration of $5.0 million for the remaining outstanding shares,
the Company issued 207,200 common shares. In addition, the agreement contains an
earnout provision, the payment of which is dependent on the achievement of
certain operating results by the acquired company over the next three years. The
earnout may be settled utilizing cash, common shares, or a combination thereof.
A-26
<PAGE>
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------
Consolidated quarterly financial information for fiscal 1997 and 1996, restated
to reflect acquisitions accounted for as pooling of interests, is as follows (in
thousands except per share data):
<TABLE>
<CAPTION>
Fiscal 1997
-------------------------------------------------------
Quarter ended February 2 May 4 August 3 November 2
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
As originally reported $ 860,319 $ 1,035,719 $ 1,093,484 $ 1,321,910
Pooled enterprises 30,429 50,299 54,148 --
----------- ----------- ----------- -----------
Combined $ 890,748 $ 1,086,018 $ 1,147,632 $ 1,321,910
Gross profit
As originally reported $ 55,952 $ 67,008 $ 73,000 $ 89,293
Pooled enterprises 6,151 8,974 9,302 --
----------- ----------- ----------- -----------
Combined $ 62,103 $ 75,982 $ 82,302 $ 89,293
Operating Income
As originally reported $ 12,888 $ 17,675 $ 18,556 $ 20,451
Pooled enterprises 524 438 171 --
----------- ----------- ----------- -----------
Combined $ 13,412 $ 18,113 $ 18,727 $ 20,451
Net income
As originally reported $ 4,668 $ 6,003 $ 6,398 $ 7,380
Pooled enterprises 189 241 86 --
----------- ----------- ----------- -----------
Combined $ 4,857 $ 6,244 $ 6,484 $ 7,380
Net income per common and common equivalent share, combined $ 0.28 $ 0.36 $ 0.37 $ 0.40
Fiscal 1996
-------------------------------------------------------
Quarter ended January 28 April 28 July 28 November 3
----------- ----------- ----------- -----------
Revenue
As originally reported $ 780,318 $ 863,648 $ 842,674 $ 1,029,806
Pooled enterprises 41,965 42,518 41,710 53,521
----------- ----------- ----------- -----------
Combined $ 822,283 $ 906,166 $ 884,384 $ 1,083,327
Gross profit
As originally reported $ 39,943 $ 44,569 $ 44,770 $ 55,554
Pooled enterprises 7,725 8,430 9,904 14,256
----------- ----------- ----------- -----------
Combined $ 47,668 $ 52,999 $ 54,674 $ 69,810
Operating Income
As originally reported $ 5,928 $ 9,531 $ 8,716 $ 12,273
Pooled enterprises 503 (73) 337 1,549
----------- ----------- ----------- -----------
Combined $ 6,431 $ 9,458 $ 9,053 $ 13,822
Net income
As originally reported $ 1,557 $ 2,938 $ 3,551 $ 5,207
Pooled enterprises 319 (425) (144) 1,107
----------- ----------- ----------- -----------
Combined $ 1,876 $ 2,513 $ 3,407 $ 6,314
Net income per common and common equivalent share, combined $ 0.12 $ 0.15 $ 0.20 $ 0.37
</TABLE>
A-27
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market under the
symbol MICA and is quoted on the Nasdaq National Market. The following table
sets forth the quarterly high and low sale prices for the common stock as
reported by the Nasdaq National Market for the two most recent fiscal years:
RANGE OF SALE PRICES
------------------------
HIGH LOW
-------- ---------
FISCAL 1996
- -----------
First Quarter ................................ $ 9 1/2 $ 7 1/2
Second Quarter ............................... $ 10 5/8 $ 9
Third Quarter ................................ $ 15 3/8 $ 11
Fourth Quarter ............................... $ 20 $ 12 7/16
FISCAL 1997
- -----------
First Quarter ................................ $ 24 1/4 $ 12 3/4
Second Quarter ............................... $ 15 3/8 $ 12 1/2
Third Quarter ................................ $ 24 1/4 $ 13 7/16
Fourth Quarter ............................... $ 29 1/4 $ 21 3/8
As of January 15, 1998, there were approximately 1,155 stockholders of record of
the common stock. The Company believes that as of such date there were
approximately 4,564 beneficial holders of the common stock.
The Company has never declared or paid a cash dividend on its common stock and
does not presently intend to do so. Future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition, and other factors
deemed relevant by the Company's Board of Directors.
In two separate transactions in January and July 1997, and in three separate
transactions in September 1997, the Company acquired a total of five resellers.
In connection with the mergers, the Company issued 640,493; 108,417; 609,779;
932,039; and 326,279 shares of its common stock, respectively, to the resellers,
which became subsidiaries of the Company. Exemption from registration for the
issuances of the common stock for each of the five transactions is claimed
pursuant to Section 4(2) of the Securities Act of 1933, as amended, regarding
transactions by an issuer not involving any public offering.
A-28
<PAGE>
APPENDIX B
MICROAGE, INC.
1997 LONG-TERM INCENTIVE PLAN
ARTICLE 1 PURPOSE
1.1 GENERAL. The purpose of the MicroAge, Inc. 1997 Long-Term Incentive
Plan (the "Plan") is to promote the success, and enhance the value, of MicroAge,
Inc. (the "Company") by linking the personal interests of its officers,
associates and independent contractors or consultants to those of Company
shareholders and by providing its officers, key associates, independent
contractors and consultants with an incentive for outstanding performance. The
Plan is further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of such individuals upon whose
judgment, interest, and special effort the successful conduct of the Company's
operation is largely dependent. Accordingly, the Plan permits the grant of
incentive awards from time to time to officers, other key associates, and
independent contractors and consultants.
ARTICLE 2 EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan is effective as of September 25, 1997 (the
"Effective Date). Within one year after the Effective Date, the Plan shall be
submitted to the shareholders of the Company for their approval. The Plan will
be deemed to be approved by the shareholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with
applicable provisions of the Delaware General Corporation Law and the Company's
By-Laws and Certificate of Incorporation. Any Awards granted under the Plan
prior to shareholder approval are effective when made (unless the Committee
specifies otherwise at the time of grant), but no Award may be exercised or
settled and no restrictions relating to any Award may lapse before shareholder
approval. If the shareholders fail to approve the Plan, any Award previously
made shall be automatically canceled without any further act.
ARTICLE 3 DEFINITIONS AND CONSTRUCTION.
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Share Award, or Performance-Based
Award granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
B-1
<PAGE>
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means and includes each of the
following:
(1) A change of control of the Company of a nature
that would be required to be reported in response to Item 6(e)
of Schedule 14A of the Securities Exchange Act of 1934, as
amended ("1934 Act") regardless of whether the Company is
subject to such reporting requirement;
(2) A change of control of the Company through a
transaction or series of transactions, such that any person
(as that term is used in Section 13 and 14(d)(2) of the 1934
Act), excluding affiliates of the Company as of the Effective
Date, is or becomes the beneficial owner (as that term is used
in Section 13(d) of the 1934 Act) directly or indirectly, of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(3) The individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least 80% of the Board; provided,
however, that any person becoming a member of the Board
subsequent to the Effective Date whose election, or nomination
for election by the Company's stockholders, was approved by a
vote of at least 80% of the members then comprising the
Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the 1934
Act or any successor provision thereto) shall be, for purposes
of this paragraph, considered as though such person were a
member of the Incumbent Board;
(4) Any consolidation or liquidation of the Company
in which the Company is not the continuing or surviving
corporation or pursuant to which Stock would be converted into
cash, securities or other property, other than a merger of the
Company in which the holders of the shares of Stock
immediately before the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger;
(5) The shareholders of the Company approve any plan
or proposal for the liquidation or dissolution of the Company;
or
(6) Substantially all of the assets of the Company
are sold or otherwise transferred to parties that are not
within a "controlled group of corporations" (as defined in
Section 1563 of the Code) in which the Company is a member.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means the committee of the Board described in
Article 4.
B-2
<PAGE>
(g) "Covered Employee" means an Employee who is a "covered
employee" within the meaning of Section 162(m) of the Code.
(h) "Disability shall mean any illness or other physical or
mental condition of a Participant which renders the Participant
incapable of performing his customary and usual duties for the Company,
or any medically determinable illness or other physical or mental
condition resulting from a bodily injury, disease or mental disorder
which in the judgment of the Committee is permanent and continuous in
nature. The Committee may require such medical or other evidence as it
deems necessary to judge the nature and permanency of the Participant's
condition.
(i) "Fair Market Value" means, as of any given date, the fair
market value of Stock or other property determined by such methods or
procedures as may be established from time to time by the Committee.
Unless otherwise determined by the Committee, the Fair Market Value of
Stock as of any date shall be the closing price for the Stock as
reported on the NASDAQ National Market System (or on any national
securities exchange on which the Stock is then listed) for that date
or, if no closing price is so reported for that date, the closing price
on the next preceding date for which a closing price was reported.
(j) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422 of the Code or any successor
provision thereto.
(k) "Non-Employee Director" means of member of the Board who
qualifies as a "Non-Employee Director" as defined in Rule 16b-3(b)(3)
of the Exchange Act, or any successor definition adopted by the Board.
(l) "Non-Qualified Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
(m) "Option" means a right granted to a Participant under
Article 7 of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.
(n) "Participant" means a person who, as an officer, key
associate, independent contractor or consultant of the Company or any
Subsidiary, has been granted an Award under the Plan.
(o) "Performance-Based Awards" means the Restricted Stock
Awards and Performance Share Awards granted to selected Covered
Employees pursuant to Articles 9 and 10, but which are subject to the
terms and conditions set forth in Article 11. All Performance-Based
Awards are intended to qualify as "performance-based compensation"
under Section 162(m) of the Code.
(p) "Performance Criteria" means the criteria that the
Committee selects for purposes of establishing the Performance Goal or
Performance Goals for a Participant for a Performance Period. The
Performance Criteria that will be used to establish Performance Goals
are limited to the following: pre- or after-tax net earnings, revenue
growth, operating income, operating cash flow,
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return on net assets, return on shareholders' equity, return on assets,
return on capital, Stock price growth, shareholder returns, gross or
net profit margin, earnings per share, price per share of Stock, and
market share, any of which may be measured either in absolute terms or
as compared to any incremental increase or as compared to results of
one or more companies or of a peer group. The Committee shall, within
the time prescribed by Section 162(m) of the Code, define in an
objective fashion the manner of calculating the Performance Criteria it
selects to use for such Performance Period for such Participant.
(q) "Performance Goals" means, for a Performance Period, the
goals established in writing by the Committee for the Performance
Period based upon the Performance Criteria. Depending on the
Performance Criteria used to establish such Goal, the Goal may be
expressed in terms of overall Company performance or the performance of
an operating unit or the performance of the individual. The Committee,
in its discretion, may, within the time prescribed by Section 162(m) of
the Code, adjust or modify the calculation of Performance Goals for
such Performance Period in order to prevent the dilution or enlargement
of the rights of Participants, (i) in the event of, or in anticipation
of, any unusual or extraordinary corporate item, transaction, event, or
development; (ii) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company; or (iii) in response to, or in anticipation
of, changes in applicable laws, regulations, accounting principles, or
business conditions.
(r) "Performance Period" means the one or more periods of
time, which may be of varying and overlapping durations, as the
Committee may select, over which the attainment of one or more
Performance Goals will be measured for the purpose of determining a
Participant's right to, and the payment of, a Performance-Based Award.
(s) "Performance Share" means a right granted to a Participant
under Article 9, to receive cash, Stock, or other Awards, the payment
of which is contingent upon achieving certain performance goals
established by the Committee.
(t) "Plan" means the MicroAge, Inc. 1997 Long-Term Incentive
Plan, as amended from time to time.
(u) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions
and to risk of forfeiture.
(v) "Retirement" means a Participant's termination of
employment with the Company after attaining any normal or early
retirement age specified in any pension, profit sharing or other
retirement program sponsored by the Company.
(w) "Stock" means the common stock of the Company and such
other securities of the Company that may be substituted for Stock
pursuant to Article 13.
(x) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the
difference between the Fair Market Value of a share of
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Stock as of the date of exercise of the SAR over the grant price of the
SAR, all as determined pursuant to Article 8.
(y) "Subsidiary" means any corporation of which a majority of
the outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
ARTICLE 4 ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by a Committee that is
appointed by, and shall serve at the discretion of, the Board. The Committee
shall consist of at least two individuals, each of whom qualifies as (i) a
Non-Employee Director, and (ii) an "outside director" under Code Section 162(m)
and the regulations issued thereunder. Subject to the foregoing, the
Compensation Committee of the Board shall constitute the Committee, unless the
Board determines otherwise.
4.2 ACTION BY THE COMMITTEE. A majority of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present and acts approved in writing by a majority
of the Committee in lieu of a meeting shall be deemed the acts of the Committee.
Each member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other
associate of the Company or any Subsidiary, the Company's independent certified
public accountants, or any executive compensation consultant or other
professional retained by the Company to assist in the administration of the
Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to
each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted
under the Plan including but not limited to, the exercise price, grant
price, or purchase price, any restrictions or limitations on the Award,
any schedule for lapse of forfeiture restrictions or restrictions on
the exercisability of an Award, and accelerations or waivers thereof,
based in each case on such considerations as the Committee in its sole
discretion determines; provided, however, that the Committee shall not
have the authority to accelerate the vesting, or waive the forfeiture,
of any Performance-Based Awards;
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not
be identical for each Participant;
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(g) Decide all other matters that must be determined in
connection with an Award;
(h) Establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan.
4.4 DECISIONS BINDING. All decisions and determinations made by the
Committee with respect to any Award granted under the Plan, any Award Agreement,
or the interpretation of the Plan are final, binding and conclusive on all
parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 13.1,
the aggregate number of shares of Stock reserved and available for grant under
the Plan shall be 2,000,000.
5.2 LAPSED AWARDS. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards settled in cash will be available for the grant of an Award under
the Plan.
5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4 LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding
any provision in the Plan to the contrary, and subject to the adjustment in
Section 13.1, the maximum number of shares of Stock with respect to one or more
Awards that may be granted to any one Participant during any fiscal year of the
Company shall be 200,000.
ARTICLE 6 ELIGIBILITY AND PARTICIPATION
6.1 ELIGIBILITY. Persons eligible to participate in this Plan include
all officers, key associates and independent contractors and consultants of the
Company or a Subsidiary, as determined by the Committee, including associates
who are also members of the Board, but excluding those Board members who are not
also associates of the Company or a Subsidiary.
6.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from among all eligible associates,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award. No associate shall have any right to be granted an Award under
this Plan.
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ARTICLE 7 STOCK OPTIONS
7.1 GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
under an Option shall be determined by the Committee and set forth in
the Award Agreement. The exercise price for any Option shall not be
less than the Fair Market Value as of the date of grant.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part. The Committee also shall determine the performance or
other conditions, if any, that must be satisfied before all or part of
an Option may be exercised.
(c) PAYMENT. The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including broker-assisted "cashless exercise" arrangements), and the
methods by which shares of Stock shall be delivered or deemed to be
delivered to Participants.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a
written Award Agreement between the Company and the Participant. The
Award Agreement shall include such provisions as may be specified by
the Committee.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock
shall be set by the Committee, provided that the exercise price for any
Incentive Stock Option may not be less than the Fair Market Value as of
the date of the grant.
(b) EXERCISE. In no event, may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse
under the following circumstances:
(1) The Incentive Stock Option shall lapse ten years
from the date it is granted, unless an earlier time is set in
the Award Agreement.
(2) The Incentive Stock Option shall lapse in
accordance with the Option Agreement, but shall in no event be
exercisable for a period exceeding three months after the
Participant's termination of employment, other than for
Disability or death, in which case the Incentive Stock Option
shall lapse no later than 12 months after such Disability or
death.
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(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market
Value (determined as of the time an Award is made) of all shares of
Stock with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed
$100,000.00 or such other dollar limitation as set forth in Section
422(d) of the Code or any successor provision. If for any reason
Incentive Stock Options that are first exercisable for any Participant
in any calendar year exceed this limitation, the excess Options shall
be deemed to be Non-Qualified Stock Options.
(e) TEN PERCENT OWNERS. An Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of Stock of the Company only if such Option is granted at a
price that is not less than 110% of Fair Market Value on the date of
grant and the Option is exercisable for no more than five years from
the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an
Incentive Stock Option may be made pursuant to this Plan after the
tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant.
7.3 MANAGEMENT EQUITY PROGRAM
(a) ELIGIBILITY. In addition to any other Award granted to a
Participant under the Plan, the Committee may, in its sole and absolute
discretion, select one or more Participants to participate in the
Management Equity Program. Under the Management Equity Program,
selected Participants may receive Awards of Options pursuant to the
terms and conditions set forth in this Section 7.3
(b) RECEIPT OF AWARDS. A Participant selected to participate
in the Management Equity Program shall receive Awards of Options in
exchange for the Participant's irrevocable waiver of a designated
amount or percentage of the Participant's base salary or any bonuses
otherwise payable during the period the waiver is in effect. The
receipt of the Options pursuant to the Management Equity Program shall
be subject to such terms and conditions as determined by the Committee
in its sole and absolute discretion and as set forth in a Management
Equity Program Award Agreement.
(c) FORMULA. The number of Non-Qualified Stock Options granted
to the Participant pursuant to this Section 7.3 shall be determined by
multiplying the total dollar amount of the base salary or bonuses
waived by the Participant under a Management Equity Program Award
Agreement by a leveraging factor and dividing the product by the Fair
Market Value of one share of Stock as of the first day of the calendar
year for which the Participant's waiver is first effective, or as of
the original effective date of the waiver if the waiver is first
effective as of some date other than the first day of a calendar year.
(d) MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT. Subsequent to a
Participant being selected to participate in the Management Equity
Program, such Participant shall
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enter into a Management Equity Program Award Agreement in such form and
at such time as the Committee shall require.
(e) WAIVER REQUIREMENTS AND RESTRICTIONS. In any one
Management Equity Program Award Agreement, a Participant shall not be
allowed to waive his base salary or any bonuses for more than a three
(3) year period, except that bonuses may be waived over a longer period
as may be required, up to the maximum of a ten (10) year period. The
Committee shall determine, in its sole and absolute discretion, the
minimum or maximum percentage of base salary or any bonuses that may be
waived by a Participant, the leveraging factor to be used in the
formula set forth in Section 7.3(c) and all other matters the Committee
deems necessary or advisable for implementing the Management Equity
Program. Any and all rules or procedures adopted by the Committee
pursuant to the preceding sentence shall be in writing and shall be
communicated to all Participants selected by the Committee for
participation in the Management Equity Program.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1 GRANT OF SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has the right
to receive the excess, if any, of:
(1) The Fair Market Value of a share of Stock on the
date of exercise; over
(2) The grant price of the Stock Appreciation Right
as determined by the Committee, which shall not be less than
the Fair Market Value of a share of Stock on the date of grant
in the case of any SAR related to any Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall
be evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement, and
any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee at the time of the grant of the Award and
shall be reflected in the Award Agreement.
ARTICLE 9 PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
9.2 RIGHT TO PAYMENT. Upon the Award of a Performance Share, the
Participant has the right to receive the cash, stock, or other property
evidenced by the Award Agreement. The Committee shall set performance goals and
other terms or conditions to payment of the Performance Shares in its discretion
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which, depending on the extent to which they are met, will determine the number
and value of Performance Shares that will be paid to the Participant, provided
that the time period during which the performance goals must be met shall, in
all cases, exceed six months.
9.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
10.3 FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the Company,
provided, however, that the Committee may provide in any Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part
restrictions or forfeiture conditions relating to Restricted Stock.
10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
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ARTICLE 11 PERFORMANCE-BASED AWARDS
11.1 PURPOSE. The purpose of this Article 11 is to provide the
Committee the ability to qualify the Restricted Stock Awards under Article 10
and the Performance Share Awards under Article 9 as "performance-based
compensation" under Section 162(m) of the Code. If the Committee, in its
discretion, decides to grant a Performance-Based Award to a Covered Employee,
the provisions of this Article 11 shall control over any contrary provision
contained in Articles 9 or 10.
11.2 APPLICABILITY. This Article 11 shall apply only to those Covered
Employees selected by the Committee to receive Performance-Based Awards. The
Committee may, in its discretion, grant Restricted Stock Awards or Performance
Share Awards to Covered Employees that do not satisfy the requirements of this
Article 11. The designation of a Covered Employee as a Participant for a
Performance Period shall not in any manner entitle the Participant to receive an
Award for the period. Moreover, designation of a Covered Employee as a
Participant for a particular Performance Period shall not require designation of
such Covered Employee as a Participant in any subsequent Performance Period and
designation of one Covered Employee as a Participant shall not require
designation of any other Covered Employees as a Participant in such period or in
any other period.
11.3 DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE AWARDS. With
regard to a particular Performance Period, the Committee shall have full
discretion to select the length of such Performance Period, the type of
Performance-Based Awards to be issued, the kind and/or level of the Performance
Goal, and whether the Performance Goal is to apply to the Company, an operating
unit of the Company, or the Participant individually.
11.4 PAYMENT OF PERFORMANCE AWARDS. Unless otherwise provided in the
relevant Award Agreement, a Participant must be employed by the Company or a
Subsidiary on the last day of the Performance Period to be eligible for a
Performance Award for such Performance Period. Furthermore, a Participant shall
be eligible to receive payment under a Performance-Based Award for a Performance
Period only if the Performance Goals for such period are achieved.
In determining the actual size of an individual Performance-Based
Award, the Committee may reduce or eliminate the amount of the Performance-Based
Award earned for the Performance Period, if in its sole and absolute discretion,
such reduction or elimination is appropriate.
11.5 MAXIMUM AWARD PAYABLE. Notwithstanding any provision contained in
the Plan to the contrary, the maximum Performance-Based Award payable to any one
Participant under the Plan for a Performance Period is 200,000 Shares, or in the
event the Performance-Based Award is paid in cash, such maximum
Performance-Based Award shall be determined by multiplying 200,000 Shares by the
Fair Market Value of one Share as of the date of grant of the Performance-Based
Award.
ARTICLE 12 PROVISIONS APPLICABLE TO AWARDS
12.1 STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for
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another Award, the Committee may require the surrender of such other Award in
consideration of the grant of the new Award. Awards granted in addition to or in
tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.
12.2 EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 12.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made.
12.3 TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant.
12.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Committee determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Committee.
12.5 LIMITS ON TRANSFER. No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided by the Committee, no Award
shall be assignable or transferable by a Participant other than by will or the
laws of descent and distribution.
12.6 BENEFICIARIES. Notwithstanding Section 12.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If the Participant is married, a designation of a person other
than the Participant's spouse as his beneficiary with respect to more than 50
percent of the Participant's interest in the Award shall not be effective
without the written consent of the Participant's spouse. If no beneficiary has
been designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Committee.
12.7 STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on with the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
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12.8 TENDER OFFERS. In the event of a public tender for all or any
portion of the Stock, or in the event that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for shareholder approval,
the Committee may in its sole discretion declare previously granted Options to
be immediately exercisable. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
12.9 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability, all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then
lapse in accordance with the other provisions of this Plan and the Award
Agreement.
12.10 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control
occurs, all outstanding Options, Stock Appreciation Rights, and other Awards in
the nature of rights that may be exercised shall become fully exercisable and
all restrictions on outstanding Awards shall lapse. In the event that the
Committee becomes aware of an event that will cause a Change of Control to
occur, the Committee may give each Participant the right to exercise Awards
prior to the occurrence of the event over such period as the Committee, in its
sole and absolute discretion, shall determine. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options.
ARTICLE 13 ADJUSTMENTS
13.1 GENERAL. The Committee may make or provide for such adjustments in
the (a) number of shares of Stock covered by outstanding Awards granted
hereunder, (b) prices per share applicable to outstanding Awards and (c) kind of
shares covered thereby, as the Committee in its sole discretion may in good
faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants that otherwise would result from (x)
any stock dividend, stock split, combination or exchange of shares of Stock,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation, or other distribution of assets
(other than a normal cash dividend), issuance of rights or warrants to purchase
securities, or (z) any other corporate transaction or event having an effect
similar to any of the foregoing. Moreover, in the event of any such transaction
or event, the Committee may provide in substitution for any or all outstanding
Awards under this Plan such alternative consideration as it may in good faith
determine to be equitable under the circumstances and may require in connection
therewith the surrender of all Awards so replaced. The Committee may also make
or provide for such adjustments in the number of shares of Stock specified in
Section 5.1 as the Committee in its sole discretion may in good faith determine
to be appropriate in order to reflect any transaction or event described in this
Section 13.1. Any adjustment pursuant to this Section 13.1 will be conclusive
and binding for all purposes of the Plan.
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ARTICLE 14 AMENDMENT, MODIFICATION AND TERMINATION
14.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant. The Committee also may modify the terms of a previously granted
Award; provided, however, that the Committee may not amend a previously granted
Award to the detriment of the Participant without the Participant's consent.
ARTICLE 15 GENERAL PROVISIONS
15.1 NO RIGHTS TO AWARDS. No Participant or employee shall have any
claim to be granted any Award under the Plan, and neither the Company nor the
Committee is obligated to treat Participants and associates uniformly.
15.2 NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
15.3 WITHHOLDING. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of this Plan.
15.4 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
15.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
15.6 INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
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entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
15.7 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
15.8 EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
15.9 TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
15.10 FRACTIONAL SHARES. No fractional shares of stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
15.11 SECURITIES LAW COMPLIANCE. With respect to any person who is, on
the relevant date, obligated to file reports under Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
void to the extent permitted by law and voidable as deemed advisable by the
Committee.
15.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the Securities Act of 1933, as amended (the "1933 Act"), any of
the shares of Stock paid under the Plan. If the shares paid under the Plan may
in certain circumstances be exempt from registration under the 1933 Act, the
Company may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.
15.13 GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Delaware.
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APPENDIX C
MICROAGE, INC.
1995 DIRECTOR INCENTIVE PLAN
(Amended and Restated as of April 1, 1998)
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Effective November 1, 1995, MicroAge,
Inc., a Delaware corporation, established the "MicroAge, Inc. 1995 Director
Incentive Plan" (the "Plan") for the benefit of its Non-employee Directors. The
Plan sets forth the terms of grants of Stock Options and Restricted Stock to
Non-employee Directors, and such grants are subject to the terms in this Plan.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to encourage
ownership in the Company by Non-employee Directors, and to strengthen the
ability of the Company to attract and retain the services of experienced and
knowledgeable individuals as Non-employee Directors of the Company and to
provide those individuals with a further incentive to work for the best
interests of the Company and its stockholders.
1.3 EFFECTIVE DATE AND DURATION OF THE PLAN. As noted above, the Plan
originally became effective as of November 1, 1995 (the "Original Effective
Date"). The Plan shall remain in effect until all Shares subject to it shall
have been purchased or acquired according to the Plan's provisions, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 9 or Section 10.4. However, no Award may be granted under the Plan on
or after November 1, 2005.
1.4 AMENDMENT AND RESTATEMENT OF PLAN. By adoption of this document,
but conditioned on the approval of this document by the stockholders of the
Company, the Company hereby amends and restates the Plan in its entirety
effective as of April 1, 1998 (the "Effective Date"). The changes made by this
amended and restated Plan shall not have any impact on any Award made prior to
the Effective Date or entitle any Non-employee Director to any additional or
supplemental Awards for service as a Non-employee Director prior to the
Effective Date, except as required by Sections 6.1 and 7.1.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. For purposes of the Plan, the following terms will
have the meanings set forth below:
(a) "Award" means a grant of Non-Qualified Stock Options or Restricted
Stock under the Plan.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, and includes any committee of the Board of Directors designated by the
Board to administer this Plan.
(c) "Change of Control" means and includes each of the following:
(1) A change of control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
the 1934 Act regardless of whether the Company is subject to such
reporting requirement;
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(2) A change of control of the Company through a transaction
or series of transactions, such that any person (as that term is used
in Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates of
the Company as of the Original Effective Date, is or becomes the
beneficial owner (as that term is used in Section 13(d) of the 1934
Act) directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then
outstanding securities;
(3) The individuals who, as of the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least 80% of the Board; provided, however, that any person becoming a
member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least 80% of the members then comprising the Incumbent
Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act or any successor provision thereto)
shall be, for purposes of this paragraph, considered as though such
person were a member of the Incumbent Board;
(4) Any consolidation or liquidation of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which Shares would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
the Shares immediately before the merger have the same proportionate
ownership of common stock of the surviving corporation immediately
after the merger;
(5) The stockholders of the Company approve any plan or
proposed plan for the liquidation or dissolution of the Company; or
(6) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a "controlled
group of corporations" (as defined in Section 1563 of the Code) in
which the Company is a member.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the committee appointed by the Board to
administer the Plan.
(f) "Company" means MicroAge, Inc., a Delaware corporation, or any
successors as provided in Section 10.3.
(g) "Director" means any individual who is a member of the Board of
Directors of the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor provision.
(i) "Fair Market Value" means the closing price for Shares on the
relevant date as reported on the Nasdaq National Market (or any national
securities exchange on which the Shares are then listed), or (if there were no
sales on such date) the closing price on the next preceding date for which a
closing price was reported.
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(j) "Grant Date" means (1) with respect to Awards granted pursuant to
Section 6.1 and Section 7.1, the Service Commencement Date; (2) with respect to
Awards granted pursuant to Sections 6.2 and Section 7.2, November 1, 1998 and
each anniversary of that date through and including November 1, 2004; and (3)
with respect to Awards granted pursuant to Sections 6.3 and 7.3, the date
selected by the Board or the Committee.
(k) "Non-employee Director" means any individual who is a member of the
Board of Directors of the Company, but who is not otherwise a common-law
employee of the Company.
(l) "Non-Qualified Stock Option" or "NQSO" means an option to purchase
Shares, granted under Article 7, that is not intended to be an incentive stock
option qualifying under Code Section 422.
(m) "Option" means a Non-Qualified Stock Option granted under the Plan.
(n) "Participant" means a Non-employee Director of the Company who has
been granted an Award under the Plan.
(o) "Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock is limited in some way, and the Shares are subject
to a substantial risk of forfeiture, as provided in Article 6.
(p) "Person" shall have the meaning assigned to it in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d).
(q) "Restricted Stock" means an Award granted to a Non-employee
Director pursuant to Article 6.
(r) "Service Commencement Date" means the first Board meeting at which
an individual serves as a Non-employee Director; provided, however, that if such
individual's Service Commencement Date is between January 1, 1998 and April 1,
1998, such individual's Service Commencement Date shall be deemed to be April 2,
1998.
(s) "Shares" means the shares of common stock of the Company.
2.2 GENDER AND NUMBER. Except as indicated by the context, any
masculine term also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
2.3 SEVERABILITY. If any provision of the Plan is determined to be
invalid for any reason, the remaining portion of the Plan shall be construed and
enforced as if the invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan will be administered by the Committee,
subject to the restrictions set forth in the Plan.
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3.2 ADMINISTRATION BY THE COMMITTEE. The Committee has the full power,
discretion, and authority to interpret and administer the Plan in a manner that
is consistent with the Plan's provisions.
3.3 DECISIONS BINDING. The Committee's determinations and decisions
under the Plan and all related orders or resolutions of the Board shall be
final, conclusive, and binding on all persons, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN.
4.1 NUMBER OF SHARES. The total number of Shares available for grant
under the Plan may not exceed 250,000, subject to adjustment as provided in
Section 4.3. The Shares issued as Restricted Stock and the Shares issued
pursuant to Options exercised under the Plan may be authorized and unissued
Shares or Shares reacquired by the Company, as determined by the Committee.
4.2 LAPSED AWARDS. If any Option or Share of Restricted Stock granted
under the Plan terminates, expires, or lapses for any reason, any Shares subject
to purchase pursuant to such Option and any such Shares of Restricted Stock
again will be available for grant under the Plan.
4.3 ADJUSTMENTS. The Committee may make or provide for such adjustments
inthe (a) number of Shares covered by outstanding Options and Restricted Stock
granted hereunder, (b) prices per share applicable to outstanding Options and
(c) kind of Shares covered thereby, as the Committee in its sole discretion may
in good faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants that otherwise would result from (x)
any stock dividend, stock split, combination or exchange of Shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation, or other distribution of assets
(other than a normal cash dividend), issuance of rights or warrants to purchase
securities, or (z) any other corporate transaction or event having an effect
similar to any of the foregoing. Moreover, in the event of any such transaction
or event, the Committee may provide in substitution for any or all outstanding
Awards under this Plan such alternative consideration as it may in good faith
determine to be equitable under the circumstances and may require in connection
therewith the surrender of all Awards so replaced. The Committee may also make
or provide for such adjustments in the number of Shares specified in Section 4.1
as the Committee in its sole discretion may in good faith determine to be
appropriate in order to reflect any transaction or event described in this
Section 4.3. Any adjustment pursuant to this Section 4.3 will be conclusive and
binding for all purposes of the Plan.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in the Plan are
limited to Non-employee Directors.
5.2 ACTUAL PARTICIPATION. All new Non-employee Directors will receive a
grant of Restricted Stock pursuant to Section 6.1 and a grant of Options
pursuant to Section 7.1. All Non-employee Directors will receive grants of
Restricted Stock pursuant to Section 6.2 and grants of Options pursuant to
Section 7.2. All Non-employee Directors will be eligible to receive grants of
Restricted Stock pursuant to Section 6.3 and grants of Options pursuant to
Section 7.3.
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ARTICLE 6. RESTRICTED STOCK GRANTS
6.1 INITIAL GRANT OF RESTRICTED STOCK UPON FIRST BECOMING A
NON-EMPLOYEE DIRECTOR. Each individual who first becomes a Non-employee Director
on or after January 1, 1998, shall be granted 1,000 shares of Restricted Stock,
effective as of the Service Commencement Date. The specific terms of the
Restricted Stock grant will be subject to this Article 6 and the Restricted
Stock Agreement executed pursuant to Section 6.4.
6.2 ANNUAL GRANT OF RESTRICTED STOCK. Each individual who is a
Non-employee Director on the relevant Grant Date shall be granted 1,000 Shares
of Restricted Stock on such Grant Date, through and including the November 1,
2004 Grant Date, subject to the limitation on the number of Shares that may be
awarded under the Plan. The specific terms of each annual Restricted Stock grant
will be subject to the provisions of this Article 6 and the Restricted Stock
Agreement executed pursuant to Section 6.4.
6.3 DISCRETIONARY GRANT OF RESTRICTED STOCK. The Board and the
Committee shall each have the authority to grant Restricted Stock, in addition
to that granted under Sections 6.1 and 6.2, in such amounts and at such times as
the Board or the Committee determines appropriate. The specific terms of a
discretionary Restricted Stock grant made pursuant to this Section 6.3 will be
subject to the provisions of this Article 6 and the Restricted Stock Agreement
executed pursuant to Section 6.4.
6.4 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that will not include any terms or
conditions that are inconsistent with the terms and conditions of the Plan.
6.5 NONTRANSFERABILITY OF RESTRICTED STOCK. The Shares of Restricted
Stock granted may not be sold, transferred, pledged, assigned, or otherwise
alienated until the end of the applicable Period of Restriction.
6.6 PERIOD OF RESTRICTION. Restricted Stock granted at each Grant Date
shall be deemed to be a separate grant. Subject to the last paragraph of this
Section 6.6, the Period of Restriction for each grant of Shares of Restricted
Stock under this Article 6 shall expire on the later to occur of:
(a) the target vesting date determined pursuant to the
schedule below; and
(b) the date the stock price hurdles with respect to each
grant of Restricted Stock are met in accordance with the schedule below, on or
after the target vesting date.
- --------------------------------------------------------------------------------
Percentage of Shares in Target Vesting Date Stock Price Hurdle
Grant Become Unrestricted After Target Vesting Date
- --------------------------------------------------------------------------------
First 34% First anniversary of Fair Market Value on the
the Grant Date Grant Date plus 10%
- --------------------------------------------------------------------------------
Second 33% Second anniversary of First stock price
the Grant Date hurdle plus 10%
- --------------------------------------------------------------------------------
Third 33% Third anniversary of Second stock price
the Grant Date hurdle plus 10%
- --------------------------------------------------------------------------------
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Notwithstanding the foregoing, the number of Shares of Restricted Stock
that have satisfied the requirements of paragraphs (a) and (b) above (the
"Vested Restricted Stock"), for which the Period of Restriction shall expire
shall equal the lesser of the number of such Shares of Vested Restricted Stock
or "A," where "A" is determined in accordance with the following formula:
A = B - (2 x C)
-----------
2
For purposes of the foregoing formula: (1) "B" shall equal the total number of
Shares (excluding options or warrants to purchase Shares) that the Participant
has owned for at least 12 months for which the Periods of Restriction, if
applicable, have expired and that are no longer subject to any restrictions
under this Plan; and (2) "C" shall equal the number of Shares of Restricted
Stock previously granted to Participant under the Plan for which the Periods of
Restriction have expired and that are no longer subject to any restrictions
under the Plan.
6.7 CERTIFICATE LEGEND. Any certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the
MicroAge, Inc. 1995 Director Incentive Plan, and the corresponding
Restricted Stock Agreement. A copy of the Plan and the Restricted Stock
Agreement may be obtained from the Secretary of MicroAge, Inc."
6.8 REMOVAL OF RESTRICTIONS. Except as otherwise provided in the Plan,
Shares of Restricted Stock covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Director after the last day of the
Period of Restriction. Once the Shares are released from the restrictions, the
Director shall be entitled to have the legend required by Section 6.7 removed
from his or her Share certificate. All rights with respect to the Restricted
Stock granted to a Director under the Plan shall be available during his or her
lifetime only to such Director.
6.9 VOTING RIGHTS. During the Period of Restriction, Directors holding
Shares of Restricted Stock granted hereunder shall have voting rights with
respect to those Shares.
6.10 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Directors holding Shares of Restricted Stock granted hereunder
shall be entitled to receive any dividend or other distribution paid with
respect to those Shares while they are so held.
6.11 TERMINATION OF SERVICE ON BOARD. If a Participant's service on the
Board terminates for any reason before the end of a Period of Restriction with
respect to any grant of Restricted Stock, the Restricted Stock that is subject
to a Period of Restriction shall continue to vest in accordance with the
schedule set forth in Section 6.6 until the third anniversary of the date upon
which a Participant's service on the Board terminates, at which time the
Restricted Stock that remains subject to a Period of Restriction shall be
forfeited (and will again be available for grant under the Plan).
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ARTICLE 7. OPTION GRANTS
7.1 INITIAL GRANT OF OPTIONS UPON FIRST BECOMING A NON-EMPLOYEE
DIRECTOR. Each individual who first becomes a Non-employee Director on or after
January 1, 1998, shall be granted an Option to purchase 2,500 Shares, effective
as of the Service Commencement Date. The specific terms of the Option will be
subject to the provisions of this Article 7 and the Option Agreement executed
pursuant to Section 7.5.
7.2 ANNUAL GRANT OF OPTIONS. Beginning with the November 1, 1998 Grant
Date, each individual who is a Non-employee Director on the Grant Date shall be
granted an Option to purchase 2,500 Shares on such Grant Date through and
including the November 1, 2004 Grant Date, subject to the limitations on the
number of Shares that may be awarded under this Plan. The specific terms of each
annual Option grant are subject to the provisions of this Article 7 and the
Option Agreement executed pursuant to Section 7.5.
7.3 DISCRETIONARY GRANT OF OPTIONS. The Board and the Committee shall
have the authority to grant Options, in addition to those granted under Sections
7.1 and 7.2, in such amounts and at such times as the Board or the Committee
determines appropriate. The specific terms of a discretionary Option grant made
pursuant to this Section 7.3 will be subject to the provisions of this Article 7
and the Option Agreement executed pursuant to Section 7.5.
7.4 EXERCISABILITY. Options granted at each Grant Date under this Plan
shall be deemed to be a separate grant. The Participant may exercise all or part
of each separate Option granted under this Plan on or after the later to occur
of:
(a) the date each Option grant vests in accordance with the
schedule below; and
(b) the date the stock price hurdles with respect to each
Option grant are met in accordance with the schedule below, on or after the date
the Option grant vests.
- --------------------------------------------------------------------------------
Percentage of Shares Date Option Stock Price Hurdle
Exercisable in Option Grant Grant Vests After Vesting Date
- --------------------------------------------------------------------------------
First 34% First anniversary of Option Price
the Grant Date plus 10%
- --------------------------------------------------------------------------------
Second 33% Second anniversary of First stock price
the Grant Date hurdle plus 10%
- --------------------------------------------------------------------------------
Third 33% Third anniversary of Second stock price
the Grant Date hurdle plus 10%
- --------------------------------------------------------------------------------
Notwithstanding the above, each Option under this Plan will become 100%
exercisable on the ninth anniversary of the date such Option is granted, unless
such Option expires before such date in accordance with the terms of this Plan.
The Option may not be exercised at any time after the expiration date in 7.7
below.
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7.5 OPTION AGREEMENT. Each Option grant will be evidenced by an Option
Agreement that will not include any terms or conditions that are inconsistent
with the terms and conditions of this Plan.
7.6 OPTION PRICE. The exercise price per Share under an Option granted
pursuant to this Article 7 shall be equal to the Fair Market Value of such Share
on the date of the relevant Grant Date ("Option Price").
7.7 DURATION OF OPTIONS. Each Option granted under this Article 7 shall
expire on the tenth anniversary date of its grant unless the Option is earlier
terminated, forfeited, or surrendered pursuant to a provision of this Plan or
the applicable Option Agreement.
7.8 PAYMENT. Options are exercisable by delivering a written notice of
exercise to the Secretary of the Company, setting forth the number of Shares to
be exercised, accompanied by full payment for the Shares. The Option Price is
payable:
(a) in cash or its equivalent;
(b) by tendering previously acquired Shares having a Fair
Market Value at the time of exercise equal to the total Option Price (provided
that the Shares tendered upon Option exercise have been held by the Participant
for at least six months prior to their tender to satisfy the Option Price); or
(c) by a combination of (a) and (b).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall cause to be delivered to the
Participant, in the Participant's name, Share certificates in an appropriate
amount based upon the number of Shares purchased pursuant to the exercise of the
Option.
7.9 RESTRICTIONS ON SHARE TRANSFERABILITY. To the extent necessary to
ensure that Options granted under this Article 7 comply with applicable law, the
Board shall impose restrictions on any Shares acquired pursuant to the exercise
of an Option under this Article 7, including, without limitation, restrictions
under applicable federal securities laws, under the requirements of any Stock
exchange or market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such Shares.
7.10 TERMINATION OF SERVICE ON BOARD. If a Participant's service on the
Board is terminated for any reason, and a portion of the Participant's Award is
not fully vested or exercisable as of that date, the portion of the
Participant's Award that is exercisable and fully vested will remain fully
vested and exercisable. The portion of the Award that is not fully vested and
exercisable shall continue to vest in accordance with the schedule set forth in
Section 7.4 and will become exerciseable at the time described in Section 7.4.
To the extent an Option is exerciseable as of the date of termination
of service on the Board, or becomes exerciseable thereafter, it will remain
exerciseable at any time prior to its expiration date by the Participant or such
other person or persons as shall have been named as the Participant's legal
representative or beneficiary, or by such persons that have acquired the
Participant's rights under the Option by will or by the laws of descent and
distribution.
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7.11 NONTRANSFERABILITY OF OPTIONS. Except as otherwise allowed by
uniform rules adopted by the Board or the Committee, no Option granted under
this Article 7 shall be sold, transferred, pledged, assigned, or otherwise
alienated, other than by will, or by the laws of descent and distribution.
Further, all Options granted to a Participant under this Article 7 shall be
exercisable during his or her lifetime only by such Participant.
ARTICLE 8. CHANGE OF CONTROL
8.1 EFFECT OF CHANGE OF CONTROL ON RESTRICTED STOCK. In the event of a
Change of Control of the Company, all Restricted Stock granted under the Plan
that is still outstanding and not yet vested or still subject to a Period of
Restriction, shall become immediately 100% vested in each Participant and the
Period of Restriction shall immediately expire, as of the first date that the
definition of Change of Control has been fulfilled.
8.2 EFFECT OF CHANGE OF CONTROL ON OPTIONS. In the event of a Change of
Control of the Company, all Options granted under the Plan that are still
outstanding and not yet vested and exerciseable, shall become immediately 100%
vested in each Participant and exerciseable, as of the first date that the
definition of Change of Control has been fulfilled, and shall be exercisable for
the remaining duration of the Option. All Options that are exercisable as of the
effective date of the Change of Control will remain exercisable for the
remaining duration of the Option
ARTICLE 9. AMENDMENT, MODIFICATION, AND TERMINATION
9.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Committee may
terminate, amend, or modify the Plan at any time and from time to time. However,
the Committee may not amend, modify, or terminate the Plan without stockholder
approval if stockholder approval is required under applicable law or by any
national securities exchange or system on which the Shares are then listed or
reported.
9.2 AWARDS PREVIOUSLY GRANTED. Unless required by law, no termination,
amendment, or modification of the Plan shall in any manner adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant holding the Award.
ARTICLE 10. MISCELLANEOUS
10.1 INDEMNIFICATION. Each individual who is or was a member of the
Board shall be indemnified and held harmless by the Company from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under this Plan and from any and
all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to assume and defend the same
before he or she undertakes to defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such individuals may be entitled under
the Company's Certificate of Incorporation or By-Laws,
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as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
10.2 BENEFICIARY DESIGNATION. Each Participant under the Plan may name
any beneficiary or beneficiaries to whom any benefit under the Plan is to be
paid in the event of his or her death. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
10.3 SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
10.4 REQUIREMENTS OF LAW. The granting of Awards under the Plan shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required. Notwithstanding any other provisions of the Plan, the Committee may,
in its sole discretion, terminate, amend, or modify the Plan in any way
necessary to comply with applicable requirements of Rule 16b-3 promulgated by
the Securities and Exchange Commission as interpreted pursuant to no-action
letters and interpretive releases.
10.5 GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Arizona.
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MICROAGE, INC.
2400 South MicroAge Way
Tempe, Arizona 85282-1896
PROXY
The undersigned hereby appoints Jeffrey D. McKeever and James R. Daniel and each
of them, proxies, with power of substitution and revocation, acting unanimously
and voting or if only one is present and voting then that one, to vote the
shares of stock of MICROAGE, INC. which the undersigned is entitled to vote, at
the annual meeting of stockholders to be held at the MicroAge, Inc. Sales
Center, 3015 South Priest Drive, Tempe, Arizona 85282, on Wednesday, April 1,
1998, at 4:00 p.m., Arizona time, and at any adjournment or adjournments
thereof, with all the powers the undersigned would possess if present:
(Continued and to be signed on reverse side)
(reverse of card)
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed at right (except authority to vote for
as marked to the all nominees listed
contrary below) below
<S> <C> <C> <C>
I. ELECTION Nominees:
OF CLASS III [ ] [ ] Roy A. Herberger, Jr.
DIRECTORS: Cyrus F. Friedheim, Jr.
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INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME AT
RIGHT.
FOR AGAINST ABSTAIN
2. APPROVAL OF MICROAGE, INC. 1997 [ ] [ ] [ ]
LONG-TERM INCENTIVE PLAN
3. APPROVAL OF MICROAGE, INC. 1995 [ ] [ ] [ ]
DIRECTOR INCENTIVE PLAN, AS
AMENDED
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ALL OTHER
MATTERS THAT PROPERLY MAY BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MICROAGE, INC.
AND WILL BE VOTED FOR THE ELECTION OF DIRECTORS UNLESS MARKED TO WITHHOLD
AUTHORITY AND WILL BE VOTED IN ACCORDANCE WITH
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ANY SPECIFICATION INDICATED HEREON; IN THE ABSENCE OF A SPECIFICATION AS TO ANY
PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE SIGN AND DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
The undersigned hereby revokes proxy or proxies heretofore given to vote such
shares at said meeting or at any adjournment thereof.
Signature of Stockholder:______________________________ Date:_____________, 1998
FIRST CLASS MAIL IMPORTANT: PLEASE SIGN AND RETURN PROMPTLY PROXY MATERIAL
ENCLOSED. (Please sign exactly as name appears on this proxy, indicating, where
proper, official position or representative capacity).
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