SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934,
For the quarterly period ended AUGUST 1, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15995
MICROAGE, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0321346
(State of incorporation) (I.R.S. Employer
Identification No.)
2400 South MicroAge Way
Tempe, AZ 85282
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 366-2000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's Common Stock (par value $.01 per share)
outstanding at August 30, 1999 was 20,806,135.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 2
Consolidated balance sheets -- August 1, 1999 and
November 1, 1998. 2
Consolidated statements of operations -- Quarters ended August
1, 1999 and August 2, 1998; 39 weeks ended August 1, 1999 and
August 2, 1998. 3
Consolidated statements of cash flows -- 39 weeks ended August
1, 1999 and August 2, 1998. 4
Notes to consolidated financial statements. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
ASSETS
August 1, November 1,
1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 62,042 $ 41,894
Accounts and notes receivable, net 208,130 529,877
Inventory, net 461,817 486,150
Other 25,442 24,432
------------ ------------
Total current assets 757,431 1,082,353
Property and equipment, net 99,384 92,147
Intangible assets, net 7,006 126,105
Other 20,327 14,538
------------ ------------
Total assets $ 884,148 $ 1,315,143
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 672,913 $ 967,501
Accrued liabilities 32,471 24,279
Current portion of long-term obligations 3,181 3,095
Other 10,325 8,868
------------ ------------
Total current liabilities 718,890 1,003,743
Long-term obligations 3,802 5,553
Other long-term liabilities 15,153 15,361
Stockholders' equity:
Preferred stock, par value $1.00 per share;
Shares authorized: 5,000,000
Issued and outstanding: none -- --
Common stock, par value $.01 per share;
Shares authorized: 40,000,000
Issued: August 1, 1999 - 20,836,384
November 1, 1998 - 20,284,789 208 203
Additional paid-in capital 211,447 206,720
Retained earnings (deficit) (64,854) 83,729
Treasury stock, at cost;
Shares: August 1, 1999 - 30,249
November 1, 1998 - 16,378 (498) (166)
------------ ------------
Total stockholders' equity 146,303 290,486
------------ ------------
Total liabilities and stockholders' equity $ 884,148 $ 1,315,143
============ ============
The accompanying notes are an integral part of these financial statements.
2
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MICROAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended 39 weeks ended
-------------------------- --------------------------
August 1, August 2, August 1, August 2,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 1,514,480 $ 1,441,246 $ 4,615,862 $ 3,947,207
Cost of sales 1,415,297 1,354,575 4,328,271 3,702,130
----------- ----------- ----------- -----------
Gross profit 99,183 86,671 287,591 245,077
Operating and other expenses
Operating expenses 89,495 77,787 284,807 230,500
Restructuring and other one-time charges 5,411 -- 139,570 5,600
----------- ----------- ----------- -----------
Total 94,906 77,787 424,377 236,100
----------- ----------- ----------- -----------
Operating income (loss) 4,277 8,884 (136,786) 8,977
Other expenses - net 8,918 7,385 28,426 27,497
----------- ----------- ----------- -----------
Income (loss) before income taxes (4,641) 1,499 (165,212) (18,520)
Income tax provision (benefit) (1,471) 1,473 (16,767) (6,473)
----------- ----------- ----------- -----------
Net income (loss) $ (3,170) $ 26 $ (148,445) $ (12,047)
=========== =========== =========== ===========
Net income (loss) per common and
common equivalent share:
Basic $ (0.15) $ 0.00 $ (7.25) $ (0.61)
=========== =========== =========== ===========
Diluted $ (0.15) $ 0.00 $ (7.25) $ (0.61)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding:
Basic 20,600 19,859 20,475 19,633
=========== =========== =========== ===========
Diluted 20,600 20,305 20,475 19,633
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
39 weeks ended
----------------------
August 1, August 2,
1999 1998
--------- ---------
Cash flows from operating activities:
Net loss $(148,445) $ (12,047)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 33,175 29,861
Provision for losses on accounts and
notes receivable 18,895 10,585
Restructuring and other one-time charges 130,917 --
Changes in assets and liabilities, net
of business acquisitions:
Accounts and notes receivable 302,141 (149,524)
Inventory 24,333 56,066
Other current assets (1,010) (757)
Other assets (7,111) (18,024)
Accounts payable (293,682) 167,758
Accrued liabilities 8,192 (7,850)
Other liabilities (1,251) 10,602
--------- ---------
Net cash provided by operating activities 66,154 86,670
Cash flows from investing activities:
Purchases of property and equipment (40,926) (36,820)
Purchases of businesses and investments in
unconsolidated companies, net of cash acquired (5,500) --
--------- ---------
Net cash used in investing activities (46,426) (36,820)
Cash flows from financing activities:
Proceeds from issuance of stock - stock option and
employee stock purchase plans 3,688 3,424
Net borrowings (payments) under line of credit -- (30,650)
Shareholder distributions - pooled companies -- (129)
Net change in long-term obligations (3,268) (2,824)
--------- ---------
Net cash provided by (used in)
financing activities 420 (30,179)
--------- ---------
Net increase in cash and cash equivalents 20,148 19,671
Cash and cash equivalents at beginning of period 41,894 22,279
--------- ---------
Cash and cash equivalents at end of period $ 62,042 $ 41,950
========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MicroAge, Inc.
(the "Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair statement of results for the periods
have been included. Certain prior year amounts have been reclassified to conform
with current year financial statement presentation. Operating results for the 39
weeks ended August 1, 1999 are not necessarily indicative of the results that
may be expected for the year ending October 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended November 1, 1998.
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended 39 weeks ended
--------------------- ---------------------
Aug. 1, Aug. 2, Aug. 1, Aug. 2,
1999 1998 1999 1998
-------- -------- -------- --------
Interest expense $ 1,394 $ 457 $ 3,209 $ 3,791
Expenses from sales of
accounts receivable 3,829 3,855 10,652 14,425
Amortization expense 765 2,249 5,974 6,429
Flooring expense 4,442 2,002 10,361 5,439
Other (1,512) (1,178) (1,770) (2,587)
-------- -------- -------- --------
$ 8,918 $ 7,385 $ 28,426 $ 27,497
======== ======== ======== ========
NOTE C - RESTRUCTURING AND OTHER ONE-TIME CHARGES
During the quarters ended August 1, 1999 and May 2, 1999, the Company recorded a
total of $139.6 million of restructuring and other one-time charges, which are
discussed below. The liability for restructuring accruals at August 1, 1999 was
$4.0 million.
During the quarter ended August 1, 1999, the Company recorded $5.4 million of
restructuring and other one-time charges ($3.2 million, or $0.16 per share,
after taxes). All actions related to this restructuring were implemented as of
August 1, 1999. The restructuring and other one-time charges included $4.3
million in employee termination benefits (primarily severance pay) and $1.1
million for business closure costs.
The charges associated with employee termination benefits consist primarily of
severance pay for approximately 250 associates. The reductions were completed by
August 1, 1999 and occurred in both Pinacor, the Company's distribution
business, and in MicroAge Technology Services, the Company's integration
business.
5
<PAGE>
During the quarter ended May 2, 1999, the Company recorded $134 million of
restructuring and other one-time charges ($124 million, or $6.07 per share,
after taxes). The restructuring and other one-time charges included a $123
million write-down of impaired goodwill; $8 million for the write-down to net
realizable value of software and equipment no longer utilized by the Company due
to the implementation of a new branch automation system; $2 million in employee
termination benefits; and $1 million for one-time contract termination and
business closure costs.
The goodwill written off during the quarter resulted from businesses acquired
primarily in fiscal 1997 and fiscal 1998. Recent increased competitive pressures
in the industry as well as operating losses caused the Company to reassess the
recoverability of its long-lived assets. The fair value of the assets,
determined through a discounted cash flow analysis as well as other market
analyses, was compared to the carrying amount of the assets. The difference was
recorded as a charge to earnings in the second quarter.
The charges associated with employee termination benefits during the second
quarter consisted primarily of severance pay for 79 associates. The reductions
were completed by May 2, 1999 and occurred in Pinacor and in an imaging business
that the Company decided to exit during the quarter.
All actions related to the second quarter restructuring were implemented as of
May 2, 1999.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements contained in this Item may be "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
These forward-looking statements may include projections of revenue and net
income and issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking information. Some of the important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors; the
impact of Pinacor not being selected as a Compaq Distribution Alliance Partner;
potential fluctuations in quarterly results; risks of declines in inventory
values; the capital intensive nature of the Company's business; dependence on
information systems; year 2000 issues; dependence on independent shipping
companies; rapid technological change; and possible volatility of stock price.
Reference is made to Exhibit 99.1 of the Company's Report on Form 10-K for the
year ended November 1, 1998 for additional discussion of the foregoing factors.
The Company undertakes no obligations to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The Company operates two independent businesses - a distribution business
operated through a wholly-owned subsidiary, Pinacor, Inc. ("Pinacor"), and an
integration business, MicroAge Technology Services ("MTS"). These businesses
have separate management teams, operate autonomously in their respective
marketplaces, and contract with headquarters for a limited number of services,
such as payroll processing, employee benefits and information services.
RECENT DEVELOPMENTS
During the second quarter of fiscal 1999, the Company experienced increased
competitive pressure and other economic factors that have negatively impacted
the Company's gross margins and operating results. In response to these
conditions, the Company, at the end of the second quarter and the beginning of
the third quarter, took actions to increase gross margins and decrease operating
expenses. These actions include price increases, the elimination of several
hundred positions at Pinacor and MTS, the closure of several branch locations
and the exiting of several businesses that were no longer consistent with the
strategic direction of the Company.
In addition, the Company reassessed the recoverability of its goodwill during
the second quarter due to changes in the computer integration and distribution
industry as well as recent operating losses. The Company determined that, based
on cash flow and other market analyses, a substantial portion of its goodwill
was impaired. (See "Note C to the Consolidated Financial Statements").
The Company also completed the implementation of a new branch automation system
during the second quarter. Charges were recognized during the second quarter
related to the conversion to the new system as well as for the completion of the
separation of the Company into two independent businesses (Pinacor and MTS).
7
<PAGE>
In connection with these developments, the Company recorded restructuring and
other expenses in the second and third quarters aggregating $157 million, which
are discussed below.
Restructuring and other expenses for the second quarter totaled $152 million
($136 million or $6.64 per share after taxes). These charges included $123
million for the write-down to net realizable value of goodwill, $13 million for
the write off of assets no longer utilized or otherwise impaired after the
system conversion and completion of the company split described above, $8
million for severance and business exit costs and $8 million related to
Pinacor's Latin America distribution business. The charges for Pinacor Latin
America were primarily the result of the continuing deterioration of the South
American economy and consist of receivable and inventory write downs and the
write down of Pinacor's investment in several Latin American companies.
The total second quarter charges of $152 million include $18 million of charges
that were recorded as components of cost of sales, operating expenses and other
expense in the accompanying statements of operations. The following table
illustrates the recognition within the consolidated statements of operations for
the second quarter of the restructuring and other unusual charges described
above (in thousands):
Quarter ended May 2, 1999
--------------------------------------------
Restructuring
and other
As reported unusual charges As adjusted
----------- ----------- -----------
Cost of sales $ 1,569,903 $ 6,016 $ 1,563,887
Operating expenses 106,025 9,773 96,252
Restructuring and other
one-time charges 134,159 134,159 --
Operating loss (153,546) 149,948 (3,598)
Other expenses - net 12,260 2,350 9,910
Loss before income taxes $ (165,806) $ 152,298 $ (13,508)
Restructuring charges for the third quarter totaled $5 million ($3 million, or
$0.16 per share after taxes) related to employee severance and branch closure
costs.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------------------
Aug. 1, May 2, Jan. 31, Nov. 1, Aug. 2,
1999 1999 1999 1998 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $1,514,480 $1,656,541 $1,444,841 $1,572,824 $1,441,246
Cost of sales (1) 93.5% 94.4% 93.0% 93.1% 94.0%
---------- ---------- ---------- ---------- ----------
Gross profit (1) 6.5 5.6 7.0 6.9 6.0
Operating and other expenses
Operating expenses (1) 5.9 5.8 6.2 5.8 5.4
Restructuring and other one-
time charges (2) 0.3 9.2 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Operating income (loss) 0.3 (9.4) 0.9 1.1 0.6
Other expenses - net (1) 0.6 0.6 0.5 0.4 0.5
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (0.3) (10.0) 0.4 0.7 0.1
Income tax provision (benefit) (0.1) (1.1) 0.2 0.5 0.1
---------- ---------- ---------- ---------- ----------
Net income (loss) (0.2)% (8.9)% 0.1% 0.2% 0.0%
========== ========== ========== ========== ==========
</TABLE>
(1) Calculations for the quarter ended May 2, 1999 exclude the effects of $18.1
million of charges discussed above. Inclusion of such expenses would result
in the following percentage relationship to net sales for the quarter:
Cost of sales 94.8%
Gross profit 5.2
Operating expenses 6.4
Other expenses - net 0.7
(2) Calculations for the quarter ended May 2, 1999 include the effects of $18.1
million of charges excluded from cost of sales, gross profit, operating
expenses and other expenses as discussed in footnote (1) above.
The following discussion of results of operations for the quarter and 39 weeks
ended August 1, 1999 exclude the effect of the restructuring and other unusual
charges discussed above in "Recent Developments"
TOTAL REVENUE. Total revenue of $1.5 billion increased $73 million, or 5%, for
the quarter ended August 1, 1999 as compared to the quarter ended August 2,
1998. This revenue increase included an $18 million, or 1%, increase in Pinacor
(distribution business) revenue and a $15 million, or 3%, increase in MTS
(integration business) revenue. The remaining increase in consolidated revenue
was due to a decrease in the elimination of intercompany revenue. When compared
to the quarter ended May 2, 1999, total revenue for the quarter ended August 1,
1999 decreased $142 million, or 9%. This decrease included a $156 million, or
10%, decrease in Pinacor revenue and a $24 million, or 5%, decrease in MTS
revenue, partially offset by a decrease in the elimination of intercompany
revenue.
9
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Total revenue increased $669 million, or 17%, for the 39 weeks ended August 1,
1999 as compared to the 39 weeks ended August 2, 1998. This revenue increase
included a $571 million, or 16%, increase in Pinacor revenue and a $43 million,
or 3%, increase in MTS revenue. The remaining increase in consolidated revenue
was due to a decrease in the elimination of intercompany revenue.
The year-over-year increases in revenue were attributable to sales to resellers
added since August 2, 1998, increased demand for the Company's major suppliers'
products, the Company's addition of new product offerings, service revenue
growth and the growth of the microcomputer products industry.
The decreases in revenue in the quarter ended August 1, 1999 compared to the
quarter ended May 2, 1999 are primarily due to changes in Pinacor's sourcing
relationship with Compaq Computer Corporation (see "Changes in Supplier Terms
and Conditions"), and to a focus within MTS to reduce unprofitable product
revenue. In addition, the Company believes that a portion of the decrease in
volume is attributable to a price increase instituted by Pinacor during the
quarter ended May 2, 1999 (see "Gross Profit Percentage").
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.5% for the
quarter ended August 1, 1999 and 6.0% for the quarter ended August 2, 1998. The
gross profit percentage was 6.4% for the 39 weeks ended August 1, 1999 and 6.2%
for the 39 weeks ended August 2, 1998.
The increase in the Company's gross profit percentage during the third quarter
was due to higher margins in both Pinacor and MTS. Pinacor margins increased
primarily as a result of increased product trading margins. During the second
quarter, Pinacor instituted a price increase and adjusted salesperson
compensation plans to incent higher margin sales. These actions resulted in
product trading margins increasing in the latter part of the second quarter and
through the third quarter. These increases were partially offset by lower levels
of supplier funds.
MTS margins increased for the third quarter of fiscal 1999 compared to the third
quarter of fiscal 1998, as well as compared to the second quarter of fiscal
1999. The increase from the third quarter of 1998 was due primarily to an
increase in service revenue, which has higher gross margins than product revenue
margins. The increase from the second quarter of fiscal 1999 was primarily due
to better utilization of service staff.
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, changes in suppliers' terms
and conditions, 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 EXPENSES. Operating expenses totaled $89 million, or 5.9% of revenue,
for the quarter ended August 1, 1999, compared to $78 million, or 5.4% of
revenue, for the quarter ended August 2, 1998 and $96 million , or 5.8% of
revenue, for the quarter ended May 2, 1999. Operating expenses increased from
$231 million, or 5.8% of revenue, for the 39 weeks ended August 2, 1998 to $275
million, or 6.0% of revenue, for the 39 weeks ended August 1, 1999. The
year-over-year increases are primarily the result of increased business volume.
The decrease in dollars from the second quarter to the third quarter of the
current year is due to actions taken by the Company to reduce operating
expenses. See "Recent Developments" for a discussion of actions taken.
10
<PAGE>
OTHER EXPENSES - NET. Other expenses - net increased to $8.9 million for the
quarter ended August 1, 1999 from $7.4 million for the quarter ended August 2,
1998. Other expenses - net decreased to $26.1 million for the 39 weeks ended
August 1, 1999 from $27.5 million for the 39 weeks ended August 2, 1998.
Financing costs increased due to increased average borrowings as a result of
changes in the Company's major suppliers' policies. During the first quarter of
fiscal 1999 certain major suppliers changed the terms of their credit
arrangements with the Company. These changes include a decrease in the number of
days the Company has to pay for product purchases and a decrease in the amount
of reseller purchases from the Company that the suppliers are willing to
subsidize. These changes increased the Company's working capital requirements
and financing costs. These increases were offset by a decrease in amortization
expense due to the write-down of impaired goodwill during the second quarter.
See "Note C to the Consolidated Financial Statements" for further discussion of
the impaired goodwill.
INCOME TAX PROVISION. As a percentage of the loss before tax, the income tax
benefit was 31.7% for the quarter ended August 1, 1999 compared to a provision
equal to 98.3% of income before tax for the quarter ended August 2, 1998. The
change in the effective tax rate is due to the impact of permanent differences,
primarily consisting of goodwill amortization and meals and entertainment
expenses, between book income and taxable income.
CHANGES IN SUPPLIER TERMS AND CONDITIONS
The key suppliers of the Company provide various incentives for promoting and
marketing their product offerings. A large portion of the incentives is passed
on to the Company's customers. However, a portion of the incentives positively
impact the Company's income.
Beginning in May 1998, the major manufacturers announced and/or instituted
changes in their sales incentive programs and inventory management programs.
Pursuant to these changes, the major manufacturers have (i) reduced the amount
of product that the Company is allowed to return, (ii) reduced the amount of
price protection coverage offered to the Company and (iii) changed incentives to
programs based on sales of the manufacturers' products, rather than on purchases
of the products from the manufacturers.
In addition, several of the Company's major suppliers have changed the terms of
their credit arrangements with the Company. These changes include a decrease in
the number of days the Company has to pay for product purchases and a decrease
in the amount of reseller purchases from the Company that the suppliers are
willing to subsidize. These changes have increased the Company's working capital
requirements and financing costs. Further changes in incentives or other terms
and conditions could have a material adverse effect on the Company's operating
results.
During the quarter ended May 2, 1999, the Company announced a change in the
Pinacor product sourcing relationship with Compaq Computer Corporation
("Compaq"). By the end of the Company's fiscal year, Pinacor will begin sourcing
certain Compaq products from other Compaq distributors instead of sourcing
directly from Compaq. Compaq has indicated that Pinacor will continue to be a
Compaq Channel partner and will be able to distribute the full range of Compaq
products. In addition, Pinacor will continue to order some products directly
from Compaq. During the quarter ended August 1, 1999, Compaq sales decreased
approximately $75 million, or 20%, when compared to the quarter ended May 2,
1999. The Company expects a further decline in Compaq revenue as the full impact
of the change in the sourcing relationship is realized. In addition to the
11
<PAGE>
expected declines in Compaq revenue, the Company believes that sales of other
suppliers' products may decrease as customers that purchase Compaq products from
other sources move purchases of other products to those sources. This change
will have a negative impact on the Company's operating results, but the amount
of the impact of this change cannot be determined at this time.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may vary significantly from quarter to quarter
depending on certain factors, including, but not limited to, demand for the
Company's information technology products and services, the amount of supplier
incentive funds received by the Company, the results of acquired businesses,
product availability, competitive conditions, new product introductions, changes
in customer order patterns, changes in supplier terms and conditions and general
economic conditions. In particular, the Company's operating results are
sensitive to changes in the mix of product and service revenues, product
margins, inventory adjustments and interest rates. Although the Company attempts
to control its expense levels, these levels are based, in part, on anticipated
revenues. Therefore, the Company may not be able to control spending in a timely
manner to compensate for any unexpected revenue shortfall. As a result,
quarterly period-to-period comparisons of the Company's financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. In addition, although the Company's financial performance
has not exhibited significant seasonality in the past, the Company and the
computer industry in general tend to follow a sales pattern with peaks occurring
near the end of the calendar year, due primarily to special supplier promotions
and year-end business purchases.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its growth and cash needs 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 revenue growth in the future,
its working capital requirements are likely to increase. In addition, as
discussed above, changes in supplier payment terms have increased the Company's
working capital requirements.
Cash provided by operating activities was $66 million for the 39 weeks ended
August 1, 1999 as compared to $87 million for the 39 weeks ended August 2, 1998.
This decrease was primarily due to changes in cash provided by accounts
receivable, inventory and accounts payable. Cash provided by changes in accounts
receivable increased $452 million during the 39 weeks ended August 1, 1999 as
compared to the 39 weeks ended August 2, 1998. This was due to an increase in
receivables sold to a finance company. This was offset by a decrease in cash
provided by inventory, which decreased $32 million during the 39 weeks ended
August 1, 1999 as compared to the 39 weeks ended August 2, 1998. In addition,
cash used by changes in accounts payable increased $462 million during the 39
weeks ended August 1, 1999 as compared to the 39 weeks ended August 2, 1998. The
change in cash resulting from accounts payable was primarily due to changes in
suppliers' terms. See "Changes in Supplier Terms and Conditions".
Cash used in investing activities was $46 million during the 39 weeks ended
August 1, 1999 as compared to $37 million during the 39 weeks ended August 2,
1998. This increase was due to higher purchases of property and equipment and
due to purchases of businesses and investments in unconsolidated subsidiaries.
12
<PAGE>
Cash provided by financing activities was $0.4 million during the 39 weeks ended
August 1, 1999 compared to cash used of $30 million during the 39 weeks ended
August 2, 1998. This change was primarily due to net payments under the
Company's line of credit of $31 million for the 39 weeks ended August 2, 1998
compared to no net change for the 39 weeks ended August 1, 1999.
The Company currently maintains three financing agreements (the "Agreements")
with financing facilities totaling $660 million. The Agreements include an
accounts receivable facility (the "A/R Facility") and inventory financing
facilities (the "Inventory Facilities").
Under the A/R Facility, the Company has the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At August 1, 1999, the net amount
of sold accounts receivable was $285 million.
The Inventory Facilities provide for borrowings up to $310 million. Within the
Inventory Facilities, the Company has lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") and a
line of credit for general working capital requirements ("Supplemental Line of
Credit"). Payments for products purchased under the Inventory Lines of Credit
vary depending upon the product supplier, but generally are due between 30 and
45 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 August 1, 1999, the
Company had $188 million outstanding under the Inventory Lines of Credit
(included in accounts payable in the accompanying Balance Sheets), and nothing
outstanding under the Supplemental Line of Credit.
Of the $660 million of financing capacity represented by the Agreements, $187
million was unused as of August 1, 1999. Utilization of the unused portion is
dependent upon the Company's collateral availability at the time the funds would
be needed. There can be no assurance that the Company will be able to borrow
adequate amounts on terms acceptable to the Company.
Borrowings under the Agreements are secured by substantially all of the
Company's assets, and the Agreements contain certain restrictive covenants,
including tangible net worth requirements and ratios of debt to tangible net
worth and current assets to current liabilities. At August 1, 1999, the Company
was in compliance with these covenants.
The Company has received a commitment letter from another lender to replace the
Agreements with new financing facilities, and is currently negotiating final
documentation. Financing costs under the new facilities are expected to increase
from current levels, however the amount of any increase cannot be determined
until the new agreements are finalized. The new financing facilities are
expected to be finalized during the quarter ended October 31, 1999.
In addition to the financing facilities discussed above, the Company maintains
an accounts receivable purchase agreement (the "Purchase Agreement") with a
commercial credit corporation (the "Buyer") whereby the Buyer agrees to
purchase, from time to time at its option, on a limited recourse basis, certain
accounts receivable of the Company. Under the terms of the Purchase Agreement,
no finance charges are assessed if the accounts are settled within forty days.
At August 1, 1999, the net amount of sold accounts receivable under the Purchase
Agreement was $30 million.
13
<PAGE>
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.
As discussed above, several of the Company's major suppliers have changed the
terms of their credit arrangements with the Company. These changes include a
decrease in the number of days the Company has to pay for product purchases and
a decrease in the amount of reseller purchases from the Company that the
suppliers are willing to subsidize. These changes have increased the Company's
working capital requirements and financing costs. The additional borrowings that
will be required to pay suppliers on shorter terms could exceed the borrowings
available under the Agreements due to collateral constraints.
The unavailability of a significant portion of, or the loss of, the Agreements
or trade credit from suppliers would have a material adverse effect on the
Company.
Although the Company has no material capital commitments, the Company expects to
make capital expenditures of approximately $5 to $10 million during the
remainder of fiscal 1999.
INFLATION
The Company believes that inflation has generally not had a material impact on
its operations.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Form of Administrative Services Agreement for the Non-qualified Deferred
Compensation Plan Document by The Prudential Insurance Company of America
with the Company and Pinacor, Inc., dated July 15, 1999.
10.2 Form of Trust Agreement by and between Prudential Trust Company and the
Company and Pinacor, Inc. for the Executive Supplemental Savings Plan,
dated August 1, 1999.
10.3 Form of The Prudential Insurance Company of America Administrative
Services Agreement for an Individually Designed Plan Document with the
Company and Pinacor, Inc., dated July 15, 1999.
10.4 Form of Trust Agreement by and between Prudential Trust Company and the
Company and Pinacor, Inc. for the Retirement Savings Plan, dated August 1,
1999.
11. Calculation of net income (loss) per common share.
27. Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter ended
August 1, 1999.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROAGE, INC.
(Registrant)
Date: September 15, 1999 By: /s/ Jeffrey D. McKeever
------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: September 15, 1999 By: /s/ James R. Daniel
------------------------------------
James R. Daniel
Senior Vice President
Chief Financial Officer and Treasurer
16
ADMINISTRATIVE SERVICES AGREEMENT FOR
THE NON-QUALIFIED DEFERRED COMPENSATION PLAN DOCUMENT
BY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
This AGREEMENT is made and entered into by and between MicroAge, Inc. (the
"Employer") on behalf of the MicroAge, Inc. Executive Supplemental Savings Plan
(the "Plan"), and The Prudential Insurance Company of America ("Prudential"), a
New Jersey mutual life insurance company.
The Employer represents and Prudential acknowledges that:
* The Plan is or will be in existence at the time funds are deposited
with Prudential;
* The Plan document is, or will be by the effective date of this
Agreement, a Prudential approved non-Qualified Deferred compensation
Plan document;
* If a related Trust (the "Trust") is established, the Trust will be an
Employer grantor trust commonly known as a "Rabbi Trust.'
* The Plan is intended to be an unfunded plan for a select group of
management or highly compensated employees, within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
known as a "Top Hat" plan.
* The Employer has consulted with legal counsel, to the extent it sees
fit, and has taken, or will take by the effective date of this
agreement, all steps necessary to comply with Federal or state
securities laws that might relate to the Plan.
* The Employer, as Plan Administrator, desires Prudential to perform
certain administrative services for the Plan and to provide certain
assistance to the Employer as more fully described in this Agreement,
and Prudential is willing to perform those services.
In consideration of the premises and mutual covenants contained in this
Agreement, the Employer and Prudential agree as follows:
1. SERVICES:
a) SERVICES TO BE RENDERED BY PRUDENTIAL - Prudential will perform the
following services:
i) PLAN RECORDKEEPING - Prudential will provide to the Plan the
record-keeping services included in Exhibit A to this Agreement.
<PAGE>
ii) Plan Documentation and Disclosure Services -
Prudential will provide Plan services support to the
Plan as described in Exhibit B to this Agreement.
iii) Additional Services - In addition to the foregoing
services, Prudential may provide such other services,
and be paid such amounts therefor, as may from time
to time be agreed upon in writing by the parties.
b) NATURE OF SERVICES -
i) RECORDKEEPING ONLY - The Employer understands and agrees that
Prudential's sole function under this Agreement is to act as
recordkeeper and to provide other services at the direction of
the Employer or its agents or designee in accordance with the
terms of this Agreement. Under the terms of this Agreement,
Prudential does not render investment advice, is not the Plan
Administrator, trustee or a Plan fiduciary, as that term is
defined under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and does not provide legal, tax or
accounting advice with respect to the creation, adoption or
operation of the Plan and Trust. Any services to be provided by a
Prudential affiliate as directed trustee or investment manager
are the subject of a separate agreement. Prudential acknowledges,
however, that the Plan is intended to constitute a participant
directed individual account plan under Section 404(c) of the
Employee Retirement Income Security Act of 1974, as amended, and
shall take any reasonable steps necessary to comply with that
Section and the regulations promulgated thereunder.
ii) DISCONTINUANCE OF SERVICES INCONSISTENT WITH ROLE - If, based on
changes in the applicable regulatory structure or the
interpretation of the regulatory structure, there is a reasonable
likelihood that any service being, or to be, provided under this
Agreement by Prudential could constitute a discretionary function
and thereby subject Prudential to classification as a "fiduciary"
under ERISA with respect to the Plan, and such service could not
be restructured in a manner that would not subject Prudential to
classification as a "fiduciary" under ERISA, then Prudential,
upon reasonable notice to the Employer may decline to thereafter
provide that service. The failure to provide any such service
shall not constitute a breach of Prudential's obligations under
this Agreement.
c) RELIANCE UPON PLAN DATA - All services provided by Prudential
hereunder shall be based on information supplied by the Employer or
any other designee or agent of the Employer (as designated by the
Employer). The Employer acknowledges that the timely provision of
accurate, consistent and complete data in the format specified by
Prudential is essential to its delivery of services, and the Employer
2
<PAGE>
is responsible for ensuring such timely and accurate data is delivered
to Prudential in Prudential's approved format. For these purposes,
"Plan data" means all data and records supplied to Prudential,
obtained by Prudential or produced by Prudential (based on data or
records supplied to, or obtained by, Prudential) in connection with
performing the services pursuant to this Agreement. Plan Data includes
current participant names, addresses and status.
d) RELIANCE UPON NAMED ADMINISTRATORS AND TRUSTEES - The Employer will
provide names and other information for persons authorized to take
actions for or provide information on behalf of the Plan and Trust.
Until notified of a change, Prudential may reasonably rely upon this
information and may act upon instructions received from and/or on
information provided by these named persons. Prudential has the right
to assume that those persons continue to be authorized unless notified
otherwise.
e) RESPONSIBILITIES OF THE EMPLOYER - The Employer agrees that it will be
responsible for and neither Prudential nor any affiliate of Prudential
shall have any obligation to:
i) Monitor or otherwise ensure that the Plan is in compliance with
any applicable Federal or state tax, business, labor or
securities law, including the determination of the appropriate
Federal or state securities registration, the selection of the
Plan Participants, and the calculation and payment of any taxes
or tax withholding with respect to the Plan or Plan benefits;
ii) Complete or file any form, notice, or registration with the
federal, state or local tax, labor or securities authorities with
respect to the Plan, assets held under the Plan or payments from
the Plan, except to the extent tax reporting is specifically
listed in Exhibit A to this Agreement.
2. COMPENSATION: In consideration for its services provided hereunder, the
Employer shall pay Prudential in accordance with the Fee Schedule provided
in Exhibit C. Prudential may amend the schedule for services not yet
rendered upon giving notice in writing under the same conditions specified
in Section 7.b. The Employer shall pay al I fees within thirty (30) days of
the Prudential invoice date. Any fees not paid when due may be deducted by
Prudential from the trust fund, without further notice to the Employer. The
Employer shall pay any and all costs that may be incurred by Prudential in
charging the trust fund for these fees. The Employer also agrees that it
shall empower the Trustee to pay compensation to Prudential for services
provided hereunder. The Employer acknowledges that the Plan document
provides for payment of the fees from the trust fund.
3
<PAGE>
3. INVESTMENTS; GOOD ORDER:
a) INVESTMENTS-GENERALLY - Prudential will invest all assets of the Trust
only as directed in writing or via any authorized electronic or
telephonic transmission:
i) By Participants - to the extent the Plan provides for investment
direction or request by Participants.
ii) By the Employer - to the extent the Plan provides for investment
direction by the Employer.
b) UNCLEAR INVESTMENT INSTRUCTIONS; GOOD ORDER -
i) UNCLEAR INVESTMENT INSTRUCTIONS - Prudential will forward
contributions and similar transaction receipts for investment
into the Prudential Government Securities Trust/Money Market
Series or another conservative investment fund designated in
writing by the Employer (or an equivalent fund should the named
fund cease to exist) if Prudential determines that no proper
investment directions are in effect. Once proper instructions are
received, Prudential will forward the new instructions so that
contributions can be re-invested and related earnings can be
allocated accordingly.
ii) GOOD ORDER -
a) CONTRIBUTIONS AND SIMILAR TRANSACTIONS - Prudential will use
its best efforts to process all contributions and similar
transactions ("Transactions") received in good order on the
day good order is achieved, PROVIDED, HOWEVER, that
Prudential reserves the right to process all such
Transactions received in good order at Prudential within
thirty-six (36) hours of receipt. Transactions are in "good
order" when the contribution or similar roster remitted by
the Employer agrees with the related funding, and when the
social security number and money type correspond to social
security numbers and money types of participants previously
enrolled on Prudential's recordkeeping system.
In the event Transaction data is NOT IN GOOD ORDER,
Prudential shall attempt to obtain clarification from the
Employer as to the proper Transaction amount and/or funding
allocations. The Employer acknowledges and directs that
Transaction amounts will be deposited in an interest or
non-interest bearing account (at Prudential's discretion)
until such time as the roster, Transaction amount, and
funding allocation are reconciled. In the event Prudential
4
<PAGE>
is unable, in its sole judgment, to obtain such
clarification within thirty (30) days of receipt of
Transaction amounts, then Prudential shall return all such
Transaction amounts to the Employer pending further
instructions from the Employer. The Employer understands and
agrees that it shall not have any claim against Prudential
or any affiliate of Prudential in the event that Prudential
returns Transaction amounts pursuant to the provision of
this paragraph. The Employer further understands and agrees
that the Plan and the Employer will bear the investment risk
during this period.
b) DISTRIBUTIONS - Prudential will process all distribution
requests received in good order at Prudential within three
(3) business days of receipt of said distribution request by
Prudential. Distribution checks will be issued within seven
(7) days of receipt of good order. Distributions are in
"good order" when the distribution request contains all
pertinent information (including type and form of
distribution, any critical dates needed to process the
distribution, properly completed and executed tax forms and,
if applicable, all necessary rollover instructions) and
appropriate signatures (including spousal consent to the
extent deemed necessary by the Employer).
c) INVESTMENT EXCHANGES - Prudential will process all
investment exchanges on the same terms as Transactions
described in subparagraph a), above. Investment Exchanges
are in Good Order when the information provided in the
request for an investment exchange clearly shows the number
and types of interests to be acquired and disposed of and
reasonably indicates that the transfer is authorized by the
participant or the Employer.
d) NET TRADES - The Employer acknowledges that trades required
by Transactions, distributions, and investment exchanges
will be executed by offsetting transactions ordered in and
out of each investment and purchasing or selling only the
net shares required to balance transactions in an out. The
Employer also acknowledges the share prices allocated to
individual participants will be the price paid or received
for shares actually traded by Prudential for the day the
transactions are processed.
5
<PAGE>
c) THE EMPLOYER ACKNOWLEDGES THAT IT -
i) Received a prospectus for each of the Prudential mutual funds and
any other mutual funds offered by Prudential in which Plan
participants may invest.
ii) Reviewed such prospectus(es) and is familiar with the fees and
expenses described therein, and that such fees and expenses are
reasonable.
d) FEES TO PRUDENTIAL AFFILIATES - The Employer acknowledges that
Prudential may be deemed to benefit from:
i) Advisory and other fees paid to its affiliates for managing,
selling, or settling of the Prudential mutual funds and other
investment products or securities offered by Prudential or its
affiliates selected as investment options available under that
Plan; and
The Employer also acknowledges that Prudential benefits directly from:
ii) Transfer agent fees paid to it by the Prudential mutual funds and
other investment products offered by Prudential or its
affiliates;
iii) Additional compensation in the form of gains resulting from the
correction of transaction processing errors and delays. In
exchange, Prudential also generally absorbs losses resulting from
its errors. Any gains are available to cover these losses or
losses of other similarly situated customers.
4. USE OF AGENTS OR SUBCONTRACTORS: Prudential may perform any of the services
described in this Agreement through agents and subcontractors selected by
Prudential. Prudential shall reasonably supervise any such agent or
subcontractor and the retention of agents or subcontractors shall not
relieve Prudential of its duties hereunder.
5. PRUDENTIAL NOT LEGAL COUNSEL: The Employer understands and agrees that it
shall review with its legal and/or tax counsel all documents provided to it
by Prudential and that the Employer should consult such counsel on any
questions concerning the Employer's responsibilities under this Agreement,
the Plan's documents, and the legal sufficiency of any documents so
provided. The Employer understands that neither Prudential nor any of its
affiliates are permitted to provide the Employer with legal or tax advice
or otherwise engage in the practice of law. The Employer acknowledges that
it will not rely on any information provided as if it were legal or tax
advice.
6. INDEMNIFICATION:
a) INDEMNIFICATION OF PRUDENTIAL - The Employer shall hold harmless and
indemnify Prudential and its employees, agents, and subcontractors
("Indemnitees") from and against any loss, damage, liability, claims,
costs and expenses, including reasonable attorneys' fees
("Liabilities"), to which the Indemnitees may become subject, which
result from:
6
<PAGE>
i) Any misrepresentation or nonfulfillment of any terms of this
Agreement by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary (including, but not limited to, Liabilities
resulting from the provision of inaccurate, untimely, or
incomplete information to Prudential or the failure to provide
Prudential with clear instructions as to matters relating to
contributions, investment selections, or distributions).
ii) Any failure by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary to comply with the terms of the Plan,
iii) A violation by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary of the requirements of applicable Federal
and/or state laws,
iv) The making by Prudential of any benefit payment based upon
instructions that Prudential reasonably believes to be
authorized, and
v) Any action, conduct or activity, including the failure to take
action or to perform any activity taken by Prudential at the
direction of the Employer, Plan Administrator or Trustee,
provided that Prudential reasonably believes the direction to be
valid and is not negligent in the execution of such directions.
vi) Any failure by the Employer or the Plan to comply with any
Federal or State laws governing the registration or sale of
securities.
b) INDEMNIFICATION OF THE EMPLOYER - Prudential shall hold harmless and
indemnify the Employer and its employees from and against any loss,
damage, liability, claims, costs and expenses, including reasonable
attorneys' fees, to which the Employer may become subject, which
result from:
i) Any misrepresentation or nonfulfillment of any material terms of
this Agreement by Prudential, and
ii) Prudential's willful misconduct, lack of good faith or want of
reasonable and ordinary care in the performance of its
obligations under this Agreement.
iii) Prudential's provision of investment advice to any Plan
Participant.
iv) Prudential's violation of the requirements of applicable Federal
and/or state laws, except when resulting from the failure to take
action or any action taken at the direction of the Employer, the
7
<PAGE>
Employer's agent or designee, or Trustee, provided that
Prudential reasonably believes the direction to be valid and is
not negligent in the execution of such directions.
7. DURATION; TERMINATION; SUCCESSOR RECORDKEEPER:
a) DURATION - This Agreement will continue in effect until terminated.
b) TERMINATION - Each party may terminate this Agreement upon sixty (60)
days prior written notice to the other. Such notice shall be deemed to
have been given three (3) days after mailing in the U.S. mail or
immediately upon receipt if delivered to the address set forth below.
The notice period may be waived by the party entitled to the notice.
c) SUCCESSOR RECORDKEEPER - Upon termination, the parties agree that
Prudential shall have no further duty or responsibility to the Plan
under this Agreement. However, Prudential will use reasonable efforts
to transfer all relevant non-Prudential proprietary information
concerning the Plan, in Prudential's standard format, to the Employer
or to a successor recordkeeper. Any unforeseeable costs or expenses
incurred by Prudential in effecting this transfer shall be paid by the
Employer unless waived in writing by Prudential. The Employer agrees
that Prudential may charge reasonable fees for the provision of
requested records or reports that Prudential previously provided.
d) SURVIVAL OF INDEMNIFICATION AND INVESTMENTS - The Employer
acknowledges and agrees that the indemnification provisions of
paragraph 6 shall survive the termination of this Agreement. The
Employer understands and acknowledges that the termination of this
Agreement shall not require the sale by the Trust of shares of
Prudential mutual funds held by the Trust (unless specifically
requested by Prudential in writing).
8. NOTICES: Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, telegraphed, sent by
facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, telegraphed or, if sent by facsimile transmission, upon the
recipient's oral verification by telephone of receipt or, if mailed, three
(3) days after the date of deposit in the U.S. mail, as follows:
8
<PAGE>
If to Prudential: (By U.S. mail) (By other than U.S. mail)
Prudential Investments Prudential Investments
Attn.: Retirement Services Attn.: Retirement Services
30 Scranton Office Park 30 Scranton Office Park
Scranton, PA 18507-1789 Scranton, PA 18507-1789
If to the Employer:
--------------------------------------
--------------------------------------
--------------------------------------
9. ENTIRE AGREEMENT; Amendment: This Agreement, including the Exhibits hereto
which are specifically incorporated herein, contains the entire Agreement
among the parties hereto with respect to the subject matter hereof, and
there are no other Agreements written or oral, relating to the subject
matter hereof other than those explicitly set forth herein or attached
hereto. This Agreement may be amended at anytime, but only when agreed to
in writing by the parties.
10. CONSTRUCTION: This Agreement is the result of negotiation by both parties,
and, therefore, no claim shall be made to construe any portion of the
Agreement against either party on the basis of such party's participation
in the negotiating thereof.
11. BINDING EFFECT; NO ASSIGNMENT: This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors,
assigns and legal representatives. Neither this Agreement, nor any right
hereunder, may be assigned by any party without the written consent of the
other parties hereto. Notwithstanding the foregoing, this Agreement may be
assigned by Prudential to a successor entity without the prior written
consent of the Employer.
12. COUNTERPARTS: This Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the
parties hereto.
13. HEADINGS: The headings in this Agreement are for reference only, and shall
not affect the interpretation of this Agreement.
14. SEVERABILITY: If any word, phrase, sentence, paragraph, provision or
section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect
any other word, phrase, sentence, paragraph, provision or section of this
9
<PAGE>
Agreement, which shall otherwise remain in full force and effect and be
enforced in accordance with its terms.
15. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of New Jersey, except the choice of law rules,
applicable to agreements made and to be performed entirely within such
State.
16. THIRD PARTY BENEFICIARIES: The provisions of this Agreement are solely for
the benefit of the parties hereto and their Affiliates and are not intended
to confer upon any person except the parties hereto any rights or remedies
herein.
17. UNFORESEEN CIRCUMSTANCES: Prudential shall not be liable for any default or
delay in the performance of its services under this Agreement if and to the
extent such default or delay is primarily caused, directly or indirectly,
by:
a) fire, flood, elements of nature or other acts of God;
b) any outbreak or escalation of hostilities, war, riots or civil
disorders in any country;
c) any act or omission of the other party or any governmental authority;
or
d) nonperformance of a third party or any similar cause beyond the
reasonable control of Prudential, including without limitation,
failures or fluctuations in telecommunications or other equipment.
In any such event, Prudential shall be excused from any further performance
and observance of the obligations so affected only for as long as such
circumstances prevail and Prudential continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
18. WRITING AND SIGNATURE; ELECTRONIC TRANSACTIONS: Unless otherwise explicitly
required by law,
a) Any requirement for a writing under this Agreement may be rendered in
any form that can reliably reproduce an accurate physical record of
the communication and authenticate the source, including but not
limited to facsimile transmission, electronic mail, indexed telephone
recording, or Internet transmission.
b) Any requirement of a signature under this Agreement may be rendered in
any form clearly indicated by the signatory to be a signature or which
complies with instructions directly given to the signatory as to the
proper form of indicating a signature in an electronic or voice
response environment. Appropriate forms include, but are not limited
to, personal identification numbers rendered over the internet,
facsimile transmissions, and unique telephone keypad combinations
pressed during recorded calls.
10
<PAGE>
c) Notwithstanding a) or b), above, the recipient of any writing or
signature under this Agreement may require the confirmation of any
writing or signature in physical form (such as hand or typewritten or
the equivalent) with a manual signature.
d) The Employer represents that the Plan document(s) will allow for
transactions to be made by electronic means before the Employer
permits Prudential to offer such transactions. The Plan document(s)
and this Agreement together shall be deemed a master contracting
agreement ("Master Contract"). Under this Master Contract, notices,
consents and other actions by or on behalf of, or with respect to, the
Plan, its participants and their respective beneficiaries ("Plan
Transactions") may be effected, in whole or in part, by electronic
means. Any Plan Transaction relating to services provided under this
Agreement may be initiated or effected by the Employer, the Plan, a
participant or a beneficiary by use of Prudential-authorized
electronic means, including a voice response system (generally
referred to as Interactive Voice Response, or IVR), Internet access
system (including the Prudential Web site) or telephone service line.
Use of electronic means for Plan transactions is subject to the terms
and conditions established by Prudential and disclosed to the Employer
and participants, and electronic transactions shall be binding on the
parties if Prudential, acting in good faith, believes that such
transactions are authorized by the Employer, a participant, or
beneficiary, as applicable.
IN WITNESS THEREOF, the Employer has caused this Agreement to be executed by its
duly authorized representative.
Date Signed:
Date Agreement Effective: August 1,1999
Employer Authorized By: Prudential Authorized By:
- ----------------------------------- -----------------------------------
Name Name
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
- ----------------------------------- -----------------------------------
Title Title
-----------------------------------
Date
This Agreement is not effective until properly countersigned by an authorized
representative of Prudential.
11
AGREEMENT
TRUST AGREEMENT (hereinafter referred to as "the Agreement") made and entered
into this 1st day of August, 1999, by and between MICROAGE, INC. ("the Company")
and PRUDENTIAL TRUST COMPANY, a Pennsylvania Corporation ("the Trustee").
WHEREAS, the Company has adopted the non-qualified deferred compensation plan
known as MicroAge, Inc. Executive Supplemental Savings Plan ("the Plan"); and
WHEREAS, the Company has incurred or expects to incur liability under the terms
of such Plan with respect to the individuals participating in such Plan; and
WHEREAS, the Company wishes to establish a trust (hereinafter called "the
Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan; and
WHEREAS, it is the intention of the parties hereto that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded Plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of the Company to make contributions to the Trust
to provide itself with a source of funds to assist it in meeting its liabilities
under the Plan;
NOW, THEREFORE, the parties hereto do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
<PAGE>
SECTION I. ESTABLISHMENT OF TRUST.
(a) The Company will deposit with the Trustee an amount which shall be held in
trust and which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principle of the Trust, and any earnings thereon shall be held separate
and apart from other funds of the Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plan and this Trust shall be mere
unsecured contractual rights of Plan participants and their beneficiaries
against the Company.
(e) The Company, in its sole discretion, may at any time, or from time to time,
make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of
by the Trustee as provided in this Agreement. Neither the Trustee nor any
Plan participant or beneficiary shall have any right to compel such
additional deposits.
(f) The Trust shall at all times be subject to the claims of the Company's
general creditors as set forth in Section 3 of this Agreement.
SECTION 2. PAYMENTS BY THE TRUSTEE.
(a) The Company shall deliver to the Trustee instructions acceptable to the
Trustee for determining the amounts payable to each Plan participant
hereunder (including his or her beneficiaries), the form in which such
amount is to be paid (as provided for or available under the Plan), and the
time of commencement for payment of such amounts. Except as otherwise
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provided herein, the Trustee shall make payments to Plan participants and
their beneficiaries in accordance with such instructions. The Trustee shall
deduct from each payment under this Agreement, based on information
provided to the Trustee by the Company, any federal, state or local
withholding or other taxes or charges which the Trustee may be required to
deduct under applicable laws.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such party as
it shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set forth in the Plan.
(c) The Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan. The
Company shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or
their beneficiaries. In addition, if the principal of the Trust and any
earnings thereon, are not sufficient to make payment of benefits in
accordance with the terms of the Plan, the Company shall make the balance
of each such payment as it falls due. The Trustee shall notify the Company
in any event in which the principal and earnings are not sufficient.
(d) Notwithstanding any provision of this agreement to the contrary, if at any
time the Trust is finally determined by the Internal Revenue Service (the
"IRS") not to be a "grantor trust", with the result that the income of the
Trust is not treated as income of the Company pursuant to Sections 671-679
of the Code, or if a tax is finally determined by the IRS to be payable by
Plan participants or their beneficiaries with respect to the vested
interest in the entire value of the accounts maintained under the Trust
prior to the final distribution of the assets of such accounts to such Plan
participants or their beneficiaries, then the Trust shall immediately
continue to hold the assets in the Trust pending further instruction from
the Company.
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SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN
COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan participants and their
beneficiaries, as provided in 2(d) hereof, if the Company is Insolvent. The
Board of Directors and the Chief Executive Officer of the Company shall
have the duty to inform the Trustee, in writing, of the Company's
Insolvency. If the Trustee receives a written allegation that the Company
has become Insolvent, the Trustee shall contact the Company and the Company
shall have the duty to verify whether or not such allegation is true.
Pending such confirmation, the Trustee shall discontinue payment of
benefits to Plan participants and their beneficiaries, shall hold the Trust
assets for the benefit of the Company's general creditors, and shall resume
payment of benefits to Plan participants and their beneficiaries only after
the Trustee is informed by the Company that it is not Insolvent or after
receipt of an order of a court of competent jurisdiction. In performing its
duties hereunder, the Trustee may rely on a letter from the Company's
independent auditors as to the Company's financial status or upon the
representation of the Board of Directors and the Chief Executive Officer of
the Company. Prior to receipt of such notice from the Company or a written
allegation from a creditor of the Company, the Trustee shall have no duty
to inquire whether the Company is Insolvent and may rely on information
concerning the Company's solvency which has been furnished to the Trustee
by any person. Nothing in this Agreement shall in any way diminish any
rights of Plan participants and their beneficiaries to pursue their rights
as general creditors of the Company with respect to benefits payable
hereunder.
The Company shall be considered "Insolvent" for purposes of this Agreement
if (i) the Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code, or (iii) the Company is determined to be Insolvent
by any applicable federal and/or state regulatory agency which has
jurisdiction in such determination.
(b) At all times during the continuance of this Trust, as provided in Section
1(d) hereof, the principal and income of the Trust shall be subject to
claims of the general creditors of the Company under applicable federal and
state law as set forth below.
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(c) Provided there are sufficient assets, if the Trustee discontinues payment
of benefits from the Trust pursuant to Section (a) above and subsequently
resumes such payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due Plan participants
and their beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to Plan
participants and their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of benefits have been made to
Plan participants and their beneficiaries pursuant to the terms of the
Plan.
SECTION 5. INVESTMENT AUTHORITY.
(a) The Trustee shall hold, invest and re-invest the assets of the Trust solely
in accordance with the investment directions provided by the Company;
provided, however, that the Trustee may, in its discretion, delegate any
custodial responsibility under this Agreement to a corporate trustee or
insurance company.
(b) The Company shall be responsible for transmitting to the Trustee written
instructions for the investment and reinvestment of the principal and
income of the Trust in such shares and proportions as the Company, in its
discretion, and pursuant to the investment directions of the Plan
participants, shall deem advisable.
(c) The Company shall have the right and power at any time and from time to
time to direct the Trustee to (i) to enter into one or more contracts with
any one or more legal reserve life insurance companies, (ii) to transfer to
such insurance company such portion of the Trust Fund in accordance with
the terms of any such contract, and (iii) to hold any such contract as part
of the Trust until directed otherwise by the Company. The Company shall
have the right and power at any time and from time to time, in its sole
discretion, to direct the Trustee to (i) request any information from any
such insurance company necessary or appropriate to perform its duties under
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this Agreement, or (ii) amend, modify or terminate any such contract. The
Trustee shall not exercise any of the foregoing powers, rights or
privileges except at the direction of the Company. In all respects any
insurance company issuing any contract as described above shall deal with
the Trustee as the absolute owner of any such contract and shall not be
required to inquire as to the authority of the Trustee to act with regard
to such contract. Any such insurance company may accept and rely upon any
written notice, instruction, direction, certificate or other communication
from the Trustee which is signed by an officer of the Trustee.
(d) The Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by the Company. The Trustee may vote any
corporate stock belonging to the Trust and to give proxies or general or
limited powers of attorney for the purpose of such voting to other persons,
with or without power of substitution; provided that the Trustee shall vote
stock of the Company only as directed by the Company.
(e) The Company shall have the right at any time, and from time to time, in its
sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Company in a
nonfiduciary capacity without the approval or consent of any person acting
in a fiduciary capacity.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Agreement, all income received by the Trust, net of
expenses and taxes, shall be accumulated and re-invested unless otherwise
directed by the Company.
SECTION 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 30 days following the close of each calendar
year and within 30 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it
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including a description of all securities and investments purchased and sold
with the cost of net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash securities and other
property held in the Trust at the end of such year or as of the date of such
removal or resignation, as the case may be.
SECTION 8. POWERS AND RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee shall have no authority, control or responsibility with respect
to the Plan or Trust other than as specifically set forth in this
Agreement.
(b) The Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
the Trustee shall incur no liability to any person for any action taken
pursuant to a direction, request or approval given by the Company which is
contemplated by, and in conformity with, the terms of the Plan or this
Agreement and is given in writing by the Company. In the event of a dispute
between the Company and a third party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(c) The Trustee may consult with legal counsel (who may also be counsel for the
Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any
of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on Trustees
by applicable law, unless expressly provided otherwise herein, provided,
however, that if any insurance policy is held as an asset of the Trust, the
Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
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(f) However, notwithstanding the provisions of Section 8(e) above, the Trustee
may loan to the Company the proceeds of any borrowing against an insurance
policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to the Trustee pursuant to this Trust
Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the
Internal Revenue Code.
SECTION 9. TAXES, EXPENSES AND COMPENSATION.
(a) The Company shall from time to time pay taxes of any and all kinds
whatsoever which at any time are lawfully levied or assessed upon or become
payable in respect of the Trust, the income or any property forming a part
thereof, or any security transaction pertaining thereto. To the extent that
any taxes lawfully levied or assessed upon the Trust are not paid by the
Company, the Trustee shall pay such taxes out of the Trust. The Trustee may
contest the validity of taxes, at the direction of, and in any manner
deemed appropriate by, the Company or its counsel, but only at Company
expense and only if it has received an indemnity bond or other security
satisfactory to it to pay such expenses. Alternatively, the Company itself
may contest the validity of any such taxes.
(b) The Company shall pay the Trustee such reasonable compensation for its
services as may be agreed upon in writing from time to time by the Company
and the Trustee. The Company shall also pay the reasonable expenses
incurred by the Trustee in the performance of its duties under this
Agreement, including brokerage commissions and fees of counsel engaged by
the Trustee pursuant to section (a) above. Such compensation and expenses
shall be charged against and paid from the Trust to the extent the Company
does not pay such compensation.
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<PAGE>
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) The Trustee may resign at any time by written notice to the Company, which
shall be effective 60 days following receipt of such notice unless the
Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 60 days notice or upon shorter
notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 90 days after receipt of
notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 10 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All
expenses of the trustee in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with Section 9(a) or
9(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the
new Trustee, which shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets or shall make the
Trust revocable. The former Trustee shall execute any instrument necessary
or reasonably requested by the Company or the successor Trustee to evidence
the transfer.
(b) The successor Trustee need not examine the records and acts of any prior
Trustee and may retain or dispose of existing Trust assets subject to
Sections 6 and 7 hereof. The successor Trustee shall not be responsible
for, and the Company shall indemnify and defend the successor Trustee, from
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<PAGE>
any claim or liability resulting from any actions or inaction of any prior
Trustee or from any other past event, or any condition existing at the time
it becomes successor Trustee.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed by the
Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust
revocable.
(b) The Trust shall not terminate until the date on which Plan participants and
their beneficiaries are no longer entitled to benefits pursuant to the
terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Company.
(c) Upon written approval of participants or beneficiaries entitled to payment
of benefits pursuant to the terms of the Plan, the Company may terminate
this Trust prior to the time all benefit payments under the Plan have been
made. All assets in the Trust at termination shall be returned to the
Company.
SECTION 13. INDEMNIFICATION.
In consideration of the Trustee's agreeing to enter into this Agreement, the
Company hereby agrees to hold harmless Prudential Trust Company, individually
and as Trustee under said Agreement, and its directors, officers, employees,
from and against all amounts, including without limitation taxes, expenses,
liabilities, claims, damages, actions, suits or other charges, incurred by or
assessed against Prudential Trust Company, individually or as Trustee, or its
directors, officers, or employees, (i) as a direct or indirect result of
anything done in good faith, or alleged to have been done, by or on behalf of
the Prudential Trust Company in reliance upon the directions of the Company or
any person or committee authorized to act on behalf of the Company, or anything
omitted to be done in good faith, or alleged to have been omitted, in the
absence of such directions, (ii) as a direct or indirect result of the failure
of the Company or any person or committee to adequately, carefully or diligently
discharge its responsibilities under the Plan, this Agreement, or applicable
Department of Labor or Treasury regulations or rulings, or (iii) if the Trustee
is named as a defendant in any lawsuit or other proceeding involving the Plan or
the Fund for any reason including, without limitation, an alleged breach by the
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Trustee of its responsibilities under this Agreement, unless the final judgment
entered in the lawsuit or proceeding holds the Trustee guilty of gross
negligence, willful misconduct, or an intentional breach of fiduciary
responsibility under ERISA. If the final judgment holds the Trustee guilty of
gross negligence, willful misconduct, or an intentional breach of fiduciary
responsibility under ERISA, the Company hereby agrees to indemnify the Trustee
only against liability in excess of the Trustee's allocable share of such
liability. The Company further agrees that the undertaking made by it in this
Agreement shall be binding on its successors or assigns and shall survive
termination, amendment or restatement of this Agreement, or the resignation or
removal of the Trustee.
If the Trustee undertakes or defends any litigation arising in connection with
the Trust, the Company agrees to indemnify the Trustee against the Trustee's
costs, expenses and liabilities (including, without limitation, attorney's fees
and expenses) relating thereto, and to be primarily liable for such payments. If
the Company does not pay such costs, expenses and liabilities in a timely
manner, the Trustee may obtain payment from the Trust.
SECTION 14. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the day and year set forth on the first page hereof.
MICROAGE, INC.
By: _____________________________
Title:
Date: _____________________, 19____
ATTEST
By: _______________________
Title:
PRUDENTIAL TRUST COMPANY
By: _____________________________
Title:
Date: _____________________, 19____
ATTEST
By: _______________________
Title:
12
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE SERVICES AGREEMENT FOR AN INDIVIDUALLY DESIGNED
PLAN DOCUMENT
This AGREEMENT is made and entered into by and between MicroAge, Inc. (the
"Employer") on behalf of the MicroAge, Inc. Retirement Savings Plan (the
"Plan"), and The Prudential Insurance Company of America ("Prudential"), a New
Jersey mutual life insurance company.
The Employer represents and Prudential acknowledges that:
* The Plan is or will be in existence at the time funds are deposited
with Prudential.
* An individually designed or non-Prudential Regional Prototype Plan
document is, or will be by the effective date of this Agreement,
executed or adopted by the Employer.
* The Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and a related Trust
(the "Trust") exists which is intended to be qualified under Section
501(a) of the Code, and
* The Employer, as Plan Administrator, desires Prudential to perform
certain administrative services for the Plan and to provide certain
assistance to the Employer as more fully described in this Agreement,
and Prudential is willing to perform those services.
In consideration of the premises and mutual covenants contained in this
Agreement, the Employer and Prudential agree as follows:
1. SERVICES:
a) SERVICES TO BE RENDERED BY PRUDENTIAL - Prudential will perform the
following services:
i) PLAN RECORDKEEPING - Prudential will provide to the Plan the
recordkeeping services included in Exhibit A to this Agreement.
ii) PLAN DOCUMENTATION AND DISCLOSURE SERVICES - Prudential will
provide limited Plan services support to the Plan as described in
Exhibit B to this Agreement.
iii) PLAN TESTING - Prudential will provide Plan testing as included
in Exhibit C to this Agreement.
<PAGE>
iv) ADDITIONAL SERVICES - In addition to the foregoing services,
Prudential may provide such other services, and be paid such
amounts therefor, as may from time to time be agreed upon in
writing by the parties.
b) NATURE OF SERVICES -
i) RECORDKEEPING ONLY - The Employer understands and agrees that
Prudential's sole function under this Agreement is to act as
recordkeeper and to provide other services at the direction of
the Employer or its agents or designee in accordance with the
terms of this Agreement. Under the terms of this Agreement,
Prudential does not render investment advice, is not the Plan
Administrator, trustee or a Plan fiduciary, as that term is
defined under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and does not provide legal, tax or
accounting advice with respect to the creation, adoption or
operation of the Plan and the Trust. (Any services to be provided
by a Prudential affiliate as a directed Trustee or investment
manager are the subject of a separate agreement.) Prudential
acknowledges, however, that the Plan is intended to constitute a
participant directed individual account plan under Section 404(c)
of the Employee Retirement Income Security Act of 1974, as
amended, and shall take any reasonable steps necessary to comply
with that Section and the regulations promulgated thereunder.
ii) DISCONTINUANCE OF SERVICES INCONSISTENT WITH ROLE - If, based on
changes in the applicable regulatory structure or the
interpretation of the regulatory structure, there is a reasonable
likelihood that any service being, or to be, provided under this
Agreement by Prudential could constitute a discretionary function
and thereby subject Prudential to classification as a "fiduciary"
under ERISA with respect to the Plan, and such service could not
be restructured in a manner that would not subject Prudential to
classification as a "fiduciary" under ERISA, then Prudential,
upon reasonable notice to the Employer may decline to thereafter
provide that service. The failure to provide any such service
shall not constitute a breach of Prudential's obligations under
this Agreement.
iii) RELIANCE UPON PLAN DATA - All services provided by Prudential
hereunder shall be based on information supplied by the Employer
or any other designee or agent of the Employer (as designated by
the Employer). The Employer acknowledges that the timely
provision of accurate, consistent and complete Plan data in the
format specified by Prudential is essential to its delivery of
services, and the Employer is responsible for ensuring such
timely and accurate data is delivered to Prudential in
Prudential's approved format. For these purposes, "Plan Data"
means all data and records supplied to Prudential, obtained by
Prudential or produced by Prudential (based on data or records
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<PAGE>
supplied to, or obtained by, Prudential) in connection with
performing the services pursuant to this Agreement. Plan Data
includes current participant names, addresses and status.
c) RELIANCE UPON NAMED ADMINISTRATORS AND TRUSTEES - The Employer will
provide names and other information for persons authorized to take
actions for or provide information on behalf of the Plan and Trust.
Until notified of a change, Prudential may reasonably rely upon this
information and may act upon instructions received from and/or on
information provided by these named persons. Prudential has the right
to assume that those persons continue to be authorized unless notified
otherwise.
2. COMPENSATION: In consideration for its services provided hereunder, the
Employer shall pay Prudential in accordance with the Fee Schedule provided
in Exhibit D. Prudential may amend the schedule for services not yet
rendered upon giving notice in writing under the same conditions specified
in Section 7.b. The Employer shall pay all fees within thirty (30) days of
the Prudential invoice date. Any fees not paid when due may be deducted by
Prudential from the trust fund, without further notice to the Employer. The
Employer shall pay any and all costs that may be incurred by Prudential in
charging the trust fund for these fees. The Employer also agrees that it
shall empower the Trustee to pay compensation to Prudential for services
provided hereunder. The Employer acknowledges that the Plan document
provides for payment of the fees from the trust fund.
3. INVESTMENTS; GOOD ORDER:
a) INVESTMENTS-GENERALLY - Prudential will invest all assets of the Trust
only as directed in writing or via any authorized electronic or
telephonic transmission:
i) By Participants - to the extent the Plan provides for investment
direction by Participants.
ii) By the Employer - to the extent the Plan provides for investment
direction by the Employer.
b) UNCLEAR INVESTMENT INSTRUCTIONS; GOOD ORDER -
i) UNCLEAR INVESTMENT INSTRUCTIONS - Prudential will forward
contributions, loan repayments and similar transaction receipts
for investment into the Prudential Government Securities
Trust/Money Market Series or another conservative investment fund
designated in writing by the Employer (or an equivalent fund
should that one cease to exist), if Prudential determines that no
proper investment directions are in effect. Once proper
instructions are received, Prudential will forward the new
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<PAGE>
instructions so that contributions can be reinvested and related
earnings can be allocated accordingly.
ii) GOOD ORDER -
a) CONTRIBUTIONS, LOAN REPAYMENTS AND SIMILAR TRANSACTIONS -
Prudential will use its best efforts to process all
contributions, loan repayments and similar transactions
("Transactions") received in good order on the day good
order is achieved, PROVIDED, HOWEVER, that Prudential
reserves the right to process all such Transactions received
in good order at Prudential within thirty-six (36) hours of
receipt. Transactions are in "good order" when the
contribution or similar roster remitted by the Employer
agrees with the related funding, and when the social
security number and money type correspond to social security
numbers and money types of participants previously enrolled
on Prudential's recordkeeping system.
In the event Transaction data is NOT IN GOOD ORDER,
Prudential shall attempt to obtain clarification from the
Employer as to the proper Transaction amount and/or funding
allocations. The Employer acknowledges and directs that
Transaction amounts will be deposited in an interest or
non-interest bearing account (at Prudential's discretion)
until such time as the roster, Transaction amount, and
funding allocation are reconciled. In the event Prudential
is unable, in its sole judgment, to obtain such
clarification within thirty (30) days of receipt of
Transaction amounts, then Prudential shall return all such
Transaction amounts to the Employer pending further
instructions from the Employer. The Employer understands and
agrees that it shall not have any claim against Prudential
or any affiliate of Prudential in the event that Prudential
returns Transaction amounts pursuant to the provision of
this paragraph. The Employer further understands and agrees
that the Plan and the Employer will bear the investment risk
during this period.
b) DISTRIBUTIONS - Prudential will process all distribution
requests received in good order at Prudential within three
(3) business days of receipt of said distribution request by
Prudential. Distribution checks will be issued within seven
(7) days of receipt of good order. Distributions are in good
order when the distribution request contains all pertinent
information (including type and form of distribution, any
critical dates needed to process the distribution, properly
completed and executed tax forms and, it applicable, all
necessary rollover instructions) and appropriate signatures
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<PAGE>
(including spousal consent to the extent deemed necessary by
the Employer).
c) INVESTMENT EXCHANGES - Prudential will process all
investment exchanges on the same terms as Transactions
described in subparagraph a), above. Investment Exchanges
are in Good Order when the information provided in the
request for an investment exchange clearly shows the number
and types of interests to be acquired and disposed of and
reasonably indicates that the transfer is authorized by the
participant or the Employer.
d) NET TRADES - Employer acknowledges that trades required by
Transactions, distributions, and investment exchanges will
be executed by offsetting transactions ordered in and out of
each investment and purchasing or selling only the net
shares required to balance transactions in an out. Employer
also acknowledges the share prices allocated to individual
participants will be the price paid or received for shares
actually traded by Prudential for the day the transactions
are processed.
c) THE EMPLOYER ACKNOWLEDGES THAT IT -
i) Received a prospectus for each of the Prudential mutual funds and
any other mutual funds offered by Prudential in which Plan
participants may invest.
ii) Reviewed such prospectus(es) and is familiar with the fees and
expenses described therein, and that such fees and expenses are
reasonable.
d) FEES TO PRUDENTIAL AFFILIATES - The Employer acknowledges that
Prudential may be deemed to benefit from:
i) Advisory and other fees paid to its affiliates for managing,
selling, or settling of the Prudential mutual funds and other
investment products or securities offered by Prudential or its
affiliates selected as investment options available under that
Plan; and
The Employer also acknowledges that Prudential benefits directly from:
ii) Transfer agent fees paid to it by the Prudential mutual funds and
other investment products offered by Prudential or its
affiliates;
iii) Additional compensation in the form of gains resulting from the
correction of transaction processing errors and delays. (In
exchange, Prudential also generally absorbs losses resulting from
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<PAGE>
its errors. Any gains are available to cover these losses or
losses of other similarly situated customers.)
4. USE OF AGENTS OR SUBCONTRACTORS: Prudential may perform any of the services
described in this Agreement through agents and subcontractors selected by
Prudential. Prudential shall reasonably supervise any such agent or
subcontractor and the retention of agents or subcontractors shall not
relieve Prudential of its duties hereunder.
5. PRUDENTIAL NOT LEGAL COUNSEL: The Employer understands and agrees that it
shall review with its legal and/or tax counsel all documents provided to it
by Prudential and that the Employer should consult such counsel on any
questions concerning the Employer's responsibilities under this Agreement,
the Plan's documents, and the legal sufficiency of any documents so
provided. The Employer understands that neither Prudential nor any of its
affiliates are permitted to provide the Employer with legal or tax advice
or otherwise engage in the practice of law. The Employer acknowledges that
it will not rely on any information provided as if were legal or tax
advice.
6. INDEMNIFICATION:
a) INDEMNIFICATION OF PRUDENTIAL - The Employer shall hold harmless and
indemnify Prudential and its employees, agents, and subcontractors
("Indemnitees") from and against any loss, damage, liability, claims,
costs and expenses, including reasonable attorneys' fees
("Liabilities"), to which the Indemnitees may become subject, which
result from:
i) Any misrepresentation or nonfulfillment of any terms of this
Agreement by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary (including, but not limited to, Liabilities
resulting from the provision of inaccurate, untimely, or
incomplete information to Prudential or the failure to provide
Prudential with clear instructions as to matters relating to
contributions, investment selections, or distributions),
ii) Any failure by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary to comply with the terms of the Plan,
iii) A violation by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary of the requirements of applicable Federal
and/or state laws,
iv) The making by Prudential of any benefit payment based upon
instructions that Prudential reasonably believes to be
authorized, and
v) Any action, conduct or activity, including the failure to take
action or to perform any activity taken by Prudential at the
direction of the Employer, Plan Administrator or Trustee,
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provided that Prudential reasonably believes the direction to be
valid and is not negligent in the execution of such directions.
b) INDEMNIFICATION OF THE EMPLOYER - Prudential shall hold harmless and
indemnify the Employer and its employees from and against any loss,
damage, liability, claims, costs and expenses, including reasonable
attorneys fees, to which the Employer may become subject, which result
from:
i) Any misrepresentation or nonfulfillment of any material terms of
this Agreement by Prudential, and
ii) Prudential's willful misconduct, lack of good faith or want of
reasonable and ordinary care in the performance of its
obligations under this Agreement.
iii) Prudential's provision of investment advice to any Plan
participant;
iv) Prudential's violation of the requirements of applicable Federal
and/or state laws, except when resulting from the failure to take
action or any action taken at the direction of the Employer, the
Employer's agent or designee, or Trustee, provided that
Prudential reasonably believes the direction to be valid and is
not negligent in the execution of such directions.
7. DURATION; TERMINATION; SUCCESSOR RECORDKEEPER:
a) DURATION - This Agreement will continue in effect until terminated.
b) TERMINATION - Each party may terminate this Agreement upon sixty (60)
days prior written notice to the other. Such notice shall be deemed to
have been given three (3) days after mailing in the U.S. mail or
immediately upon receipt if delivered to the address set forth below.
The notice period may be waived by the party entitled to the notice.
c) SUCCESSOR RECORDKEEPER - Upon termination, the parties agree that
Prudential shall have no further duty or responsibility to the Plan
under this Agreement. However, Prudential will use reasonable efforts
to transfer all relevant non-Prudential proprietary information
concerning the Plan, in Prudential's standard format, to the Employer
or to a successor recordkeeper. Any unforeseeable costs or expenses
incurred by Prudential in effecting this transfer shall be paid by the
Employer unless waived in writing by Prudential. The Employer agrees
that Prudential may charge reasonable fees for the provision of
requested records or reports that Prudential previously provided.
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d) SURVIVAL OF INDEMNIFICATION AND INVESTMENTS - The Employer
acknowledges and agrees that the indemnification provisions of
paragraph 6 shall survive the termination of this Agreement. The
Employer understands and acknowledges that the termination of this
Agreement shall not require the sale by the Trust of shares of
Prudential mutual funds held by the Trust (unless specifically
requested by Prudential in writing).
8. NOTICES: Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, telegraphed, sent by
facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shalt be deemed given when so delivered
personally, telegraphed or, if sent by facsimile transmission, upon the
recipient's oral verification by telephone of receipt or, if mailed, three
(3) days after the date of deposit in the U.S. mail, as follows:
If to Prudential: (By U.S. mail) (By other than U.S. mail)
Prudential Investments Prudential Investments
Attn.: Retirement Services Attn.: Retirement Services
30 Scranton Office Park 30 Scranton Office Park
Scranton, PA 18507-1789 Scranton, PA 18507-1789
If to the Employer:
--------------------------------------
--------------------------------------
--------------------------------------
9. ENTIRE AGREEMENT; AMENDMENT: This Agreement, including the Exhibits hereto,
which are specifically incorporated herein, contains the entire Agreement
among the parties hereto with respect to the subject mailer hereof, and
there are no other Agreements written or oral, relating to the subject
matter hereof other than those explicitly set forth herein or attached
hereto. This Agreement may be amended at anytime, but only when agreed to
in writing by the parties.
10. CONSTRUCTION: This Agreement is the result of negotiation by both parties,
and, therefore, no claim shall be made to construe any portion of the
Agreement against either party on the basis of such party's participation
in the negotiating thereof.
11. BINDING EFFECT; NO ASSIGNMENT: This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors,
assigns and legal representatives.
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Neither this Agreement, nor any right hereunder, may be assigned by any
party without the written consent of the other parties hereto.
Notwithstanding the foregoing, this Agreement may be assigned by Prudential
to a successor entity without the prior written consent of the Employer.
12. COUNTERPARTS: This Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the
parties hereto.
13. HEADINGS: The headings in this Agreement are for reference only, and shall
not affect the interpretation of this Agreement.
14. SEVERABILITY: If any word, phrase, sentence, paragraph, provision or
section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect
any other word, phrase, sentence, paragraph, provision or section of this
Agreement, which shall otherwise remain in full force and effect and be
enforced in accordance with its terms.
15. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of New Jersey, except the choice of law rules,
applicable to agreements made and to be performed entirely within such
State.
16. THIRD PARTY BENEFICIARIES: The provisions of this Agreement are solely for
the benefit of the parties hereto and their Affiliates and are not intended
to confer upon any person except the parties hereto any rights or remedies
herein.
17. UNFORESEEN CIRCUMSTANCES: Prudential shall not be liable for any default or
delay in the performance of its services under this Agreement if and to the
extent such default or delay is primarily caused, directly or indirectly,
by
a) fire, flood, elements of nature or other acts of God;
b) any outbreak or escalation of hostilities, war, riots or civil
disorders in any country;
c) any act or omission of the other party or any governmental authority;
or
d) nonperformance of a third party or any similar cause beyond the
reasonable control of Prudential, including without limitation,
failures or fluctuations in telecommunications or other equipment.
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In any such event, Prudential shall be excused from any further performance
and observance of the obligations so affected only for as long as such
circumstances prevail and Prudential continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
18. WRITING AND SIGNATURE; ELECTRONIC TRANSACTIONS: Unless otherwise explicitly
required by law,
a) Any requirement for a writing under this Agreement may be rendered in
any form that can reliably reproduce an accurate physical record of
the communication and authenticate the source, including but not
limited to facsimile transmission, electronic mail, indexed telephone
recording, or Internet transmission.
b) Any requirement of a signature under this Agreement may be rendered in
any form clearly indicated by the signatory to be a signature or which
complies with instructions directly given to the signatory as to the
proper form of indicating a signature in an electronic or voice
response environment. Appropriate forms include, but are not limited
to, personal identification numbers rendered over the internet,
facsimile transmissions, and unique telephone keypad combinations
pressed during recorded calls.
c) Notwithstanding a) or b), above, the recipient of any writing or
signature under this Agreement may require the confirmation of any
writing or signature in physical form (such as hand or typewritten or
the equivalent) with a manual signature.
d) The Employer represents that the Plan document(s) will allow for
transactions to be made by electronic means before the Employer
permits Prudential to offer such transactions. The Plan document(s)
and this Agreement together shall be deemed a master contracting
agreement ("Master Contract"). Under this Master Contract, notices,
consents and other actions by or on behalf of, or with respect to, the
Plan, its participants and their respective beneficiaries ("Plan
Transactions") may be effected, in whole or in part, by electronic
means. Any Plan Transaction relating to services provided under this
Agreement may be initiated or effected by the Employer, the Plan, a
participant or a beneficiary by use of Prudential-authorized
electronic means, including a voice response system (generally
referred to as Interactive Voice Response, or IVR), Internet access
system (including the Prudential Web site) or telephone service line.
Use of electronic means for Plan transactions is subject to the terms
and conditions established by Prudential and disclosed to the Employer
and participants, and electronic transactions shall be binding on the
parties if Prudential, acting in good faith, believes that such
transactions are authorized by the Employer, a participant, or
beneficiary, as applicable.
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IN WITNESS THEREOF, the Employer has caused this Agreement to be executed by its
duly authorized representative.
Date Signed:
Date Agreement Effective: August 1, 1999
Employer Authorized By: Prudential Authorized By:
- ----------------------------------- -----------------------------------
Name
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
- ----------------------------------- -----------------------------------
Title Title
-----------------------------------
Date
This Agreement is not effective until properly countersigned by an authorized
representative of Prudential.
11
TRUST AGREEMENT, hereinafter referred to as the "Agreement," made as of
August 1, 1999, by and between MicroAge, Inc., an Arizona corporation
(hereinafter referred to as the "Company"), and PRUDENTIAL TRUST COMPANY, a
Pennsylvania corporation (hereinafter referred to as the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has determined to adopt or has adopted the MicroAge,
Inc. Retirement Savings Plan (hereinafter referred to as the "Plan"), for the
benefit of the participants and their beneficiaries as therein defined, under
which the participants direct the investment of their account balances pursuant
to ERISA Section 404(c); and
WHEREAS, said Plan provides that contributions thereto may be held, IN
TRUST, by a trustee subject to the provisions of an agreement to be entered into
between the Company and the Trustee; and
WHEREAS, the Company desires the Trustee to act, and the Trustee is willing
to act, as Trustee of the Plan (hereinafter referred to as the "Trust") upon all
of the conditions hereinafter set forth.
NOW, THEREFORE, the Company and the Trustee agree as follows:
SECTION 1. THE FUND. The Company hereby establishes with the Trustee a
Trust, which shall consist of and be limited to such cash and other property
acceptable to the Trustee as shall from time to time be received by the Trustee,
together with the earnings and profits thereon provided, however, that the
Trustee shall not accept: interests in real estate; limited partnership
interests; or securities of the Company (or any of its affiliates) unless such
securities are "qualifying employer securities" (as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). All such property
received by the Trustee, the investments made therewith and proceeds thereof,
and all earnings and profits thereof, less any payments or distributions which
shall have been made by the Trustee pursuant to the terms of this Agreement, are
referred to herein as the "Fund." The Fund shall be held and administered by the
Trustee, IN TRUST, in accordance with the provisions of this Agreement. The Fund
is intended to be a tax-exempt organization within the meaning of the Code
section 501(a). The Plan and Fund together are intended to qualify under section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Any doubt
in the construction or interpretation of this Agreement shall be resolved in
favor of a construction or interpretation preserving such tax-exempt status and
qualification. If the Plan or the Fund cease to qualify under the aforementioned
Code sections by reason of some act or omission by the Company, the Company
agrees to indemnify and hold harmless the Trustee against and from all
liabilities, claims, demands, damages, costs, and expenses, including reasonable
attorneys' fees, the Trustee may incur as a result of such disqualification.
SECTION 2. ANTI-DIVERSION PROVISIONS. Except as may otherwise be permitted
by law, at no time prior to the satisfaction of all liabilities under the Plan
with respect to participants and their beneficiaries shall any part of the
corpus or income of the Fund be used for or diverted to purposes other than for
the exclusive benefit of such participants and their beneficiaries and for
defraying the reasonable expenses of administering the Plan. Except as provided
in the Plan, no part of the fund may revert to the Company. To the extent the
Plan permits a reversion or the return of Company contributions, the Company may
direct the Trustee to make an appropriate payment from the Fund, and the Trustee
shall make such payment as soon as practicable after receipt of such direction.
The Company's direction regarding a return of contributions shall specify (i)
the reason the Company's contribution is being returned, which shall be
consistent with the applicable requirements of the Code and ERISA, (ii) the
amount of the contribution to be returned (less any Fund losses attributable
thereto), and (iii) the date by which the payment of the Company must be made.
The Trustee shall be entitled to rely on the Company's direction given pursuant
to this section 2, and shall have no duty to inquire into the validity thereof.
The Company agrees to indemnify and hold harmless the Trustee against and from
all liabilities, claims, demands, damages, costs and expenses, including
reasonable attorneys' fees, arising from the Trustee's compliance with any such
direction.
<PAGE>
SECTION 3. DUTIES OF THE TRUSTEE. The Trustee shall have no authority,
control or responsibility with respect to the Plan or Fund other than as
specifically set forth in this Agreement or the Plan. The Trustee, through its
agents or directly, shall have the following duties:
(a) to hold, invest and reinvest the assets of the Fund solely in
accordance with the investment directions transmitted in accordance with Section
5, provided, however, the Trustee may, in its discretion, delegate its custodial
responsibility to a corporate trustee or insurance company.
(b) to pay moneys to or at the direction of the Company, including, when
the Company shall so direct, payments to the participants and their
beneficiaries, or to an insurance company to provide, by the purchase of an
annuity contract or otherwise, for the payment of benefits under the Plan;
provided, however, that the Trustee shall not be responsible in any way for the
application of such payments; and
(c) subject to Section 5, to transfer assets of the Fund at the direction
of the Company to any other trustee or to an insurance company selected to fund
a Plan or, at the direction of the Company, to segregate such assets to be
subject to the exclusive management and control of an investment manager (as
such term is defined in Section 3(38) of ERISA) appointed by the Company. Any
such investment manager shall direct the Trustee in place of the Company as
provided hereunder with respect to the segregated assets.
The Trustee shall be entitled to rely conclusively on any directions
transmitted in accordance with this Section 3 or pursuant to Section 5 and shall
be under no duty to inquire as to the propriety or correctness of any such
direction. In the performance of the foregoing duties, the Trustee shall be
entitled to all of the powers, privileges, limitations and immunities conferred
on it under the following provisions of this Agreement and by law, and no duties
or obligations shall be imposed upon the Trustee with respect to the Fund unless
they have been specifically undertaken by the Trustee by the express terms of
this Agreement. When determining the nature and extent of its responsibilities,
the Trustee is not required to obtain or review the Plan. In the event of any
conflict between the Plan and this Agreement relating to (i) the Trustee's
rights, powers, responsibilities, or liabilities, or (ii) the allocation of
responsibilities among the Plan Fiduciaries, the provisions of this Agreement
shall control. The Trustee shall not be liable for the validity or legality of
any changes made to the Plan by the Company.
SECTION 4. LIMITATION OF DUTIES REGARDING PLAN ADMINISTRATION. In further
illustration of the general limitation of the Trustee's duties contained in
Section 3, but not in limitation thereof, the Trustee shall not be responsible
for:
(a) the determination, computation or application of any Plan benefit,
(b) the form, terms or issuer of any contract issued by an insurance
company which it acquires for the Fund pursuant to paragraph (b) or paragraph
(c) of Section 3,
(c) the performance of any functions as contract-holder under any contract
issued by an insurance company which it may be directed to purchase and hold
(other than the execution of any documents incidental thereto on the
instructions of the Company),
(d) the terms of any other trust agreement which it is directed to enter
into, on the order of the Company, or the selection of any additional,
substitute or successor trustee thereunder,
(e) the payment, or the enforcement of the payment, of any contribution to
the Plan, or
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(f) the formulation or adequacy of the funding policy adopted by the
Company to meet and discharge pension or other liabilities under the Plan, or
(g) any other matter affecting the administration of the Plan by the
Company or any other person or persons to whom responsibility for Plan
administration is allocated or delegated pursuant to the terms of the Plan.
SECTION 5. INVESTMENT OF THE FUND BY THE TRUSTEE. The Trustee shall have no
authority with respect to the investment and reinvestment of the Fund except
upon receipt of investment directions from the Company, or otherwise pursuant to
the provisions of this Section or Sections 8 and 9.
The Company shall be responsible for transmitting to the Trustee written
instructions for the investment and reinvestment of the principal and income of
the Fund in such shares and proportions as the Company, in its discretion and
pursuant to the investment directions of the Plan participants, shall deem
advisable. The Company shall also be responsible for determining the
diversification policy with respect to the investment of Plan assets, for
monitoring adherence to such policy, and for advising the Trustee with respect
to its compliance with any investment limitations on employer or other
securities or property contained in the Plan or imposed on the Plan by
applicable statute.
To the extent the purchase, sale, exchange, conveyance, transfer or
disposition of any Fund asset results in proceeds which cannot be reinvested as
directed prior to the close of business on the day of the transaction, the
Company hereby directs Trustee to invest such "overnight" funds pursuant to its
regularly established practices for the investment of overnight funds. In
addition, if the Trustee holds Fund assets for which it has not received
investment directions from the Company, the Company hereby directs Trustee to
invest such assets in a money market fund managed by Prudential or an affiliate.
The Trustee shall not comply with a Company direction to invest Fund assets
in securities of the Company (or any of its affiliates) unless such direction
includes instructions relating to the amount of cash the Trustee must maintain
to satisfy any liquidity needs occasioned by the provisions of the plan
respecting employer securities. Notwithstanding the preceding sentence, the
Trustee shall not invest in securities of the Company (or any of its affiliates)
unless such securities are "qualifying employer securities" (as defined in
ERISA), nor shall the Trustee invest in any: interest in real estate; or limited
partnership interest. The Trustee will not invest in or hold life insurance
unless further administrative and cost arrangements, satisfactory to it, are
negotiated with the Company.
SECTION 6. COLLECTIVE TRUSTS. The Trustee may, at the direction of the
Company, transfer from time to time, any part or all of the assets of the Fund
to one or more common, collective or commingled funds (hereinafter referred to
as the "Collective Trust") maintained by any corporate trustee including
Prudential Trust Company for the collective investment of eligible employee
benefit trusts. To the extent of the equitable share of the Fund in the
Collective Trust, the Collective Trust shall be part of the Plan pursuant to
which this Trust is administered.
SECTION 7. POWERS OF THE TRUSTEE. In exercise of any powers conferred
herein or applicable by law, the Trustee is authorized and empowered as directed
by the Company:
(a) to purchase, sell, exchange, convey, transfer or dispose of any
securities or other property at any time held by it, in a public or private
transaction and for cash or upon credit, or partly for cash and partly upon
credit, and no person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the Trustee's authority to
engage in any such transaction;
(b) to purchase, sell, write or issue puts, calls or other options, to
enter into futures contracts, forward placement contracts and standby contracts,
and in connection therewith, to hold, pledge or deposit property required as
collateral with any authorized agent or depository (including Prudential Trust
Company);
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(c) to hold uninvested cash waiting investment and to maintain such
additional cash balances as to meet anticipated distributions from or
administrative costs of the Plan or the Fund, without incurring any liability
for the payment of interest on such cash;
(d) to vote in person or by proxy any securities held by it; to exercise
conversion rights or rights to subscribe for additional securities, and to make
any and all necessary payments therefor; to join in or to oppose the
reorganization, recapitalization, consolidation, liquidation, sale or merger of
corporations or properties in which it may be interested as Trustee;
(e) To enter into repurchase agreements;
(f) To purchase units or certificates issued by an investment company or
pooled trust or comparable entity;
(g) to hold one or more annuity contracts or other contracts in such form
or forms, whether or not they are group contracts of such life insurance company
or companies, as the Company shall specify, (hereinafter referred to as the
"Contract" or the "Contracts"); and to take directions, evidenced by written
instrument satisfactory to the Trustee, from the Company relating to any one or
more of the functions normally required of the contract holder under the
Contract or Contracts;
(h) to cause any securities from time to time held by it (including Company
securities) to be registered in or transferred into its name as Trustee or the
name of its nominee or nominees, or to retain them unregistered or in a form
permitting transferability by delivery, and to deposit or arrange for the
deposit of the certificates representing such securities with a Federal Reserve
Bank or with a central certificate depository located within or without the
Commonwealth of Pennsylvania in a manner permitting transfer of ownership or
other interests in such securities by bookkeeping entry on the books and records
of such Bank or depository, but the books and the records of the Trustee shall
at all times show that all such investments are part of the Fund; and to
delegate to another party the right to execute buy and sell orders and trades of
any Company securities which comprise a part of the Fund, provided that such
orders and trades are directed by the Plan and executed in accordance with a
written instrument which sets forth the rules governing such orders and trades;
(i) to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
(j) to employ suitable agents, depositories and counsel, domestic or
foreign, to delegate to them powers vested in the Trustee hereunder which the
Trustee deems necessary to carry out their duties, and to charge their
reasonable expenses and compensation against the Fund;
(k) to compromise, compound and settle any claim, debt or obligation due to
or from it, as Trustee hereunder, and to reduce the rate of interest on, extend
or otherwise modify, or to foreclose upon, default or otherwise enforce or
abandon, any such obligation;
(l) as directed pursuant to section 3 to make any distribution or transfer
of Fund assets in cash or in kind;
(m) to invest and reinvest the assets of the Fund in common with the assets
of qualified employee benefit plans of the Company or its affiliates held, in
trust, as separate trusts by the Trustee, provided, however, that the Trustee's
records shall at all times show the equitable share of the Fund in such Company
common fund;
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(n) to acquire and hold assets that are not publicly traded on a national
exchange or over-the-counter with sufficient volume to permit valuation by
reference to commonly published sources provided the Company obtains and
transmits to the Trustee an independent appraisal of the assets, in form and
substance acceptable to the Trustee in its sole discretion, from a nationally
recognized firm experienced in providing such appraisal report, and such report
is periodically updated in a timely fashion to permit the Trustee to carry out
its valuation and accounting responsibilities hereunder;
(o) to invest and reinvest the assets of the Fund in common with the assets
of qualified employee benefits plans of the Company or its affiliates held, in
trust, as separate trusts by the Trustee, provided, however, that the Trustee's
records shall at all times show the equitable share of the Fund in such Company
common Fund.
Any Contract held by the Trustee pursuant to subparagraph (g) of this
section 7 may provide for the allocation of amounts received by the insurance
company thereunder solely to said insurance company's general account or solely
to one or more of its separate accounts (including separate accounts maintained
for the collective investment of assets of qualified retirement plans) or to the
insurance company's general account and one or more of such separate accounts,
provided that if any Contract shall provide for the allocation of amounts to one
or more of such separate accounts, the Company may appoint the insurance company
an investment manager to the extent that amounts held by the insurance company
under the Contract shall be deemed Plan assets under ERISA and the rules and
regulations thereunder. The insurance company, under any Contract, shall have
exclusive responsibility for the investment and management of any amounts held
under such Contract subject to the right of the Company to specify how amounts
under the Contract are to be allocated among the accounts provided for in the
Contract, provided that the insurance company may be given responsibility for
determining the allocation of amounts among the various such separate accounts
provided for in the Contract. The insurance company shall have all of the powers
with the respect to the assets of the Plan held under a Contract as the Trustee
has pursuant to Paragraphs (a) through (f) and (h) through (l) of this Section
with respect to assets of the Fund held hereunder. Notwithstanding the
foregoing, none of the assets held by an insurer under any Contract, whether or
not they shall be deemed assets of the Plan under ERISA, shall be part of the
Fund. The Trustee shall exercise the powers which it has as contract-holder
under any Contract only when and in the manner directed by the Company.
SECTION 8. LOANS. If the plan permits loans to the plan participants, the
Trustee delegates to its affiliate, Prudential Investments Retirement Services,
responsibility for holding and safeguarding the documents evidencing such
participant loans. The Trustee will deem any direction to disburse Fund assets
for a participant loan as a direction to transfer an equivalent amount of assets
to a suspense account maintained by its affiliate, Prudential Investments
Retirement Services, for disbursement as a loan thereunder.
SECTION 9. DISBURSEMENTS. Pursuant to directions from the Company, the
Trustee will keep a portion of the Fund in cash or cash balances as required for
the proper administration of Plan disbursements, which amounts may be held in a
separate suspense account maintained by its affiliate, Prudential Investments
Retirement Services. The expense of operating and maintaining such suspense
account will be charged against earnings, if any, of such suspense account but
will not otherwise be charged back to the Fund to the extent expenses exceed
earnings. The Company and Trustee hereby acknowledge that such earnings are
never expected to exceed the expenses allocable to the suspense account.
SECTION 10. COMPENSATION AND EXPENSES. The expenses incurred by the Trustee
in connection with the administration or investment of the Fund, including fees
for legal services rendered to the Trustee in connection with any matter arising
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out of or in connection with the performance of the Trustee's duties hereunder,
the expense of a judicial accounting, such compensation to the Trustee as may be
agreed upon from time to time between the Trustee and an officer of the Company,
and all other proper charges and disbursements shall be paid by the Company,
unless the Company and Trustee arrange for such compensation and expenses to be
a charge against participants accounts. Anything in the preceding sentence to
the contrary notwithstanding, the Company shall reimburse the Trustee for any
such expenses if, for any reason, such expenses are not paid out of the Fund.
SECTION 11. EXPENSES OF THE PLAN. The Company may direct the Trustee to pay
out of the Fund other proper administrative expenses of the Plan, including
auditors, actuaries, and consultants hired or retained by the Company.
SECTION 12. TAXES. All Taxes of any and all kinds whatsoever that may be
levied or assessed under existing or future laws upon or in respect to the Fund
or the income thereof shall be paid from the Fund.
SECTION 13. RELIANCE ON EXPERTS. The Trustee may consult with experts,
including appraisers, legal counsel and professional accountants, selected with
due care, with respect to the meaning and construction of this Agreement or any
provision hereof, or concerning its powers and duties hereunder, and shall be
protected for any action taken or omitted by it in good faith pursuant to the
opinion of any such expert.
SECTION 14. RECORDS. The Trustee, or its agent, shall keep separate,
accurate and detailed accounting records of all investments, receipts,
disbursements, distributions and other transactions of the Fund, which records
shall be open to inspection and audit at the office of the Trustee by the
Company and any other person designated by either at all reasonable times during
normal business hours.
SECTION 15. ANNUAL REPORTS. The Trustee or its agent, shall prepare an
annual report which shall include: a list of all investments comprising the Fund
at the end of the accounting period covered by the report (which shall be from
the date of the last report through the end of the fiscal year of the Fund or
the date of the removal or resignation of the Trustee, if earlier) showing the
valuation placed on each investment by the Trustee as of the end of such period;
a summary statement of investment changes since the last preceding report; all
payments and distributions from the fund; and appropriate comments as to any
investment in default as to principal or interest. Anything herein to the
contrary notwithstanding, any valuations of any interest in a Collective Trust
or in any policy or Contract issued by Prudential shall be made in accordance
with the terms of and on the basis of the latest report of the Trustee of the
Collective Trust or the insurance company, as the case may be.
SECTION 16. FURNISHING ANNUAL REPORTS TO INTERESTED PERSONS. Copies of the
annual reports shall be sent to Company within 90 days following the close of
the fiscal year of the Fund.
SECTION 17. REPORT EXPENSES. The compensation and expenses of accountants
and auditors, other than auditors who are regular employees of Prudential Trust
Company or its affiliates, shall be payable out of the Fund, in such reasonable
amounts as the Trustee, in its discretion, deems appropriate.
SECTION 18. ACCOUNT STATED. Unless the Company files with the Trustee a
written statement of specific objections to the annual report showing gross
negligence, willful misconduct or lack of good faith, the annual report shall
become an account stated within 90 days from the date of the mailing of such
report and the Trustee shall be forever released and discharged of and from any
and all liability and accountability to any person interested in the Fund on
account of transactions shown in such report.
SECTION 19. JUDICIAL ACCOUNTINGS. In all events and at the expense of the
Fund, the Trustee shall be entitled to a judicial settlement of its accounts by
any court of competent jurisdiction.
6
<PAGE>
SECTION 20. NECESSARY PARTIES. In order to save the Fund from unnecessary
expense, the only persons who shall be necessary parties in any action or
proceeding under Section 19 or in any action or proceeding to enforce the
Agreement shall be the Trustee and the Company.
SECTION 21. SPECIAL AUDITS. Any special audits or reports required to be
undertaken by the Trustee on account of the Fund, in addition to the annual
report furnished pursuant to the foregoing provisions of this Agreement and
other reports or statements regularly furnished by the Trustee to employee
benefit trusts administered by it, shall be charged to and paid by the Fund.
SECTION 22. RESIGNATION AND REMOVAL OF TRUSTEE. The Trustee may be removed
by the Company at any time upon 60 days' notice in writing to the Trustee. The
Trustee may resign at any time upon 60 days' notice in writing to the Company.
Upon the removal or resignation of the Trustee, the Company shall appoint a
successor trustee who shall have the same powers and duties as those conferred
upon the Trustee hereunder and, upon acceptance of such appointment by the
successor trustee, the Trustee shall assign, transfer and pay over the Funds, as
then constituted, to such successor trustee. The Trustee is authorized, however,
to reserve such sum of money, as to it may seem advisable, for payment of its
fees and expenses in connection with the settlement of its account or otherwise,
and any balance of such reserve remaining after the payment of such fees and
expenses shall be paid over as hereinabove provided. The Trustee may, in its
discretion, invest and reinvest such reserves in any investment or investment
vehicle (including the Collective Trust) appropriate for the temporary
investment of cash reserves of trusts. If for any reason the Company cannot or
does not act in the event of the resignation or removal of the Trustee, the
Trustee may apply to a court of competent jurisdiction for the appointment of a
successor trustee or for instructions. Any expenses incurred by the Trustee in
connection therewith shall be paid from the Fund as an expense of
administration.
SECTION 23. EVIDENCE OF COMPANY'S ACTIONS. Any action or direction by the
Company pursuant to any of the provisions of this Agreement shall be in writing
or via electronic or magnetic media submitted to the Trustee, or its agent; in
form satisfactory to the Trustee or its agent. When such actions or directions
are issued in a form that is not customarily used by the Trustee and its
affiliates, such actions and directions shall be properly certified by an
officer of the Company and the Trustee shall be fully protected and indemnified
in acting in accordance therewith.
SECTION 24. ADOPTION OF AGREEMENT BY AFFILIATES. With the consent of the
Trustee, the Company may adopt the Trust as a trust under any other plan which
it maintains for the benefit of its employees, or the employees of any
subsidiary or affiliated corporation, provided such plan is a "qualified plan"
within the meaning of Section 401 of the Code. The Company is solely responsible
for ensuring the qualified status of the Plan and any such additional plans and
that the tax-exempt status of the Fund is not thereby adversely affected. In
addition, any such subsidiary or affiliated corporation, with the consent of the
Company and the Trustee, may adopt the Trust as a trust under a qualified plan
maintained by it by delivering to the Trustee a certified copy of a resolution
of its Board of Directors to the effect that such corporation agrees to be bound
by all the terms and conditions of this Agreement, as then in effect or
thereafter amended, and constitutes the Company as its agent to exercise on its
behalf all of the powers and authorities conferred on the Company under this
Agreement, including, but not limited to, the power to terminate and amend this
Agreement as hereinafter provided. The Company is solely responsible for
supervising the process by which such affiliated employer participates in the
Plan for ensuring the qualified status of the Plan and the tax-exempt status of
the Fund is not thereby adversely affected. Nothing in this Section 24 is
intended to cause a merger of the assets or liabilities of any plans. In the
event that this Trust is adopted as a funding medium by any other plan
maintained by the Company or a subsidiary or affiliated corporation, the Company
shall maintain, or provide the Trustee with all information necessary to
maintain, separate equitable shares evidencing the proportionate interest of
each separate plan in the Fund.
7
<PAGE>
SECTION 25. WITHDRAWAL OF AFFILIATES OR PLANS. Any corporation (other than
the Company) shall cease to be a party to this Agreement by delivering to the
Trustee a certified copy of a resolution of its Board of Directors terminating
its participation hereunder. In such event, or in the event of the termination
or disqualification of a participating plan (including the Plan), or in the
event of any transaction (such as a merger, sale, transfer of assets or the
like) affecting any employees covered by any participating plan which has
adopted the Trust, the Trustee shall segregate that portion of the Fund
certified by the actuary designated by the Company as equal to the equitable
shares of the Fund attributable to the employees affected by such termination or
other transaction. Until directed otherwise by the Company, the Trustee shall
continue to hold any portion of the Fund so segregated, IN TRUST, as a separate
trust in accordance with the provisions of the Agreement, except that the
corporation (or its successors or assigns) whose employees are affected by such
termination or transaction shall be deemed to be the "Company" for all purposes
of this Agreement.
SECTION 26. AMENDMENT OR TERMINATION OF AGREEMENT. Subject to the
provisions of Section 2, the Company reserves the right, at any time and from
time to time, to terminate or amend, in whole or in part, any or all of the
provisions of this Agreement by notice in writing delivered to the Trustee;
provided, however, that no such amendment which affects the rights, duties or
responsibilities of the Trustee shall become effective without its consent. In
the event of the termination of the Plan or of the Trust, the Trustee shall
continue to administer the Fund as herein provided until all of the purposes for
which it has been established have been accomplished or dispose of the Fund
after the payment or other provision for all expenses incurred in the
administration and termination of the Trust (including any compensation to which
the Trustee may be entitled), in accordance with the written order of the
Company or any successor thereto. Until the final distribution of the Fund, the
Trustee and the Company, or any successors thereto, shall continue to have and
exercise all of the powers and discretion conferred upon them by this Agreement.
SECTION 27. APPLICABLE LAW. To the extent that the State law shall not have
been preempted by the provisions of ERISA, or any other laws of the United
States heretofore or hereafter enacted, this Agreement shall be administered,
construed and enforced according to the laws of the Commonwealth of
Pennsylvania.
SECTION 28. PROVISION OF PLAN DOCUMENTS. The Company shall provide the
Trustee or its agent with copies of all documents then constituting any plan
utilizing the Trust as a funding medium, and the latest determination letter
issued by the Internal Revenue Service that such plan is a qualified plan within
the meaning of the Section 401 of the Internal Revenue Code of 1986. The Trustee
shall be entitled to rely upon the Company's attention to this obligation and
shall be under no duty to inquire of the Company as to the existence of any
documents not provided by the Company hereunder.
SECTION 29. INDEMNIFICATION. In consideration of the Trustee's agreeing to
enter into this Agreement, the Company hereby agrees to hold harmless Prudential
Trust Company, individually and as Trustee under said Agreement, and its
directors, officers, and employees, from and against all amounts, including
without limitation taxes, expenses (including reasonable counsel fees),
liabilities, claims, damages, actions, suits or other charges, incurred by or
assessed against Prudential Trust Company, individually or as Trustee, or its
directors, officers, or employees, (i) as a direct or indirect result of
anything done in good faith, or alleged to have been done, by or on behalf of
Prudential Trust Company in reliance upon the directions of the Company, or any
Investment Manager appointed by the Company, or any person or committee
authorized to act on behalf of the Company, or anything omitted to be done in
good faith, or alleged to have been omitted, in the absence of such directions,
(ii) as a direct or indirect result of the failure of the Company or any person
or committee to adequately, carefully or diligently discharge its
responsibilities under the Plan, this Agreement, or applicable Department of
Labor or Treasury regulations or rulings, or (iii) if the Trustee is named as a
defendant in any lawsuit or other proceeding involving the Plan or the Fund for
any reason including, without limitation, an alleged breach by the Trustee of
its responsibilities under the Agreement, unless the final judgment entered in
8
<PAGE>
the lawsuit or proceeding holds the Trustee guilty of gross negligence, willful
misconduct, or an intentional breach of fiduciary responsibility under ERISA. If
the final judgment holds the trustee guilty of gross negligence, willful
misconduct, or an intentional breach of fiduciary responsibility under ERISA,
the Company hereby agrees to indemnify the Trustee only against liability in
excess of the Trustee's allocable share of such liability. The Company further
agrees that the undertakings made by it in this Agreement shall be binding on
its successors or assigns and shall survive termination, amendment or
restatement of this Agreement, or the resignation or removal of the Trustee.
SECTION 30. INVALID PROVISIONS. If any paragraph, section, sentence, clause
or phrase contained in this Agreement shall become illegal, null, or void, or
against public policy, for any reason, or shall be held by any court of
competent jurisdiction to be incapable of being construed or limited in a manner
to make it enforceable, or is otherwise held by such court to be illegal, null,
or void, or against public policy, the remaining provisions of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MICROAGE, INC.
By:
--------------------------------
Title:
Date:
Attest:
Title:
PRUDENTIAL TRUST COMPANY
By:
--------------------------------
Title:
Attest:
Title:
- --------------------------------
9
EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
MICROAGE, INC.
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended 39 weeks ended
---------------------- ----------------------
August 1, August 2, August 1, August 2,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC
Weighted average common shares 20,600 19,859 20,475 19,633
--------- --------- --------- ---------
DILUTED
Weighted average shares from basic
calculation 20,600 19,859 20,475 19,633
Dilutive effect of stock options and warrants -- 446 -- --
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding - diluted 20,600 20,305 20,475 19,633
--------- --------- --------- ---------
NET INCOME (LOSS) $ (3,170) $ 26 $(148,445) $ (12,047)
Net income (loss) per common and
common equivalent share:
Basic $ (0.15) $ 0.00 $ (7.25) $ (0.61)
========= ========= ========= =========
Diluted $ (0.15) $ 0.00 $ (7.25) $ (0.61)
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF AUGUST 1, 1999 AND NOVEMBER 1,
1998 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE QUARTERS
ENDED AUGUST 1, 1999 AND AUGUST 1, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> AUG-01-1999
<EXCHANGE-RATE> 1
<CASH> 62,042
<SECURITIES> 0
<RECEIVABLES> 239,082
<ALLOWANCES> 30,952
<INVENTORY> 461,817
<CURRENT-ASSETS> 757,431
<PP&E> 213,423
<DEPRECIATION> 114,039
<TOTAL-ASSETS> 884,148
<CURRENT-LIABILITIES> 718,890
<BONDS> 0
0
0
<COMMON> 208
<OTHER-SE> 146,095
<TOTAL-LIABILITY-AND-EQUITY> 884,148
<SALES> 1,514,480
<TOTAL-REVENUES> 1,514,480
<CGS> 1,415,297
<TOTAL-COSTS> 1,415,297
<OTHER-EXPENSES> 8,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,394
<INCOME-PRETAX> (4,641)
<INCOME-TAX> (1,471)
<INCOME-CONTINUING> (3,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,170)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
