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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 1, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to ___________
Commission File Number 0-15995
MICROAGE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 86-0321346
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2400 South MicroAge Way, Tempe, Arizona 85282-1896
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(Address of Principal Executive Offices) (Zip Code)
(602) 366-2000
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share
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(Title of Class)
Indicate by check mark whether 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $299.9 million at December 31, 1998, based on the closing market
price of the Common Stock on such date, as reported by the Nasdaq
Stock Market.
The number of shares of the registrant's Common Stock outstanding at December
31, 1998 was 20,315,711.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders to
be held on March 31, 1999 are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
BUSINESS OVERVIEW
MicroAge, Inc. ("MICROAGE" or the "COMPANY"), was incorporated in the
State of Arizona in 1976 and reincorporated in the State of Delaware in 1987.
The Company is a global provider of efficient technology solutions. The Company
does business in more than 40 countries and offers over 21,000 products from
more than 500 suppliers, backed by a suite of technical, financial, logistics,
and account management services.
In February 1998, the Company initiated a plan to restructure the Company
into two independent businesses--a distribution business operated through a
wholly-owned subsidiary, Pinacor, Inc. ("PINACOR"), and an integration business
("MICROAGE IT SERVICES"). Pinacor and MicroAge IT Services each have separate
management teams, operate autonomously in their respective marketplaces, and
contract with MicroAge Headquarters for a limited number of services, such as
payroll processing and employee benefits.
Unless the context otherwise requires, as used herein, the term the
"Company" refers to MicroAge, Inc., its predecessors, and subsidiaries. The
Company's headquarters are located at 2400 South MicroAge Way, Tempe, Arizona
85282-1896, and its telephone number is (602) 366-2000. The Company also
maintains a web page on the world wide web at www.microage.com. Pinacor
maintains a separate web page at www.pinacor.com.
Certain statements in this Item may be "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
Words such as "estimates," "expects," "anticipates," "plans," "believes,"
"projects," and similar expressions identify forward-looking statements. These
forward-looking statements may include projections of revenue and net income and
issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking information. Some of the important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors;
potential fluctuations in quarterly results; risks of declines in inventory
values; no assurance of successful acquisitions or investments; capital
intensive nature of the Company's business; dependence on information systems;
dependence on independent shipping companies; rapid technological change;
possible volatility of stock price; and the Company's future relationship with
Pinacor. EXHIBIT 99.1 to this Annual Report on Form 10-K, which is attached
hereto and incorporated by reference herein, discusses these important factors
in greater detail. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.
MICROAGE IT SERVICES
GENERAL
The Company's business activities, other than those conducted by Pinacor,
the Company's distribution subsidiary, are currently conducted by MicroAge IT
Services, which provides ISO 9001-certified multi-supplier integration services
and distributed computing solutions to large organizations worldwide. MicroAge
IT Services serves corporations, institutions, and government agencies through
its network of more than 40 company-owned locations, in addition to
owner-managed branches and alliance partners spanning more than 40 countries.
BUSINESS STRATEGY
MicroAge IT Services' strategic vision is to become the preferred
information technology infrastructure services company for distributed computing
solutions. MicroAge IT Services' dual strategic focus is to pursue profit
expansion and revenue growth. MicroAge IT Services' profit expansion strategy
focuses on the addition and expansion of higher-margin products and services and
on expense control, including the improvement of MicroAge IT Services'
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internal processes and procedures, and effective asset management. Revenue
growth is driven primarily by sales to new clients and the expansion of service
offerings to existing clients. There can be no assurance that MicroAge IT
Services will experience growth in revenue or profits.
CORE SERVICE OFFERINGS
MicroAge IT Services is dedicated to building long-term client
relationships by delivering a consistent level of quality information technology
services, within the following core service offerings:
PROCUREMENT SUPPORT
Procurement Support assists clients in every phase of the information
technology procurement process. MicroAge IT Services works with clients to help
them identify their system needs, streamline internal procurement processes, and
design, implement, and integrate systems to meet their particular needs.
Procurement support allows clients to achieve strategic goals by reducing
procurement costs and order cycle time, and increasing internal customer
satisfaction. A major component of Procurement Support is the delivery of the
Company's Quality Integration Services (QIS). QIS serves clients from its ISO
9001-certified facility in Tempe, Arizona. Among the services offered by QIS are
systems assembly, including refurbishment; concurrent engineering, design,
assembly, and prototype testing, and vendor service upgrades. Additionally, QIS
offers inventory services that give clients the ability to coordinate
procurement, delivery, and billing from multiple suppliers, purchase-in-place
services, and seed unit services that make the new technology available to
clients for evaluation purposes. The Company's long-standing relationships with
all major technology manufacturers allows MicroAge IT Services to provide the
latest and best technology to clients and to provide consistent integration of
multi-vendor solutions.
DESKTOP MANAGEMENT SERVICES
Desktop Management Services works with clients to develop, deploy, and
support network and information systems. MicroAge IT Services provides a wide
spectrum of desktop solutions including planning, system/network maintenance,
installation, staffing, asset management, and help desk options. Through Desktop
Management, MicroAge IT Services meets a wide spectrum of client needs, from
event or project-based solutions to comprehensive integrated desktop outsourcing
solutions.
PROGRAM AND PROJECT MANAGEMENT
MicroAge IT Services' Program and Project Management services provide
clients with centralized oversight of information technology projects. Program
and Project Management brings all of MicroAge IT Services' service offerings
together and provides effective, reliable IT solutions.
PROFESSIONAL SERVICES
MicroAge IT Services provides Professional Services in the following four
key service practices: Back Office Services, Infrastructure Services, Systems
Management, and Business Systems. Back Office Services targets consulting and
project services for network operating systems such as Microsoft and Novell
Network. Additional Back Office Services also include e-mail, planning software,
and fault tolerance solutions. Infrastructure Services includes establishing
Local Area Networks (LAN), Wide Area Networks (WAN), security, remote access,
and data storage. Systems Management provides consulting and services for
managing complex network environments, including audit, design, and
implementation of systems from major software providers. Business Systems
provides services in the areas of intranet and Internet-based technologies and
systems for electronic commerce, process re-engineering, and work-flow
integration.
MICROAGE TELESERVICES
MicroAge Teleservices offers customized outsourced telephonic support
services to manufacturers, large corporations, and technology organizations.
Through its telephony support infrastructure, MicroAge Teleservices provides
solutions for corporate customers requiring any combination of inbound,
outbound, and technical support. MicroAge Teleservices currently employs almost
1,000 associates and conducts its telephonic support services from three
strategic call centers located in Santa Maria, California; Las Vegas, Nevada;
and Tempe, Arizona.
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ACQUISITIONS AND INVESTMENTS
The Company has acquired or invested in, and intends to acquire or invest
in, systems integrators to increase the Company's core service competencies,
expand the Company's geographic coverage in key market areas, and strengthen the
Company's direct relationship with end-user customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" in Part II, Item 7 and Note 3 to the Company's
Consolidated Financial Statements in Part II, Item 8 for additional information
about the Company's acquisition activities.
PRODUCTS AND SUPPLIERS
During the fiscal year ended November 1, 1998, MicroAge IT Services
purchased approximately 85% of its computer product needs, including both
hardware and software, from Pinacor. In December 1998, MicroAge and Pinacor
entered into a supply agreement (the "DISTRIBUTOR AGREEMENT") pursuant to which
Pinacor supplies products to MicroAge IT Services. The Distributor Agreement
will be in place for two years and may be extended for a third year with the
mutual consent of MicroAge and Pinacor. The agreement may be terminated upon 90
days notice. While MicroAge IT Services has a choice of distributors from which
it can purchase products, given its strong relationship with Pinacor and the
stability of product supply, MicroAge IT Services currently chooses to purchase
a substantial majority of its product needs from Pinacor.
COMPETITION
The markets in which MicroAge IT Services operate are characterized by
intense competition from original equipment manufacturers (OEMs), such as Dell,
COMPAQ, Hewlett-Packard and IBM, and other systems integrators and IT service
companies such as InaCom Corp.; Entex Information Services, Inc.; CompuCom
Systems; and DecisionOne Corporation. MicroAge IT Services expects to face
further competition from new market entrants and possible alliances between
competitors in the future. Certain of MicroAge IT Services' current and
potential competitors have greater financial, technical, marketing, and other
resources than MicroAge IT Services. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, to devote greater resources to the development, promotion, and
sales of their products and services, or to be more effective in responding to
competitive bidding situations than MicroAge IT Services. The principal
competitive factors in the systems integration industry include the breadth and
quality of product and service offerings, product availability, pricing, and
expertise and size of workforce. MicroAge IT Services believes it competes
favorably with respect to each of these factors.
TRADEMARKS AND SERVICE MARKS
The Company holds various trademarks and service marks, including, among
others, MicroAge(R), The Solution Store(R), The Solution Center(R),
Solutions(R), MicroSource(R), and MicroAge 2000(R). All trademarks and service
marks are registered, or pending registration, in the United States, and certain
trademarks and service marks are registered in various foreign countries. The
marks are not otherwise registered with any states; however, the Company also
claims common law rights to the marks based on adoption and use. Management
believes that the value of the Company's marks is increasing with the
development of its business, but that the business of the Company as a whole is
not materially dependent on such marks.
PINACOR
GENERAL
Pinacor is a wholesale distributor of microcomputer products with
locations in North and South America. Pinacor markets microcomputer hardware,
networking equipment, software products and related services to more than 25,000
reseller customers in multiple countries. Pinacor operates in three principal
market sectors: the Integrator Sector, consisting of value-added resellers,
systems integrators, network integrators, application value-added resellers, and
OEMs; the Commercial Sector, consisting of direct marketers, independent
dealers, and owner-operated chains; and the Consumer Sector, consisting of
consumer electronics stores, computer superstores, catalog resellers, mass
merchants, office product superstores, software-only stores, and warehouse
clubs. As a wholesale distributor, Pinacor markets its products to each of these
types of resellers as opposed to marketing directly to end-user customers.
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Pinacor offers one-stop shopping to its reseller customers by providing
access to more than 21,000 products from over 200 principal suppliers, including
most of the microcomputer industry's leading hardware manufacturers, networking
equipment suppliers, and software publishers. Pinacor's broad product offerings
include: desktop and notebook personal computers, servers, and workstations;
mass storage devices; CD-ROM drives; monitors; printers; scanners; modems;
networking hubs, routers, and telephone switches; network interface cards;
business application software; operating software; and computer supplies.
Pinacor's suppliers include IBM, COMPAQ, Hewlett-Packard, Apple, Microsoft,
Toshiba, Novell, 3Com, Fujitsu, Hitachi, Canon, Lexmark, Sony, NEC, Panasonic,
and Lucent.
Pinacor is focused on providing a broad range of products and services,
quick and efficient order fulfillment, and consistent on-time and accurate
delivery to its reseller customers. Pinacor believes that its information
systems provide a competitive advantage through real-time information access and
processing capabilities. These on-line information systems, coupled with its
leading operations in telesales, credit, customer service, purchasing, technical
support, and logistics, enable Pinacor to provide its reseller customers with
superior service and low cost. In addition, to enhance sales and to support its
suppliers and reseller customers, Pinacor provides a wide range of value-added
services, such as customer fulfillment, tailored financing programs, systems
configuration, marketing programs, and electronic commerce.
BUSINESS STRATEGY
Pinacor believes that it has the customer relationships, the suppliers,
the capabilities, and the systems critical for long-term success in the
microcomputer products distribution industry. Pinacor generally is able to
purchase products in large quantities and to avail itself of special purchase
opportunities from a broad range of suppliers. This allows Pinacor to take
advantage of various discounts from its suppliers, which in turn enables Pinacor
to provide competitive pricing to its reseller customers. Pinacor's size and
location have permitted it to attract highly qualified associates and increase
its investment in personnel development and training. Pinacor's relationship
with MicroAge IT Services as a customer gives it the lead in providing
procurement services to both large and small integrators. Finally, Pinacor
benefits from being able to make large investments in information systems,
warehousing systems, and support infrastructure. Pinacor is pursuing a number of
strategies to further enhance its leadership position within the microcomputer
marketplace, including: expanding market coverage; strengthening customer
relationships; exploring information systems and electronic commerce
capabilities; building strategic relationships with suppliers; delivering
value-added services to suppliers and resellers through capacity expansion; and
developing human resources for excellence and to support future growth.
DISTRIBUTION SERVICES
Product orders are fulfilled and shipped from strategic distribution
centers located in Tempe, Arizona; Cincinnati, Ohio; Reno, Nevada; Miami,
Florida; Paulsboro, New Jersey; and Allen, Texas for delivery in one to three
business days to a reseller or end-user anywhere in the continental United
States. In addition, Pinacor has in-country distribution facilities in Columbia,
Venezuela, Bolivia, and Ecuador. Combined, these facilities encompass more than
1,000,000 square feet of warehouse space and can distribute products anywhere in
the Americas. In conjunction with product ordering and shipment, Pinacor offers
various services to end-user customers and resellers, including expedited
delivery, vendor direct shipment, and deferred shipment. Pinacor has
relationships with more than 500 on-demand suppliers to quickly procure products
outside of the its major manufacturing alliances. Pinacor also offers consigned
storage and redistribution of customer-owned proprietary products.
INTEGRATION SERVICES
Pinacor has Quality Integration Centers (QICs) located in Cincinnati,
Ohio and Allen, Texas, and colocated in Tempe, Arizona with MicroAge IT
Services. Pinacor's Cincinnati, Ohio and Tempe, Arizona QICs are ISO
9001-certified and offer custom integration services, including systems set-up;
local area network integration and testing; board-level enhancement; disk or
tape drive installation; device testing; and software loading, including complex
operating systems. Pinacor's QIC in Allen, Texas is ISO 9002-certified. Each
integrated system is tested and inspected before delivery to ensure that
manufacturer and customer specifications are met. The QICs can incorporate
unique or highly complex system testing requirements into the integration
process. The QICs also direct-ship configured systems to end-user customers,
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allowing resellers to service these customers more profitably by reducing
inventory levels, carrying costs, and freight expense, and by freeing up
technical staff.
PINACOR PRODUCTS AND SERVICES
Pinacor provides customers with market-leading products from hardware,
software, peripheral, and imaging manufacturers. Pinacor offers a comprehensive
inventory of more than 21,000 products from over 200 principal suppliers,
including most of the microcomputer industry's leading hardware manufacturers,
networking equipment suppliers, and software publishers. Pinacor's broad product
offerings include: desktop and notebook personal computers, servers, and
workstations; mass storage devices; CD-ROM drives; monitors; printers; scanners;
modems; networking hubs, routers and telephone switches; network interface
cards; business application software; entertainment software; and computer
supplies. Pinacor's suppliers include IBM, COMPAQ, Hewlett-Packard, Microsoft,
Toshiba, Novell, 3Com, Fujitsu, Hitachi, Sony, NEC, Panasonic, and Lucent. In
addition, Pinacor is one of two U.S. distributors of Apple products.
Pinacor is focused on providing a broad range of products and services,
quick and efficient order fulfillment, and consistent on-time and accurate
delivery to its reseller customers around the world. Pinacor believes that its
information systems provide a competitive advantage through real-time worldwide
information access and processing capabilities. These on-line information
systems, coupled with Pinacor's exacting operating procedures in telesales,
credit support, customer service, purchasing, technical support, and warehouse
operations, enable Pinacor to provide its reseller customers with superior
service in an efficient and low cost manner. In addition, to enhance sales and
to support its suppliers and reseller customers, Pinacor provides a wide range
of value-added services, such as order fulfillment, tailored financing programs,
systems configuration, and marketing programs. Through its ECworkgate products,
Pinacor offers a complete family of electronic commerce products designed to
improve productivity, increase sales, and reduce expenses by providing real-time
information focused around core business processes.
CHANNEL ASSEMBLY SERVICES
Pinacor's QICs include state-of-the-art Assembly Solutions Areas
dedicated to supporting systems assembly and joint manufacturing projects.
Pinacor is a recognized leader in channel assembly and is an authorized assembly
provider for IBM's Authorized Assembly Partner program, Hewlett-Packard's
Extended Solutions Partnership Program, COMPAQ's Channel Configured Products
Program, and channel assembly programs for Fujitsu, Panasonic, Toshiba, Sun
Microsystems, and Acer.
RESELLERS
GENERAL
Resellers operate independently. Pinacor generally does not require
minimum purchase levels from its reseller customers. The loss of any single
reseller would not have a material adverse impact on the Company.
RESELLER PURCHASING TERMS
Pinacor offers resellers several financing options, including the option
of purchasing products on open credit terms of up to 30 days, subject to credit
review and approval. If Pinacor is successful in achieving continued revenue
growth, this reseller financing program will place increased demands on
Pinacor's working capital requirements to fund the associated increase in
accounts receivable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Part
II, Item 7 of this report.
COMPETITION
Pinacor operates in a highly competitive environment with other
microcomputers distributors such as Ingram Micro, Inc., Tech Data Corp., and
Merisel, Inc., both in the United States and Latin America. The microcomputer
products distribution industry is characterized by intense competition based
primarily on price, product availability, speed and accuracy of delivery,
effectiveness of sales and marketing programs, credit availability, ability to
tailor specific solutions to customers needs, quality and breadth of product
lines and services, availability of technical and product information, and
recruitment and retention of resellers. Pinacor believes that it competes
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favorably with respect to each of these factors. As price points have declined,
Pinacor believes that value-added service capabilities (such as configuration,
innovative financing programs, order fulfillment, contract telesales, and
contract warehousing) will become more important competitive factors. Certain of
Pinacor's current and potential competitors have greater financial, technical,
marketing, and other resources than Pinacor. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, to devote greater resources to development, promotion, and sales
of their products and services, or to be more effective in responding to
competitive bidding situations than Pinacor.
TRADEMARKS AND SERVICE MARKS
Pinacor holds various trademarks and service marks, including, among
others, Pinacor(TM), ECadvantage(TM), EC Media (TM), Netgenuity(TM), EC
Configuration(TM), Infotour(TM), 20/20 Group(TM), EC Document(TM),
Powerdisc(TM), and ZData(R). All trademarks and service marks are registered, or
pending registration, in the United States, and certain trademarks and service
marks are registered in various foreign countries. The marks are not otherwise
registered with any states; however, Pinacor also claims common law rights to
the marks based on adoption and use. Management believes that the value of
Pinacor's marks is increasing with the development of its business, but that the
business of Pinacor as a whole is not materially dependent on such marks.
PRODUCT STRATEGY
Pinacor sells a broad selection of products with a predominant focus on
the products of major microcomputer and peripheral manufacturers. Three
suppliers of Pinacor each represented more than 10% of total product sales for
the year ended November 1, 1998: COMPAQ, Hewlett-Packard, and IBM. The following
table sets forth the percentage of sales of these suppliers' products for the
last three fiscal years:
1998 1997 1996
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COMPAQ 26% 23% 22%
Hewlett-Packard 19% 20% 20%
IBM 13% 14% 14%
Sales of these three manufacturers' products represented approximately 58%, 57%,
and 56% of Pinacor's revenue from product sales during fiscal 1998, fiscal 1997
and fiscal 1996, respectively. Pinacor's agreements with these suppliers
generally are renewed periodically and permit termination by the vendor without
cause, generally upon 30 to 90 days' notice, depending on the vendor. Pinacor
believes that these provisions are standard in the computer reseller industry.
In addition, Pinacor's business is dependent upon price and related terms and
product availability provided by its key suppliers. Although Pinacor considers
its relationships with COMPAQ, Hewlett-Packard, and IBM to be good, there can be
no assurance that these relationships will continue as presently in effect or
that changes by one or more of these key suppliers in their terms and
conditions, volume discount schedules, or other marketing programs would not
adversely affect Pinacor. Termination or nonrenewal of Pinacor's agreements with
COMPAQ, Hewlett-Packard, or IBM would have a material adverse effect on
Pinacor's business.
Pinacor continually evaluates its product assortment based on
technological advances, the market for information technology products, and
resellers' requirements related to technological capability, product
availability, and marketability. Over the last several years, Pinacor has
expanded its product offerings in response to market conditions and has
established relationships with new suppliers to distribute, service, and support
both high-end, higher-priced workstation products as well as complementary
computer peripheral products and software. These products generally carry higher
profit margins than Pinacor's traditional brand name products and have
historically been distributed primarily by wholesale distributors or sold
directly to end-users by manufacturers. Sales of these products generally
require the extension of credit by Pinacor, resulting in increased working
capital requirements.
PRODUCT SUPPLY
The computer reseller industry continues to experience product supply
shortages and customer order backlogs due to the inability of certain
manufacturers to supply certain products. In addition, certain suppliers have
initiated new channels of distribution that increase competition for the
available product supply. The backlog of orders for products distributed by
Pinacor was approximately $121.8 million on November 1, 1998, compared to
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approximately $100.9 million on November 2, 1997. This increase in backlog
orders for fiscal year 1998 was due primarily to increased product demand. Such
orders are not necessarily firm because customers may place orders with several
computer resellers and will accept products from the first computer reseller to
provide delivery. There can be no assurance that suppliers will be able to
maintain an adequate supply of products to fulfill all of Pinacor's customer
orders on a timely basis. Although Pinacor has not historically encountered such
conditions, the failure to obtain adequate product supplies, if competitors were
able to obtain them, could have a material adverse effect on Pinacor's results
of operations.
SUPPLIER RELATIONSHIPS
Because of its quantity purchasing capabilities, Pinacor generally
obtains volume discounts from its suppliers, enabling it to sell products to
resellers on more favorable terms than the typical reseller could obtain on its
own from such suppliers. Generally, Pinacor's agreements include provisions
designed to protect Pinacor's inventory risk in the event of price reductions by
its suppliers on eligible products in Pinacor's inventory and to permit the
return of slow-moving and other products for credit (generally at cost minus a
restocking fee). However, suppliers are now taking steps to reduce such price
protection. Although Pinacor believes that it will be able to manage inventories
at levels that minimize the risk of non-protected price decreases, there can be
no assurance that losses from price reductions will not be incurred. Such losses
could have a material adverse effect on Pinacor's results of operations. Subject
to product availability, Pinacor carries inventory at levels that it believes
will enable it to meet the anticipated needs of its resellers and end-user
customers and, to a lesser extent, to take advantage of certain vendor discounts
and promotions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information regarding the impact of supplier
incentives on Pinacor's gross profit percentage.
Several major suppliers sponsor payment programs with commercial credit
companies to facilitate product sales to and through resellers. Such programs
generally provide resellers with payment terms ranging from 30 to 60 days,
depending on the supplier. Under these programs, Pinacor generally receives
payment for product sales within three to five business days, thus significantly
reducing Pinacor's working capital requirements and credit exposure.
RELATIONSHIP BETWEEN MICROAGE IT SERVICES AND PINACOR
MicroAge IT Services and Pinacor currently provide services and products
to each other pursuant to a number of agreements. MicroAge and Pinacor have
entered into a Distributor Agreement pursuant to which Pinacor provides
products, both hardware and software, to MicroAge IT Services. Under the
agreement, Pinacor supplies products to MicroAge IT Services according to its
then-current standard sales terms and conditions published at the time of
purchase. Pinacor may offer MicroAge IT Services special pricing discounts based
on the existence of specific, publicized manufacturer rebate programs. The
Distributor Agreement will be in place for two years and may be extended for a
third year with the mutual consent of MicroAge and Pinacor. Either party may
terminate the agreement upon 90 days' notice.
MicroAge and Pinacor have entered into an Automation Agreement pursuant
to which Pinacor supplies data services from its mainframe system to MicroAge IT
Services. Pinacor will continue to provide such services until such time as
MicroAge IT Services establishes its own mainframe system.
MicroAge and Pinacor have entered into an integration services agreement
(the "QIS AGREEMENT") pursuant to which MicroAge IT Services provides
integration services, such as operating system installation, software
application installation, software device testing, mass media drive
installation, asset tagging, and custom packaging and labeling, to Pinacor. All
services are provided pursuant to a fee schedule included in the QIS Agreement.
The term of the QIS Agreement is November 1, 1998 to October 31, 1999. It is
anticipated that the QIS agreement will remain in place until such time as
Pinacor no longer needs these services.
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EMPLOYEES
GENERAL
None of the Company's employees are represented by labor unions. The
Company considers its employee relations to be good.
MICROAGE IT SERVICES
As of November 1, 1998, MicroAge IT Services employed approximately 4,500
persons, approximately 2,500 of whom were employed at over 40 branch locations.
PINACOR
As of November 1, 1998, Pinacor employed approximately 1,600 persons.
GOVERNMENT REGULATION
Although the Company is not presently offering or selling franchises, the
Company remains subject to a substantial number of state laws regulating
franchise operations. In certain cases, statutes and court-created doctrines
apply substantive standards to the relationship between franchisor and
franchisee, including restrictions on the Company's ability to terminate or
refuse to renew a franchise agreement. The Company believes it is in substantial
compliance with all such regulations.
SEASONALITY
Although the Company's financial performance has not exhibited
significant seasonality in the past, the Company and the computer industry in
general tend to follow a sales pattern with peaks occurring near the end of the
calendar year, due primarily to special vendor promotions and year-end business
purchases.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company as of January 15, 1999:
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---- --- --------
John H. Andrews 42 Executive Vice President - Operations
James R. Daniel 51 Executive Vice President - Support, Chief Financial
Officer, and Treasurer
James H. Domaz 43 Vice President, Corporate Counsel, and Assistant
Secretary
Alan P. Hald 52 Secretary
Christopher J. Koziol 38 Executive Vice President - Sales
James G. Manton 51 President, Chief Operating Officer, and Secretary,
Pinacor, Inc.
Robert W. Mason 56 Vice President and Chief Information Officer
Jeffrey D. McKeever 56 Chairman of the Board and Chief Executive Officer
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Mark D. Mumford 37 Vice President - Finance, Pinacor, Inc.
Robert G. O'Malley 53 Chief Executive Officer, Pinacor, Inc.
Raymond L. Storck 38 Vice President - Controller and Assistant Treasurer
JOHN H. ANDREWS has served as Executive Vice President-Operations since
September 1998. Mr. Andrews served as President, Logistics Group of the Company
from November 1996 to September 1998 and as President, MicroAge Logistics
Services, MCCI, from July 1993 to September 1998. He also served as Vice
President - Logistics of the Company from December 1995 to November 1996; Vice
President - Operations from July 1993 to December 1995; Group Vice President,
Operations from January 1993 to July 1993; Vice President and Chief Financial
Officer from June 1990 to January 1993; and as Treasurer from June 1991 to
January 1993. Mr. Andrews joined the Company in 1984 and served as Principal
Accounting Officer from December 1988 to June 1990. Mr Andrews is a certified
public accountant.
JAMES R. DANIEL has served as Executive Vice President - Support since
September 1998, as Chief Financial Officer of the Company since January 1993,
and as Treasurer of the Company from January 1993 until December 1994. Mr.
Daniel served as Senior Vice President from January 1993 to September 1998. He
reassumed the title of Treasurer in September 1995. Prior to joining MicroAge,
he served as Chief Financial Officer and Treasurer of Dell Computer Corporation
from 1991 to 1993. Prior to Dell, he served as Chief Financial Officer and
Treasurer for SCI Systems, Inc., an electronics contract manufacturer, from 1984
to 1991. Mr. Daniel is a certified public accountant.
JAMES H. DOMAZ has served as Vice President since November 1997,
Corporate Counsel and Assistant Secretary of the Company since November 1996, as
Legal Counsel from April 1996 to November 1996, and Associate Counsel from May
1993 to April 1996. Prior to joining the Company he served as General Counsel
for C&L Distributing, Inc. from May 1991 to May 1993.
ALAN P. HALD has served as Secretary since February 1987. He also served
as Vice-Chairman of the Board from October 1991 through April 1997. He
co-founded the Company in August 1976 and served as a director of the Company
from October 1976 to April, 1997. He also served as President from February 1993
to August 1993 and from October 1976 to February 1987, Chairman of the Board
from February 1987 to October 1991 and Treasurer from February 1983 to February
1987. He has also served as Chairman, Image Choice since 1993.
CHRISTOPHER J. KOZIOL has served as Executive Vice President - Sales
since September 1998. Mr. Koziol served as President, Distribution Group from
November 1996 to July 1998, and as Senior Vice President - Sales of the Company
from May 1996 to September 1998. Mr. Koziol served as President, Pinacor, Inc.
from March 1998 to August 1998. He served as President, MicroAge Infosystems
Services, Inc. from October 1995 to January 1997, as President, MicroAge
Infosystems Services, MCCI, from July 1993 to October 1995, and as Vice
President, Sales, MCCI, from January 1992 to July 1993. He joined the Company in
September 1985 and served as Director-Regional Support from March 1988 to
December 1991.
JAMES G. MANTON has served as President, Chief Operating Officer, and
Secretary of Pinacor, Inc. since March 1998. Mr. Manton served as Senior Vice
President - Operations of the Company from November 1996 to February 1998. He
also served as Group Vice President - Technical Services, MicroAge Logistics
Services, Inc. from September 1993 to November 1996 and as Vice President -
Technical Services, MicroAge Logistics Services, MCCI from January 1993 to
September 1993. Mr. Manton served as Executive Vice President from January 1987
to February 1989, at which time he left the Company to start his own companies.
He served as President of Unizone, Inc., a systems integrator, from March 1989
to July 1993 and as Chairman of QualiTime Strategies, Inc., a consulting firm
engaged in cycle time reduction, from July 1991 to December 1992.
ROBERT W. MASON has served as Vice President and Chief Information
Officer of the Company since September 1998, and served as President, Services
Group, from June 1997 to September 1998. Prior to joining the Company, he served
as Vice President and CIO at Anheuser-Busch from 1994 to 1997, Manager of
Information Services for GE Lighting from 1986 to 1994, and Director of
Information Services for several of Johnson & Johnson's companies from 1969 to
1986. Mr. Mason's experience with the Johnson & Johnson companies included five
years with Johnson & Johnson-Brazil and several years as CFO of Johnson &
Johnson's Orthopedics company.
JEFFREY D. MCKEEVER has served as Chief Executive Officer since February
1987 and as Chairman of the Board since October 1991. Mr. McKeever co-founded
the Company in August 1976 and has served as a director of the
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Company since October 1976. He also served as President from June 1995 to
January 1996, from January 1993 to February 1993, and from February 1987 to
October 1991, as Chairman of the Board and Secretary from October 1976 to
February 1987, and as Treasurer from October 1976 to February 1983 and from
February 1987 to December 1988.
MARK D. MUMFORD has served as Vice President - Finance of Pinacor, Inc.
since March 1998. Mr. Mumford was Vice President of Supplier Finance and Pricing
at MicroAge, Inc., from 1996 to 1998. Prior to that, he held various positions
with the Company, including Controller from 1995 to 1996. Mumford joined
MicroAge in 1990 as senior accounting manager. In 1992, he assumed the position
of Director of Financial Accounting, Reporting and Acquisitions. Prior to
joining the Company, Mr. Mumford held positions with PricewaterhouseCoopers and
Deloitte & Touche. Mr. Mumford is a certified public accountant.
ROBERT G. O'MALLEY has served as Chief Executive Officer of Pinacor, Inc.
since March 1998. Mr. O'Malley served as President of the Company from November
1996 to March 1998 and as President, MicroAge Data Services, MCCI, from May 1995
to December 1995. He also served as Vice President - Services Marketing of the
Company from January 1996 to November 1996. Prior to joining the Company, he
held various positions with IBM Corporation since January 1976, including
General Manager, PC Desktop Systems from September 1994 to February 1995; Vice
President of Marketing & Brand Management - Americas from February 1994 to
September 1994; Managing Director, Asia Pacific PC Operations from January 1992
to January 1994; Vice President, National Distribution Division, from August
1990 to December 1991; and Director, US Finance and Planning, from February 1988
to July 1990.
RAYMOND L. STORCK has served as Vice President, Controller since July
1993 and Assistant Treasurer of the Company since October 1991. He joined the
Company in 1986 and served in positions in accounting, reporting and analysis,
including Director of Planning and Analysis from June 1990 to July 1991.
ITEM 2. PROPERTIES
GENERAL
All facilities are leased. The Company believes that its properties and
equipment are well-maintained, in good operating condition, and adequate for its
present foreseeable needs.
MICROAGE IT SERVICES
MicroAge's executive offices are located in Tempe, Arizona and MicroAge
IT Services occupies a commercial office building in Phoenix, Arizona. In
addition, MicroAge IT Services shares its ISO-9001 certified Quality Integration
Center in Tempe, Arizona with Pinacor. As of November 1, 1998, MicroAge IT
Services operated 45 MicroAge-owned branches in the following cities: Anchorage,
Alaska; Phoenix, Arizona; Cerritos, Irvine, Dublin, Santa Ana, Ventura, and Van
Nuys, California; Westminster, Colorado; Hartford and Wilton, Connecticut; Boca
Raton, Jacksonville, Miami, and Tampa, Florida; Atlanta, Georgia; Chicago and
Rosemont, Illinois; Indianapolis, Indiana; Gaithersburg, Maryland; Burlington,
Massachusetts; Novi, Michigan; Plymouth, Minnesota; Chesterfield, Missouri;
Hampton, New Hampshire; Edison, New Jersey; Hauppauge and New York City, New
York; Greensboro and Raleigh, North Carolina; Cincinnati and Columbus, Ohio;
Oklahoma City and Tulsa, Oklahoma; Portland, Oregon; Exton and Pittsburgh,
Pennsylvania; Greenville, South Carolina; Memphis and Nashville, Tennessee;
Houston and Irving, Texas; Salt Lake City, Utah; Richmond, Virginia; and
Bellevue, Washington. MicroAge IT Services also maintains Teleservices centers
of approximately 58,000 square feet in Las Vegas, Nevada, approximately 67,000
square feet in Santa Maria, California, and approximately 125,000 square feet in
Tempe, Arizona.
PINACOR
Pinacor's executive offices are located in Tempe, Arizona. Pinacor
operates automated distribution and logistics centers in Tempe, Arizona and
Cincinnati, Ohio, which occupy approximately 300,000 square feet each, and in
Reno, Nevada, which occupies approximately 100,000 square feet. In addition,
Pinacor has distribution centers occupying approximately 60,000 square feet in
Miami, Florida, approximately 136,000 square feet in Paulsboro, New Jersey, and
approximately 261,000 square feet in Allen, Texas. Combined, these facilities
provide over 1,000,000 square feet of domestic warehouse space. Pinacor also has
in-country distribution facilities in Columbia, Venezuela, Bolivia, and Ecuador.
Pinacor shares MicroAge IT Services' 135,000 square foot ISO 9001-certified
integration facility in Tempe, Arizona. Additionally, Pinacor maintains an ISO
9001-certified integration facility in Cincinnati, Ohio and an ISO
9002-certified integration facility in Allen, Texas.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct
of its business. There are currently no material pending proceedings to which
the Company or any of its subsidiaries is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market under
the symbol MICA and is quoted on the Nasdaq Stock Market. The following table
sets forth the quarterly high and low sale prices for the common stock as
reported by the Nasdaq Stock Market for the two most recent fiscal years:
RANGE OF SALE PRICES
--------------------
FISCAL 1997 HIGH LOW
----------- ---- ---
First Quarter......................... $24 1/4 $12 3/4
Second Quarter........................ $15 3/8 $12 1/2
Third Quarter......................... $24 1/4 $13 7/16
Fourth Quarter........................ $29 1/4 $21 3/8
FISCAL 1998 HIGH LOW
----------- ---- ---
First Quarter......................... $25 3/4 $10 9/16
Second Quarter........................ $16 $11 9/16
Third Quarter......................... $16 1/16 $13
Fourth Quarter........................ $15 11/16 $ 8 29/32
As of December 31, 1998, there were approximately 1,369 stockholders of
record of the common stock. The Company believes that as of such date there were
approximately 6,400 beneficial holders of the common stock.
The Company has never declared or paid a cash dividend on its common
stock and does not presently intend to do so. Future dividend policy will depend
upon the Company's earnings, capital requirements, financial condition, and
other factors deemed relevant by the Company's Board of Directors.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five fiscal year periods
ended November 1, 1998 are derived from the Company's Consolidated Financial
Statements. During fiscal 1998, the Company made an acquisition that was
accounted for as a pooling of interests. Accordingly, the Company's consolidated
financial statements have been restated to include the accounts and operations
of the pooled company for all periods presented. In addition, a 1997 acquisition
originally accounted for as a pooling of interests was restated under the
purchase method of accounting - see Note 3 to the Consolidated Financial
Statements. The selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements and related notes included elsewhere
in this report. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
Fiscal years ended
--------------------------------------------------------
Nov. 1, Nov. 2, Nov. 3, Oct. 29, Oct. 30,
1998(1) 1997 1996 1995(2) 1994
------- ---- ---- ------- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue $5,520,031 $4,379,208 $3,608,230 $3,018,288 $2,297,150
Gross profit 353,241 297,465 206,981 162,608 125,449
Income (loss) before income
taxes (7,418) 43,579 26,543 3,211 28,923
Net income (loss) (8,325) 25,197 15,529 1,862 17,782
Diluted net income (loss) per
common share $ (0.42) $ 1.43 $ 0.94 $ 0.12 $ 1.19
Diluted weighted average
common and common equivalent
shares 19,783 17,635 16,452 15,910 14,953
BALANCE SHEET DATA:
Nov. 1, Nov. 2, Nov. 3, Oct. 29, Oct. 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
Working capital $ 78,610 $ 126,264 $ 114,965 $ 110,310 $ 115,711
Total assets 1,315,143 919,396 711,979 594,474 529,626
Long-term obligations 5,553 35,187 3,991 4,176 2,157
Stockholders' equity 290,486 262,325 191,580 171,908 168,626
</TABLE>
(1) The fiscal year ended November 1, 1998 included $5,600,000 of restructuring
and other one-time charges. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) The fiscal year ended October 29, 1995 included $9,029,000 of restructuring
and other one-time charges.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During fiscal 1998, the Company made several acquisitions, one of which
has been accounted for as a pooling of interests. In addition, one acquisition
made during fiscal 1997 that had previously been accounted for as a pooling of
interests is now accounted for under the purchase method. Accordingly, the
Company's consolidated financial statements have been restated for all periods
presented to include the accounts and operations of the pooled company acquired
during fiscal 1998, and to exclude the accounts and operations (prior to the
purchase date) of the company acquired during fiscal 1997 that is no longer
accounted for as a pooling. See Note 3 to the Company's Consolidated Financial
Statements in Part II, Item 8.
In February 1998, the Company initiated a plan to restructure the Company
into two independent businesses--a distribution business operated through a
wholly-owned subsidiary, Pinacor, Inc., and an integration business, MicroAge IT
Services. Pinacor and MicroAge IT Services have separate management teams,
operate autonomously in their respective marketplaces, and contract with
MicroAge Headquarters for a limited number of services, such as payroll
processing and employee benefits. See "Restructuring and Other One-Time Charges"
below. In May, 1998, the Company announced that it had retained an investment
banking firm to help explore financial options for Pinacor designed to enhance
shareholder value.
Certain statements in this Item may be "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
Words such as "estimates," "expects," "anticipates," "plans," "believes,"
"projects," and similar expressions identify forward-looking statements. These
forward-looking statements may include projections of revenue and net income and
issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking information. Some of the important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors;
potential fluctuations in quarterly results; risks of declines in inventory
values; no assurance of successful acquisitions or investments; capital
intensive nature of the Company's business; dependence on information systems;
dependence on independent shipping companies; rapid technological change;
possible volatility of stock price; and the Company's future relationship with
Pinacor. EXHIBIT 99.1 to this Annual Report on Form 10-K, which is attached
hereto and incorporated by reference herein, discusses these important factors
in greater detail. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, data as
percentages of total revenue:
Fiscal years ended
--------------------------------------
Nov. 1, Nov. 2, Nov. 3,
1998 1997 1996
---- ---- ----
Revenue $5,520,031 $4,379,208 $3,608,230
Cost of sales 93.6% 93.2% 94.3%
Gross profit 6.4 6.8 5.7
Operating and other expenses
Operating expenses 5.8 5.2 4.6
Restructuring and other one-time
charges .1 -- --
---------- ---------- ----------
Total 5.9 5.2 4.6
---------- ---------- ----------
Operating income .5 1.6 1.1
Other expenses - net .7 .6 .4
---------- ---------- ----------
Income (loss) before income taxes (.2) 1.0 .7
Provision for income taxes -- .4 .3
---------- ---------- ----------
Net income (loss) (.2)% .6% .4%
========== ========== ==========
FISCAL YEAR ENDED NOVEMBER 1, 1998 VERSUS FISCAL YEAR ENDED NOVEMBER 2, 1997
TOTAL REVENUE. Total revenue during fiscal 1998 was $5.5 billion. Pinacor
(distribution business) revenues totaled $5.0 billion and MicroAge IT Services
(integration) revenues totaled $1.8 billion. On a consolidated basis, these
revenues were partially offset by eliminations of intercompany revenues of $1.3
billion.
Total revenue increased $1.1 billion, or 26%, for the fiscal year ended
November 1, 1998 as compared to the fiscal year ended November 2, 1997. This
revenue increase included a $900 million, or 22%, increase, in Pinacor revenue
and a $298 million, or 19%, increase in MicroAge IT Services revenue, partially
offset by an increase in intercompany
eliminations.
The increase in consolidated revenue was attributable to sales to
resellers added since November 2, 1997, increased demand for the Company's major
suppliers' products, improved product availability, the Company's addition of
new product offerings, the growth of the microcomputer products industry and
acquisitions of reseller locations.
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.4%
for the fiscal year ended November 1, 1998 and 6.8% for the fiscal year ended
November 2, 1997.
The decrease in the Company's gross profit percentage was due to lower
margins on Pinacor sales combined with the fact that MicroAge IT Services
revenues, which have higher gross margins, comprised a smaller percentage of
total revenues. In Pinacor, gross margins on sales to reseller customers
decreased due to increased competitive pressures. In addition, supplier
incentive funds were lower as a percentage of total Pinacor revenue and net
freight expense increased as a percentage of revenue. The freight expense
increase as a percentage of revenue was primarily due to a decrease in the
average selling price per pound of product shipped as well as an increase in the
cost per pound
15
<PAGE>
shipped. MicroAge IT Services margins increased due to an increase in service
revenue, which has higher gross margins than product revenue margins. This
increase was partially offset by lower margins on MicroAge IT Services product
sales to end-user customers due to competitive pricing pressures.
Future gross profit percentages may be affected by market pressures, the
introduction of new Company initiatives, changes in revenue mix, future
acquisitions, changes in supplier incentive funds, the Company's utilization of
early payment discount opportunities, supplier pricing actions, and other
competitive and economic pressures. See "Potential Fluctuations in Operating
Results" below for information regarding industry trends that may affect future
gross profit percentages.
OPERATING EXPENSE PERCENTAGE. As a percentage of revenue, operating
expenses increased to 5.8% for the fiscal year ended November 1, 1998, compared
to 5.2% for the fiscal year ended November 2, 1997. The increase in operating
expenses was primarily in MicroAge IT Services and was attributable to
acquisitions of reseller locations (which generally have higher gross margin and
operating expense percentages than the Company's other businesses), the costs
associated with assimilating these acquisitions, start-up costs of several new
locations, and the build-up of infrastructure associated with MicroAge IT
Services' increasing levels of service revenue.
RESTRUCTURING AND OTHER ONE-TIME CHARGES. In connection with the
restructuring plan discussed above, the Company recorded a $5.6 million charge
for the second quarter of fiscal 1998. The restructuring and other one-time
charges included $3.6 million for employee termination benefits, $1.1 million
for the closing and consolidation of redundant locations, and $0.9 million for
other costs related to the restructuring, primarily one-time costs incurred in
establishing Pinacor and MicroAge IT Services as separate businesses. The
charges associated with employee termination benefits consist primarily of
severance pay for approximately 250 associates. The reductions occurred in
virtually all areas of the Company and have been completed.
OTHER EXPENSES - NET. Other expenses - net increased to $33.4 million for
the fiscal year ended November 1, 1998 from $27.6 million for the fiscal year
ended November 2, 1997. This increase was due to higher average daily
borrowings, primarily in the first two fiscal quarters of fiscal 1998, to
support higher inventory and accounts receivable levels and to increased
amortization expense associated with goodwill from acquisitions.
FISCAL YEAR ENDED NOVEMBER 2, 1997 VERSUS FISCAL YEAR ENDED NOVEMBER 3, 1996
The fiscal year ended November 2, 1997 included 52 weeks, while the
fiscal year ended November 3, 1996 included 53 weeks. See Note 2 to the
Company's Consolidated Financial Statements in Part II, Item 8.
TOTAL REVENUE. Total revenue during fiscal 1997 was $4.4 billion. Pinacor
revenues totaled $4.1 billion and MicroAge IT Services revenues totaled $1.5
billion. On a consolidated basis, these revenues were partially offset by
eliminations of intercompany revenues of $1.2 billion.
Total revenue increased $771 million, or 21%, for the fiscal year ended
November 2, 1997 as compared to the fiscal year ended November 3, 1996. This
revenue increase included a $766 million, or 23%, increase in Pinacor revenue
and a $313 million, or 26%, increase in MicroAge IT Services revenue, partially
offset by an increase in intercompany eliminations.
The increase in revenue was attributable to sales to resellers added
since November 3, 1996, increased demand for the Company's major suppliers'
products, improved product availability, the Company's addition of new product
offerings, the growth of the microcomputer products industry and acquisitions of
reseller locations.
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.8%
for the fiscal year ended November 2, 1997 and 5.7% for the fiscal year ended
November 3, 1996. The increase in the Company's gross profit percentage results
primarily from a higher service content in revenues, which generates higher
margins, the growth of the Company's integration business, including
acquisitions of reseller locations (which generally have higher gross margin and
operating expense percentages than the Company's other business groups), and
increasing supplier incentives and early pay discounts.
OPERATING EXPENSE PERCENTAGE. As a percentage of revenue, operating
expenses increased to 5.2% for the fiscal year ended November 2, 1997 compared
to 4.6% for the fiscal year ended November 3, 1996. The increase in operating
16
<PAGE>
expenses as a percentage of revenue was primarily due to acquisitions of
reseller locations (which generally have higher gross margin and operating
expense percentages than the Company's other business groups) and to increased
spending in support of electronic commerce initiatives and capacity expansion in
personnel, systems and facilities.
OTHER EXPENSES - NET. Other expenses - net increased to $27.6 million for
the fiscal year ended November 2, 1997 from $14.0 million for the fiscal year
ended November 3, 1996. The increase was primarily attributable to increases in
average daily borrowings to support higher inventory and accounts receivable
levels and to take advantage of early payment discount opportunities. The early
pay discounts are reflected in the Company's gross profit.
UPS STRIKE - IMPACT ON EARNINGS PER SHARE. On August 4, 1997, Teamsters
union members went on strike against United Parcel Service (UPS). The strike
lasted 15 days and impacted the Company through increased delivery times,
increased transportation costs and decreased call center revenue and profit.
Because of the brevity of the strike, the higher transportation costs were not
passed on by the Company to its customers. The UPS strike resulted in
approximately a $0.03 decrease in earnings per share for fiscal 1997.
SUPPLIER INCENTIVE FUNDS
The key vendors of the Company provide various incentives for promoting
and marketing their product offerings. A large portion of the incentives are
passed on to the Company's customers. However, a portion of the incentives
positively impact the Company's income. 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 will (i) provide price protection for periods ranging from 2 to 4
weeks rather than the unlimited protection previously available, (ii) allow
product returns on average of 2% to 3% of product sales per quarter, rather than
the 5% of sales per quarter previously available, and (iii) provide incentives
based on sales of the manufacturers' products, rather than on purchases of the
products from the manufacturers. Further changes in these incentives could have
a material adverse effect on the Company's operating results.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter depending on certain factors, including, but not limited to, demand for
the Company's information technology products and services, the amount of
supplier incentive funds received by the Company, the results of acquired
businesses, product availability, competitive conditions, new product
introductions, changes in customer order patterns and general economic
conditions. In particular, the Company's operating results are sensitive to
changes in the mix of product and service revenues, product margins, inventory
adjustments, and interest rates. See "Products and Suppliers" and "Competition"
in Part I, Item 1 for additional information regarding certain of these factors.
Although the Company attempts to control its expense levels, these levels are
based, in part, on anticipated revenues. Therefore, the Company may not be able
to control spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, quarterly period-to-period comparisons of the Company's
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. In addition, although the Company's
financial performance has not exhibited significant seasonality in the past, the
Company and the computer industry in general tend to follow a sales pattern with
peaks occurring near the end of the calendar year, due primarily to special
vendor promotions and year-end business purchases.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs to date primarily
through working capital financing facilities, bank credit lines, common stock
offerings and cash generated from operations. The primary uses of cash have been
to fund increases in inventory and accounts receivable resulting from increased
sales. If the Company is successful in achieving continued revenue growth, its
working capital requirements will continue to increase.
The Company has acquired or invested in, and intends to acquire or invest
in, resellers to increase core service competencies, expand the Company's
geographic coverage in key market areas, and strengthen the Company's direct
relationships with end-user customers. During fiscal 1998, the Company completed
eight acquisitions. In addition to cash and other consideration, the Company
issued 2,167,454 shares of common stock in connection with the acquisitions. See
Note 3 to the Company's Consolidated Financial Statements in Part II, Item 8 for
additional information regarding these acquisitions. In addition to these
17
<PAGE>
acquisitions, the Company made investments in or loans to companies totaling
$3.8 million during fiscal 1998. See Note 13 to the Company's Consolidated
Financial Statements in Part II, Item 8 for information regarding non-cash
investment activities. The Company's future acquisitions or investments may be
made utilizing cash, stock or a combination of cash and stock.
Cash provided by operating activities was $104 million in 1998 as
compared to $4 million in 1997. The increase was primarily due to a change in
cash provided or used by accounts receivable, inventory, and accounts payable.
During fiscal 1998, $63 million was provided by changes in accounts receivable,
inventory and accounts payable compared to $45 million used by changes in
accounts receivable, inventory and accounts payable during 1997.
The cash provided in 1998 was the result of a decrease in days cost of
sales in ending inventory from 35 days at the end of 1997 to 30 days at the end
of 1998, while days cost of sales in ending accounts payable increased from 49
days to 60 days for the same period. This was partially offset by an increase in
receivables days outstanding from 16 at November 2, 1997 to 30 at November 1,
1998. The increase in receivables days outstanding was due to a decrease in
accounts receivable sold to a finance company from $279 million at November 2,
1997 to $39 million at November 1, 1998. The receivables days adjusted for sold
receivables were 33 days at November 1, 1998 and 35 days at November 2, 1997.
Cash used in investing activities increased from $37 million in 1997 to
$50 million in 1998 due to a $7 million increase in purchases of property and
equipment as a result of increased spending for electronic commerce initiatives
and capacity expansion in systems and facilities, and a $6 million increase in
purchases of businesses and investments in unconsolidated companies.
Cash used by financing activities was $34 million in 1998 compared to
cash provided in 1997 of $33 million. The change was primarily due to decreased
borrowings under the Company's line of credit.
The Company maintains three financing agreements (the "AGREEMENTS") with
financing facilities totaling $800 million. The Agreements include an accounts
receivable facility (the "A/R FACILITY") and inventory financing facilities (the
"INVENTORY FACILITIES").
Under the A/R Facility, the Company has the right to sell certain
accounts receivable from time to time, on a limited recourse basis, up to an
aggregate amount of $350 million sold at any given time. At November 1, 1998,
the net amount of sold accounts receivable was $39 million.
The Inventory Facilities provide for borrowings up to $450 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 45 and 60 days from the date of the advance. Amounts
borrowed under the Supplemental Line of Credit may remain outstanding until the
expiration date of the Agreements (August 2000). No interest or finance charges
are payable on the Inventory Lines of Credit if payments are made when due. At
November 1, 1998, the Company had $386 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 $800 million of financing capacity represented by the Agreements,
$375 million was unused as of November 1, 1998. Utilization of the unused
portion is dependent upon the Company's collateral availability at the time the
funds would be needed.
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 November 1, 1998, the
Company was in compliance with these covenants.
In addition to the financing facilities discussed above, the Company
maintains an accounts receivable purchase agreement (the "PURCHASE AGREEMENT")
with a commercial credit corporation (the "BUYER") whereby the Buyer agrees to
purchase, from time to time at its option, on a limited recourse basis, certain
accounts receivable of the Company. Under the terms of the Purchase Agreement,
18
<PAGE>
no finance charges are assessed if the accounts are settled within forty days.
At November 1, 1998, the net amount of sold accounts receivable under the
Purchase Agreement was $37 million.
The Company also maintains trade credit arrangements with its suppliers
and other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
Several of the Company's major suppliers have announced their intention
to change the terms within 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, when
implemented, will increase the Company's working capital requirements and will
increase the Company's financing costs. There can be no assurance that the
Company will be able to borrow adequate amounts on terms acceptable to the
Company.
The unavailability of a significant portion of, or the loss of, the
Agreements or trade credit from suppliers would have a material adverse effect
on the Company.
Although the Company has no material capital commitments, the Company
expects to make capital expenditures of approximately $30 to $35 million in the
next fiscal year.
INFLATION
The Company believes that inflation has generally not had a material
impact on its operations or liquidity to date.
YEAR 2000 READINESS DISCLOSURE
The term "Year 2000 problem" is a general term used to describe the
various problems that may result from the improper processing of dates and date
sensitive calculations by computers and other equipment as the year 2000
approaches and is reached. These problems generally arise from the fact that
computers and equipment have historically used two-digit fields that recognize
dates using the assumption that the first two digits are "19." On January 1,
2000, systems using two-digit date fields could recognize a date using "00" as
the year 1900 rather than the year 2000.
The Company started a Year 2000 awareness campaign in 1996. In 1996, a
Year 2000 team was formed to address the Company's Year 2000 issues. In
connection with this effort, the Company inventoried all critical systems with
Year 2000 implications. The Company then assessed whether inventoried items were
Year 2000 ready. The inventory and assessment phases are both 100% complete for
all mission critical systems. The final step involves remediation of those
systems that are not Year 2000 ready. The Company estimates that the remediation
process is 90% complete, and the few remaining mission critical systems that are
not ready are planned to be upgraded to a new vendor release, replaced, or
retired in the first half of 1999.
The Company also has surveyed its stocking manufacturers and obtained the
manufacturer's Year 2000 readiness statements or warranty, where available. A
database has been implemented to track this supplier information. Currently, a
substantial majority of stocking manufacturers have stated that their
currently-available products are capable of processing date sensitive
information in the Year 2000 and beyond. Manufacturers are using various forms
of terminology when referring to their product's Year 2000 status, such as
"ready," "compliant," or "capable." The definitions are not consistent and do
not guarantee that when the products are interfaced they will operate as
represented by the manufacturer. The Company is a distributor and integrator of
computer systems, not a manufacturer. Therefore, and generally, the Company does
not provide any additional warranty or certification and does not assume any
liability in the event the product does not perform according to the supplier's
warranty or statement.
With respect to external parties that provide critical goods and services
to the Company, including utility companies, telecommunication service
companies, shipping companies, and other service providers outside the Company's
control, the Company is seeking assurances, either through formal communications
or otherwise, that such parties will be Year 2000 ready.
The Company estimates that it has spent $1.3 million upgrading its
computer systems to be Year 2000 ready. The future anticipated cost to finish
implementing Year 2000 readiness is projected to be less than $1 million. These
estimates include only such expenditures for converting the Company's mainframe
and modifications to desktops and applications that directly interface with the
mainframe unit to be Year 2000 ready and exclude other expenses incurred for
regularly scheduled updates that would have been undertaken regardless of the
Year 2000 problem, but result in a system being Year 2000 ready. None of these
upgrades were accelerated by the need to make certain systems Year 2000 ready.
19
<PAGE>
Despite the efforts of the Company to become Year 2000 ready, no
assurance can be given that the Company's computer systems will be Year 2000
compliant in a timely manner or that the Company will not incur significant
additional expenses pursuing Year 2000 compliance. Moreover, even if the
Company's systems are Year 2000 compliant, there can be no assurance that the
Company will not be adversely affected by the failure of others to become Year
2000 compliant or by the failure of the Company's suppliers to provide Year 2000
compliant products for resale by the Company. The Company believes that its most
reasonably likely worst-case scenario is the failure of a third party to achieve
Year 2000 compliance. Such a failure could result in, for example, the inability
of the Company to ship product, a telecommunications failure at one or more of
the Company's facilities, a decrease in customer orders, delays in product
deliveries from vendors, or power outages at one or more of the Company's
facilities. The Company's Year 2000 readiness effort is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of
material external third parties. The Company believes that, with the completion
of its Year 2000 readiness effort as scheduled, the possibility of significant
interruptions of normal business operations should be minimized.
The Company is in the process of developing a contingency plan for the
Year 2000 problem. It is anticipated that this plan will be complete by the
middle of 1999. The plan includes the evaluation of potential disruptions in
business operations and plans for emergency power sources, manual procedures,
remediation of systems scheduled to be replaced, or other viable alternatives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements of the Company listed in the index
appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on
Form 10-K and are hereby incorporated by reference in this Item 8. See also
"Index to Financial Statements" on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated herein by
reference to the information furnished under the captions "Election Of
Directors" and "Section 16 Requirements" in the Company's Proxy Statement
relating to its 1999 Annual Meeting of Stockholders (the "1999 PROXY
STATEMENT").
Information regarding executive officers of the Company is included in
Item I of this report, furnished under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the information furnished under the captions "Executive
Compensation" and "Other Information Regarding the Board of Directors" in the
1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management of the Company is incorporated herein by reference to the information
furnished under the captions "Security Ownership of Management" and "Principal
Stockholders" in the 1999 Proxy Statement.
20
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information furnished under the caption
"Certain Relationships and Related Transactions" in the 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
Annual Report on Form 10-K:
(1) Consolidated Financial Statements: Page No.
--------
Report of Independent Accountants F-2
Consolidated Balance Sheets
at November 1, 1998 and
November 2, 1997 F-3
Consolidated Statements of Operations
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-4
Consolidated Statements of Cash Flows
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-5
Consolidated Statements of Stockholders' Equity
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-6
Notes to Consolidated Financial Statements F-7
(2) Consolidated Financial Statement Schedules:
Schedule I - Valuation and Qualifying Accounts
and Reserves S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
(3) The Exhibits which are filed with this Annual
Report or which are incorporated herein by
reference are set forth in the Exhibit Index
which appears on page E-1 hereof, which
Exhibit Index is incorporated herein by
reference. E-1
(b) Reports filed on Form 8-K during the quarter ended
November 1, 1998:
None.
(c) See Item 14(a)(3) above.
(d) See "Index to Consolidated Financial Statements"
included under Item 8 to this Annual Report on
Form 10-K.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 28th day of
January, 1999.
MICROAGE, INC.
(Registrant)
/s/ Jeffrey D. McKeever
-------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jeffrey D. McKeever
- ---------------------------- Director, Chairman of the Board January 28, 1999
Jeffrey D. McKeever and Chief Executive Officer
(Principal Executive Officer)
/s/ Lynda M. Applegate
- ---------------------------- Director January 28, 1999
Lynda M. Applegate
/s/ Cyrus F. Freidheim, Jr.
- ---------------------------- Director January 28, 1999
Cyrus F. Freidheim, Jr.
/s/ Roy A. Herberger, Jr.
- ---------------------------- Director January 28, 1999
Roy A. Herberger, Jr.
/s/ William H. Mallender
- ---------------------------- Director January 28, 1999
William H. Mallender
/s/ Steven G. Mihaylo
- ----------------------------- Director January 28, 1999
Steven G. Mihaylo
/s/ Dianne C. Walker
- ----------------------------- Director January 28, 1999
Dianne C. Walker
/s/ James R. Daniel
- ----------------------------- Executive Vice President, Chief January 28, 1999
James R. Daniel Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Raymond L. Storck
- ----------------------------- Vice President - Controller January 28, 1999
Raymond L. Storck and Assistant Treasurer
(Principal Accounting Officer)
22
<PAGE>
MICROAGE, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets
at November 1, 1998 and
November 2, 1997 F-3
Consolidated Statements of Operations
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-4
Consolidated Statements of Cash Flows
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-5
Consolidated Statements of Stockholders' Equity
for each of the fiscal years ended
November 1, 1998, November 2, 1997
and November 3, 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedule I - Valuation and Qualifying Accounts
and Reserves S-1
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MicroAge, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) (1) and (2) present fairly, in all material respects,
the financial position of MicroAge, Inc. and its subsidiaries at November 1,
1998 and November 2, 1997, and the results of their operations and their cash
flows for the fiscal years ended November 1, 1998, November 2, 1997, and
November 3, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3, the consolidated financial statements as of and for the
year ended November 2, 1997 have been restated to reflect an acquisition
utilizing the purchase method of accounting.
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 8, 1999
F-2
<PAGE>
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
November 1, November 2,
1998 1997
------------ ------------
Current assets:
Cash and cash equivalents $ 41,894 $ 22,279
Accounts and notes receivable, net 529,877 233,942
Inventory, net 486,150 479,332
Other 24,432 11,356
------------ ------------
Total current assets 1,082,353 746,909
Property and equipment, net 92,147 73,975
Intangible assets, net 126,105 85,903
Other 14,538 12,609
------------ ------------
Total assets $ 1,315,143 $ 919,396
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 967,501 $ 591,538
Accrued liabilities 24,279 22,527
Current portion of long-term obligations 3,095 2,744
Other 8,868 3,836
------------ ------------
Total current liabilities 1,003,743 620,645
Line of credit -- 30,650
Long-term obligations 5,553 4,537
Other long-term liabilities 15,361 1,239
Stockholders' equity:
Preferred stock, par value $1.00 per share -- --
Shares authorized: 5,000,000
Issued and outstanding: none
Common stock, par value $.01 per share 203 184
Shares authorized: 40,000,000
Issued: November 1, 1998 -- 20,284,789
November 2, 1997 -- 18,451,653
Additional paid-in capital 206,720 170,829
Retained earnings 83,729 92,129
Treasury stock, at cost (166) (817)
Shares: November 1, 1998 -- 16,378
November 2, 1997 -- 80,378
------------ ------------
Total stockholders' equity 290,486 262,325
------------ ------------
Total liabilities and stockholders'
equity $ 1,315,143 $ 919,396
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fiscal years ended
------------------------------------------
November 1, November 2, November 3,
1998 1997 1996
----------- ----------- -----------
Revenue $5,520,031 $4,379,208 $3,608,230
Cost of sales 5,166,790 4,081,743 3,401,249
---------- ---------- ----------
Gross profit 353,241 297,465 206,981
Operating and other expenses
Operating expenses 321,683 226,260 166,440
Restructuring and other
one-time charges 5,600 -- --
---------- ---------- ----------
Total 327,283 226,260 166,440
---------- ---------- ----------
Operating income 25,958 71,205 40,541
Other expenses - net 33,376 27,626 13,998
---------- ---------- ----------
Income (loss) before income taxes (7,418) 43,579 26,543
Provision for income taxes 907 18,382 11,014
---------- ---------- ----------
Net income (loss) $ (8,325) $ 25,197 $ 15,529
========== ========== ==========
Net income (loss) per common and
common equivalent share
Basic $ (0.42) $ 1.51 $ 0.97
========== ========== ==========
Diluted $ (0.42) $ 1.43 $ 0.94
========== ========== ==========
Weighted average common and common
equivalent shares outstanding
Basic 19,783 16,731 15,978
Diluted 19,783 17,635 16,452
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------
November 1, November 2, November 3,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,325) $ 25,197 $ 15,529
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 40,602 24,002 20,337
Provision for losses on accounts and
notes receivable 13,640 9,208 7,629
Changes in assets and liabilities net
of business acquisitions:
Accounts and notes receivable (275,115) 63,390 (76,781)
Inventory (1,759) (143,786) (26,472)
Other current assets (13,468) 21 1,907
Other assets (483) (5,547) (3,772)
Accounts payable 340,200 35,198 88,541
Accrued liabilities (639) (4,345) 10,036
Other liabilities 8,897 679 228
--------- --------- --------
Net cash provided by operating activities 103,550 4,017 37,182
Cash flows from investing activities:
Purchases of property and equipment (42,258) (34,988) (24,101)
Purchases of businesses and investments
in unconsolidated companies, net of
cash acquired (7,259) (1,810) (4,150)
--------- --------- --------
Net cash used in investing activities (49,517) (36,798) (28,251)
Cash flows from financing activities:
Amounts received from ESOT -- 207 561
Proceeds from issuance of stock, net of
issuance costs 3,412 5,886 1,873
Net borrowings (repayments) under lines
of credit (30,650) 30,650 --
Shareholder distributions - pooled companies (128) (953) (291)
Principal payments on long-term obligations (7,052) (2,665) (3,282)
--------- --------- --------
Net cash provided by (used in) financing
activities (34,418) 33,125 (1,139)
--------- --------- --------
Net increase in cash and cash equivalents 19,615 344 7,792
Cash and cash equivalents at beginning
of period 22,279 21,935 14,143
--------- --------- --------
Cash and cash equivalents at end of period $ 41,894 $ 22,279 $ 21,935
========= ========= ========
Supplemental disclosure to cash flows - See Note 13
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
MICROAGE, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
For the fiscal years ended November 1, 1998, November 2, 1997, and November 3, 1996
-----------------------------------------------------------------------------------
Additional Note-stock Total
Preferred Common paid-in Retained Loan to purchase Treasury stockholders'
stock stock capital earnings ESOT agreement stock equity
----- ----- ------- -------- ---- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE at October 29, 1995 -- 160 122,731 52,647 (768) (2,000) (862) 171,908
Options for 108,861
common shares exercised -- 1 934 -- -- -- -- 935
Contribution of 18,415 treasury
shares to employee benefit plan -- -- 5 -- -- -- 138 143
Issuance of 110,932 shares under
the employee stock purchase plan -- 1 777 -- -- -- -- 778
Contributed capital - pooled company -- -- 17 -- -- -- -- 17
Cancellation of convertible
subordinated debentures due
to acquisition -- -- -- -- -- 2,000 -- 2,000
Loan payments from ESOT -- -- -- -- 561 -- -- 561
Distributions to shareholders -
pooled companies -- -- -- (291) -- -- -- (291)
Net income -- -- -- 15,529 -- -- -- 15,529
---- ---- -------- ------- ----- ------ ----- -------
BALANCE at November 3, 1996 -- 162 124,464 67,885 (207) -- (724) 191,580
Options for 445,579
common shares exercised -- 5 4,050 -- -- -- -- 4,055
Contribution of 31,731 treasury
shares to employee benefit plan -- -- 205 -- -- -- 262 467
Issuance of 99,703 shares under
the employee stock purchase plan -- 1 1,353 -- -- -- -- 1,354
Loan payments from ESOT -- -- -- -- 207 -- -- 207
Issuance of 108,417 shares to
acquire KNB, Inc. -- 1 2,002 -- -- -- -- 2,003
Issuance of 609,779 shares to
cquire Access MicroSystems, Inc. -- 6 15,894 -- -- -- -- 15,900
Issuance of 8,000 restricted common
shares to outside directors -- -- 122 -- -- -- -- 122
Issuance of 932,039 shares to
acquire Pride Technologies, Inc. -- 9 22,496 -- -- -- -- 22,505
Unearned compensation -
restricted common shares issued
to directors -- -- (122) -- -- -- -- (122)
Compensation expense-
restricted common shares issued
to directors -- -- 40 -- -- -- -- 40
Compensation expense-stock option
excercise -- -- 325 -- -- -- -- 325
15,080 shares of treasury stock
acquired through cashless stock
option exercises -- -- -- -- -- -- (355) (355)
Distributions to shareholders -
pooled companies -- -- -- (953) -- -- -- (953)
Net income -- -- -- 25,197 -- -- -- 25,197
---- ---- -------- ------- ----- ------ ----- -------
BALANCE at November 2, 1997 -- 184 170,829 92,129 -- -- (817) 262,325
Compensation expense-
restricted common shares issued
to directors -- -- 85 -- -- -- -- 85
Compensation expense-stock options -- -- 500 -- -- -- -- 500
Options for 79,936 common shares
exercised -- 1 534 -- -- -- -- 535
Issuance of 5,000 restricted common
shares to outside directors -- -- 110 -- -- -- -- 110
Unearned compensation -
restricted common shares issued to
directors -- -- (110) -- -- -- -- (110)
Issuance of 1,565,730 shares for
business acquisitions -- 16 32,484 -- -- -- -- 32,500
Issuance of 182,470 common shares
under the employee stock purchase
plan -- 2 2,254 -- -- -- -- 2,256
Contribution of 64,000 shares of
treasury stock to employee benefit
plan -- -- 34 -- -- -- 651 685
Distributions to shareholders -
pooled companies -- -- -- (128) -- -- -- (128)
Unrealized translation gain -- -- -- 53 -- -- -- 53
Net loss -- -- -- (8,325) -- -- -- (8,325)
---- ---- -------- ------- ----- ------ ----- --------
BALANCE at November 1, 1998 $ -- $203 $206,720 $83,729 $ -- $ -- $(166) $290,486
==== ==== ======== ======= ===== ====== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
The Company is a global provider of efficient technology solutions. The Company
is composed of information technology businesses that deliver technology
solutions through ISO 9001-certified, multi-vendor integration services and
distributed computing solutions to large organizations and computer resellers
worldwide.
In February 1998, the company initiated a plan to restructure the Company into
two independent businesses - an integration business ("MicroAge IT Services")
and a distribution business operated through a wholly-owned subsidiary, Pinacor,
Inc. ("Pinacor"). MicroAge IT Services provides ISO 9001-certified
multi-supplier integration services and distributed computing solutions to large
organizations worldwide. MicroAge IT Services serves corporations, institutions
and government agencies through its network of more than forty company-owned
locations, in addition to owner-managed branches and alliance partners spanning
more than forty countries.
Pinacor delivers market-leading technology products and innovative services
(including product financing, technical support and distribution) to reseller
customers worldwide. The customer group consists of franchised resellers and
non-franchised resellers, including value-added resellers ("VARs"). Pinacor
provides products and a variety of services, including technical, financial and
account management offerings, to more than 25,000 resellers. Using electronic
commerce to streamline the delivery of efficient technology solutions and
services, Pinacor supports customers worldwide from strategic distribution hubs
in the United States and Latin America. Unless the context otherwise requires,
references to the "Company" include MicroAge, Inc. and its consolidated
subsidiaries.
During fiscal 1998, the Company made an acquisition which has been accounted for
as a pooling of interests. Accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of the
acquired company for all periods presented. In addition, a 1997 acquisition
originally accounted for as a pooling of interests has been restated under the
purchase method of accounting (see Note 3 below).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have been
eliminated.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest October 31 in each calendar
year. The fiscal years ended November 1, 1998 and November 2, 1997 included 52
weeks. The fiscal year ended November 3, 1996 included 53 weeks.
F-7
<PAGE>
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure requirements are
carried in the consolidated financial statements at amounts that approximate
fair value.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
CASH OVERDRAFTS
Under the Company's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes. Such
amounts, aggregating $158.5 and $45.4 million at November 1, 1998 and November
2, 1997, respectively, are included as a component of accounts payable in the
accompanying consolidated balance sheets.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are comprised of amounts due from financing
companies, end-users, and resellers and are net of an allowance for doubtful
accounts of $20,418,000 and $10,966,000 at November 1, 1998 and November 2,
1997, respectively.
INVENTORY
Inventory consisting of resale merchandise is stated at lower of cost (first-in,
first-out method) or market. International Business Machines Corporation ("IBM")
products totaling $65,775,000 and $79,436,000 included in inventory at November
1, 1998 and November 2, 1997, respectively, are subject to a reservation of the
title in IBM for the purpose of assuring that such products are sold and
delivered only to IBM-authorized personal computer dealers; such reservation
does not prohibit the Company from granting security interests to other parties.
During the fiscal year ended November 1, 1998, sales of COMPAQ Computer
Corporation, Hewlett-Packard Company and IBM products accounted for
approximately 26%, 19% and 13%, respectively, of the Company's revenue from
sales of merchandise. The sales of no other individual supplier's products
accounted for more than 10% of such revenue during the fiscal year ended
November 1, 1998.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on the
straight-line method over their estimated useful lives. Equipment under capital
lease is recorded at the lower of fair market value or the present value of
future lease payments and is amortized on the straight-line method over the
estimated useful life or the term of the lease, whichever is less.
The following reflects the estimated lives by category of property and
equipment:
Furniture, fixtures, equipment and software 3 to 7 years
Equipment under capital lease 3 to 5 years
Leasehold improvements 3 to 5 years
Expenditures for maintenance and repairs are charged to operations in the year
in which the expense is incurred.
F-8
<PAGE>
INTANGIBLE ASSETS
Intangible assets are amortized over their economic lives ranging from three to
fifteen years using the straight-line method. For acquisitions accounted for
under the purchase method, the excess of cost over the fair value of net
identifiable assets acquired is classified as goodwill and is included in
intangible assets. On an ongoing basis, the Company reviews the valuation and
amortization of goodwill. As part of this review, the Company estimates the net
realizable value of goodwill and assesses whether the unamortized balance could
be recovered through expected future cash flows over the remaining life of the
asset. At November 1, 1998 and November 2, 1997, no impairment was indicated.
Intangible assets are net of $16,594,000 and $7,264,000 of accumulated
amortization at November 1, 1998, and November 2, 1997, respectively.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment. Revenue from
services is recognized as services are performed, or ratably if performed over a
service contract period.
SUPPLIER INCENTIVE FUNDS
In general, suppliers provide the Company with various incentive programs. The
funds received under these programs are generally determined based on the
Company's purchases and/or sales of the suppliers' product. The funds are earned
through marketing programs or meeting purchasing or other objectives established
by the suppliers. Once earned, the funds are applied against product cost or
operating expenses.
ACCOUNTING FOR STOCK BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123"), the Company measures compensation
cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") but provides pro forma disclosures of
net income and earnings per share as if the fair value method (as defined in
SFAS 123) had been applied beginning in 1996 (see Note 8).
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled.
F-9
<PAGE>
INCOME PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which replaced the previous presentation of
earnings per share with a dual presentation of basic earnings per share and
diluted earnings per share. Basic earnings per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Dilutive common equivalent shares
consist of stock options and warrants using the treasury stock method. For
fiscal 1998, the effect of stock options and warrants is not included as it
would be anti-dilutive. The weighted average common and common equivalent shares
consist of the following:
Fiscal years ended
--------------------------------------
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
(in thousands)
Weighted average common shares 19,783 16,731 15,978
Dilutive effect of stock options
and warrants -- 904 474
------ ------ ------
Weighted average common and common
equivalent shares outstanding 19,783 17,635 16,452
====== ====== ======
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation. Certain amounts receivable from vendors have
been reclassified to accounts payable to conform with current year presentation
and industry practice.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 3 - ACQUISITIONS
POOLINGS OF INTEREST
During fiscal 1998, the Company completed an acquisition of Gaines Computer
Service, Inc. ("Gaines"), a reseller, that was accounted for as a pooling of
interests. The Company issued 601,724 common shares in exchange for all of the
outstanding shares of Gaines. The Company's consolidated financial statements
have been restated to include the accounts and operations of Gaines for all
periods presented.
In addition, fiscal years 1996 and 1997 have been restated for a fiscal 1997
acquisition. This acquisition was originally accounted for on a pooling of
interests basis. Subsequent information came to light indicating that actions
taken by the former owners of the acquired business rendered the pooling of
interests accounting inappropriate. The Company has restated the fiscal 1997 and
1996 financial statements to reflect such acquisition using the purchase method
of accounting. The Company has also restated the previously issued consolidated
results for each of the first three fiscal quarters of 1998 to reflect such
acquisition using the purchase method of accounting. The restatement resulted in
a charge of $702,000 per quarter of additional goodwill amortization shown as
F-10
<PAGE>
other expense in the consolidated statement of operations. See Note 16 for
Selected Quarterly Financial Data (Unaudited).
The results of operations previously reported by the Company and Gaines and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below (in thousands).
Pooling
Converted
MicroAge Gaines to Purchase Combined
-------- ------ ----------- --------
Fiscal year 1997:
Revenue $4,446,308 $45,560 $(112,660) $4,379,208
Net income $ 24,965 $ 668 $ (436) $ 25,197
Fiscal year 1996:
Revenue $3,696,160 $45,580 $(133,510) $3,608,230
Net income $ 14,110 $ 989 $ 430 $ 15,529
PURCHASES
During fiscal 1998, the Company completed seven separate acquisitions that were
accounted for using the purchase method of accounting. In each case, the
purchase price was allocated to the assets purchased and the liabilities assumed
based on fair values at the date of acquisition. These acquisitions are as
follows:
In November 1997, the Company acquired Microretailing, Inc., a Miami-based
distributor, for consideration of $25 million consisting of 1,194,055 common
shares. The excess of the purchase price over the fair value of net assets
acquired was approximately $23.9 million and is being amortized using the
straight-line method over 15 years.
Also in November 1997, the Company acquired Advanced Information Services, Inc.,
a reseller, for consideration of $5 million consisting of 207,200 common shares,
plus an earnout agreement with a guaranteed minimum payment of $7.5 million. The
excess of the purchase price over the fair value of net assets acquired was
approximately $12.6 million and is being amortized using the straight-line
method over 15 years.
In December 1997, July 1998 and August 1998, the Company acquired resellers in
four separate transactions for consideration of $6 million consisting of $2
million in cash, a total of 164,475 common shares and an earnout with a
guaranteed minimum payment of $1.5 million. The excess of the purchase price
over the fair value of net assets acquired was approximately $4.5 million and is
being amortized using the straight-line method over 15 years.
In June 1998, the Company acquired a reseller for consideration of $4.8 million
consisting of cash. The excess of the purchase price over the fair value of net
assets acquired was approximately $4.2 million and is being amortized using the
straight-line method over 15 years.
F-11
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
November 1, November 2,
1998 1997
---- ----
(in thousands)
Equipment, furniture, fixtures and software $157,431 $115,840
Equipment under capital lease 20,587 15,948
Leasehold improvements 19,476 16,235
Land 3,112 1,839
-------- --------
200,606 149,862
Less: accumulated depreciation and
amortization 108,459 75,887
-------- --------
$ 92,147 $ 73,975
======== ========
NOTE 5 - LEASES
The following is a schedule by year of future minimum lease obligations under
noncancelable leases together with the present value of the net minimum capital
lease obligations as of November 1, 1998:
Operating Capital
leases leases
------ ------
Fiscal year ending in: (in thousands)
1999 $14,413 $ 3,705
2000 12,438 2,805
2001 11,378 2,392
2002 9,615 995
2003 7,354 50
Thereafter 5,189 --
------- -------
Total minimum lease obligations $60,387 9,947
=======
Less: amount representing interest 1,299
-------
Present value of minimum lease obligations $ 8,648
=======
None of the leases contain significant restrictive provisions; however, some of
the leases contain renewal options and provisions for payment by the Company of
real estate taxes, insurance and maintenance costs. Total rent expense was (in
thousands):
Fiscal year ended:
November 3, 1996 $10,721
November 2, 1997 $15,007
November 1, 1998 $23,239
F-12
<PAGE>
NOTE 6 - FINANCING ARRANGEMENTS
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $800 million. The Agreements include an accounts
receivable facility (the "A/R Facility") and inventory financing facilities (the
"Inventory Facilities").
Under the A/R Facility, the Company has the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At November 1, 1998, the net
amount of sold accounts receivable was $39 million and the effective funding
rate was LIBOR plus 1.85% (7.07% at November 1, 1998).
The Inventory Facilities provide for borrowings up to $450 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 45 and
60 days from the date of the advance. Amounts borrowed under the Supplemental
Line of Credit may remain outstanding until the expiration date of the
Agreements (August 2000). No interest or finance charges are payable on the
Inventory Lines of Credit if payments are made when due. At November 1, 1998,
the Company had $386 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.
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 November 1, 1998, the
Company was in compliance with these covenants.
In addition to the financing facilities discussed above, the Company maintains
an accounts receivable purchase agreement (the "Purchase Agreement") with a
commercial credit corporation (the "Buyer") whereby the Buyer agrees to
purchase, from time to time at its option, on a limited recourse basis, certain
accounts of the Company. Under the terms of the Purchase Agreement, no finance
charges are assessed if the accounts are settled within forty days. At November
1, 1998, the net amount of sold accounts receivable under the Purchase Agreement
was $37 million.
The Company also maintains trade credit arrangements with its suppliers and
other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
F-13
<PAGE>
NOTE 7 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
November 1, November 2,
1998 1997
---- ----
(in thousands)
Capital lease obligations $8,648 $7,281
Less: current portion 3,095 2,744
------ ------
$5,553 $4,537
====== ======
Following are the annual maturities of long-term obligations (in thousands):
Fiscal year ending in:
1999 $3,095
2000 2,346
2001 2,198
2002 959
2003 50
------
$8,648
======
NOTE 8 - STOCKHOLDERS' EQUITY
EMPLOYEE STOCK OPTION AND AWARD PLANS
The Company maintains two incentive plans for officers and other key employees
of the Company: the MicroAge Inc. Long-Term Incentive Plan, approved in fiscal
1994 and the 1997 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal
1998 (the "Incentive Plans"). The Incentive Plans authorize grants of Incentive
Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation
Rights, Performance Shares, Restricted Stock, Dividend Equivalents and other
Common Stock based awards. The total number of shares of common stock available
for awards under the Incentive Plans is 3,800,000.
The Company has issued NQSOs and ISOs under the Incentive Plans at prices
representing the fair market value of the Company's common stock on the date of
the grant. The NQSOs and ISOs are granted for terms of five years and become
exercisable on a pro-rata basis on each anniversary of the grant over a
five-year period as long as the holder remains an employee of the Company. NQSOs
under the Incentive Plans were also granted in fiscal 1994 and fiscal 1997 to
selected employees in exchange for the employees' irrevocable waiver of a
specific amount of base salary or bonus otherwise payable by the Company during
a specific period. The options will vest in one-third increments beginning on
the January 1 which is three years following the January 1 of the calendar year
in which the participant elects to waive compensation. No other awards have been
made under the Incentive Plans.
In addition to the Incentive Plans, stock options are available under four plans
for grant to certain officers and employees of the Company at prices
representing the fair market value of the Company's common stock on the date of
the grant. Options under these plans are granted for terms of five years and
become exercisable on a pro-rata basis on each anniversary date of the grant
over a five-year period as long as the holder remains an employee of the
Company.
F-14
<PAGE>
Changes during fiscal 1996, 1997 and 1998 in options outstanding under the
employee stock option plans (including the Incentive Plans) were as follows:
Weighted
Average
Number Exercise Price
of Options per Share
---------- ---------
Outstanding at October 29, 1995 1,771,898 $ 9.51
Granted 339,000 $10.29
Exercised (97,125) $ 8.61
Canceled or expired (157,630) $10.93
---------
Outstanding at November 3, 1996 1,856,143 $ 9.58
Granted 788,379 $20.12
Exercised (438,079) $ 9.44
Canceled or expired (107,474) $14.02
---------
Outstanding at November 2, 1997 2,098,969 $13.28
Granted 1,081,575 $13.99
Exercised (79,936) $ 6.65
Canceled or expired (238,376) $17.63
---------
Outstanding at November 1, 1998 2,862,232 $13.41
=========
Exercisable at November 1, 1998 514,700
=========
The following table summarizes information about the Company's stock options at
November 1, 1998:
Options Outstanding Options Exercisable
------------------------------------ -------------------------
Weighted Weighted
Avg. Avg.
Number Contractual Exercise Number Exercise
Range of Outstanding Years Price Exercisable Price
Exercise Prices (in thousands) Remaining per share (in thousands) per share
- --------------- -------------- --------- --------- -------------- ---------
$6.00 to $9.25 902 1.72 $ 8.69 163 $ 8.28
$10.42 to $19.44 1,648 4.48 $14.11 288 $11.47
$20.38 to $31.75 312 3.86 $23.36 64 $24.05
----- ---
$6.00 to $31.75 2,862 3.55 $13.41 515 $11.99
===== ===
F-15
<PAGE>
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123"), the Company measures compensation
cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). Had the Company determined
compensation cost in accordance with SFAS No. 123, the Company's net income
(loss) per share would have been reduced to the pro-forma amounts indicated
below (in thousands except per share data):
Fiscal year ended
----------------------------------------
November 1, November 2, November 3,
1998 1997 1996
Net income (loss) As reported $ (8,325) $25,197 $15,529
Pro-forma $(11,009) $23,374 $14,533
Diluted net income
(loss) per common share As reported $ (0.42) $ 1.43 $ 0.94
Pro-forma $ (0.56) $ 1.33 $ 0.88
Pro forma net income (loss) reflects only options granted during the fiscal
years ended November 3, 1996, November 2, 1997 and November 1, 1998. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro-forma net income (loss) amounts presented
above because compensation cost is reflected over the options' vesting period
and compensation for options granted prior to October 30, 1995 is not
considered.
The per share weighted-average fair value of the stock options granted under the
plan for the years ended November 3, 1996, November 2, 1997 and November 1, 1998
was $5.11, $8.35 and $11.71 respectively, based on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for all years: expected dividend yield of 0%, expected volatility of
.622, a risk free interest rate of 5.97%, and an expected life of 3.31 years.
PINACOR STOCK OPTION
Effective as of May 2, 1998, an option was granted to an associate of the
Company to purchase a total of 60 shares of Pinacor's common stock, representing
six percent of Pinacor's total outstanding shares, at an exercise price of
$150,000 per share. The option vests in installments over a three year period
(unless accelerated under certain conditions) and terminates on the earliest to
occur of (1) May, 2, 2008, (2) the date the associate ceases to be employed by
the Company or any of its subsidiaries for any reason other than retirement,
death or disability, or (3) one year after the date the associate ceases to be
employed by the Company or any of its subsidiaries by reason of his retirement,
death or disability.
DIRECTOR STOCK PLANS
In March 1995, the Board of Directors and stockholders approved an incentive
plan for those Directors who are not officers or employees of the Company or its
subsidiaries (the "1995 Director Plan"). Under the 1995 Director Plan, on
November 1 of each year, commencing in 1995 and ending in 2004, each eligible
Director will automatically be granted (i) 1,000 shares of the Company's common
stock subject to certain restrictions and (ii) options to purchase 1,000 shares
of the Company's common stock. The options vest over three years and are subject
to certain stock price hurdles after each vesting date. As of November 1, 1998,
19,000 options had been granted under this plan at prices ranging from $8.38 to
$22.75 per share. There were 8,000 options exercisable as of November 1, 1998.
The aggregate number of shares of the Company's common stock available for
awards under the 1995 Director Plan is 80,000.
F-16
<PAGE>
RESTRICTED STOCK PLAN
In accordance with the provisions of a restricted stock plan approved in fiscal
1982, 45,000 shares of common stock were reserved for issuance. At November 1,
1998, 39,938 shares had been awarded under the plan, and 5,062 additional shares
may be awarded under the plan.
PREFERRED STOCK PURCHASE RIGHTS
In February 1989, as amended in November 1994, the Company's Board of Directors
adopted a Stockholder Rights Agreement (the "Rights Plan") and declared a
dividend distribution of one Right for each share of the Company's common stock
outstanding as of the close of business on March 7, 1989 and intends to issue
one Right for each share of common stock issued between March 7, 1989 and the
date of the distribution of the Rights. As amended, the Rights Plan provides
that when exercisable, each Right will entitle its holder to purchase from the
Company one one-hundredth (.01) of a share of Series C Junior Participating
Preferred stock at a price of $19.90. The Company has reserved 500,000 preferred
shares for issuance upon exercise of the Rights. Generally, the Rights become
exercisable on the earlier of the date a person or group of affiliated or
associated persons acquires or obtains the rights to acquire securities
representing fifteen percent (15%) or more of the common stock of the Company or
on the tenth day following the commencement of a tender or exchange offer which
would result in the offeror beneficially owning fifteen percent (15%) or more of
the Company's common stock without the prior consent of the Company. In the
event that an unauthorized person or group of affiliated persons becomes the
beneficial owner of fifteen percent (15%) or more of the common stock of the
Company, proper provision shall be made so that each holder of a Right will have
the right to receive, upon exercise thereof and the payment of the exercise
price, that number of shares of common stock having a market value of two times
the exercise price of the Right. The Rights will expire on February 23, 1999,
unless redeemed earlier by the Company pursuant to authorization by the Board of
Directors.
Generally, in the event that the Company is involved in a merger or other
business combination transaction after the Rights become exercisable, provision
shall be made so that each holder of a Right shall have the right to receive,
upon the exercise thereof and the payment of the exercise price, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
Right.
ASSOCIATE STOCK PURCHASE PLAN
In March 1995, the Board of Directors and stockholders approved an associate
stock purchase plan (the "Associate Plan"). The Associate Plan provides a means
for the Company's employees to authorize payroll deductions up to 10% of their
earnings to be used for the periodic purchase of the Company's common stock.
Under the Associate Plan, the Company will initially sell shares to participants
at a price equal to the lesser of 85% of the fair market value of the common
stock at the beginning of a six month subscription period or 85% of fair market
value at the end of the subscription period. The Associate Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The maximum number of shares that may be
purchased under the Associate Plan is 500,000. The initial subscription period
began July 1, 1995. As of November 1, 1998, 393,004 shares had been purchased
under the Associate Plan.
F-17
<PAGE>
NOTE 9 - OTHER EXPENSES - NET
Other expenses - net consists of the following:
Fiscal years ended
-----------------------------------------
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
(in thousands)
Interest expense $ 4,357 $ 6,142 $ 1,967
Expenses from the sale of accounts
receivable 16,468 18,769 11,438
Amortization expense 8,629 1,871 1,103
Other 3,922 844 (510)
-------- -------- --------
$ 33,376 $ 27,626 $ 13,998
======== ======== ========
NOTE 10 - INCOME TAXES
The provision for income taxes consists of the following:
Fiscal years ended
-----------------------------------------
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
(in thousands)
Current
Federal $ 1,698 $ 16,908 $ 7,736
State and Foreign 249 4,241 1,927
Deferred (1,040) (2,767) 1,351
-------- -------- --------
$ 907 $ 18,382 $ 11,014
======== ======== ========
The components of deferred income tax expense (benefit) from operations are as
follows:
Fiscal years ended
-----------------------------------------
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
(in thousands)
Allowance for doubtful accounts $(2,839) $ (209) $ 1,440
Software development costs 2,616 338 433
Depreciation and amortization (863) (1,075) (429)
Restructuring reserves -- 210 358
Inventory valuation allowance (709) (190) (300)
State deferral, net of federal
benefit 389 (488) 168
All other - net 366 (1,353) (319)
======= ======= =======
$(1,040) $(2,767) $ 1,351
======= ======= =======
F-18
<PAGE>
Deferred tax assets, which are recorded as a component of other assets or other
current assets, are comprised of the following:
November 1, November 2,
1998 1997
---- ----
Gross deferred tax assets: (in thousands)
Depreciation and amortization $ -- $ 3,111
Allowance for doubtful accounts 8,282 3,736
Inventory valuation 3,448 2,945
Deferred service revenue -- 918
Other 9,324 5,581
------- -------
Total gross deferred tax assets 21,054 16,291
------- -------
Gross deferred tax liabilities:
Depreciation and amortization 2,904 --
Other 264 370
------- -------
Total gross deferred tax liabilities 3,168 370
------- -------
Net deferred tax asset $17,886 $15,921
======= =======
In light of the Company's history of profitable operations, management has
concluded that it is more likely than not that the Company will ultimately
realize the full benefit of its deferred tax assets related to future deductible
items. Accordingly, the Company believes that no valuation allowance is required
for the deferred tax assets in excess of deferred tax liabilities.
The effective tax rate applied to income before income taxes differs from the
expected federal statutory rate as follows:
Fiscal years ended
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
Federal statutory rate (34.0)% 35.0% 35.0%
Addition (reduction) in taxes
resulting from:
State income taxes, net of
federal tax benefit 7.4 5.5 5.6
Non-deductible meals and
entertainment 6.3 0.7 0.7
Non-deductible goodwill
amortization 31.8 0.3 0.2
Impact of pooling of interests
with subchapter S corp -- (0.5) (1.2)
Other 0.7 1.2 1.2
----- ---- ----
12.2% 42.2% 41.5%
===== ==== ====
F-19
<PAGE>
NOTE 11 - COMMITMENTS
The Company has arrangements with major vendors and certain financing companies
to develop inventory and accounts receivable financing facilities for certain
reseller customers. These arrangements include repurchase agreements that would
require the Company to repurchase inventory which might be repossessed from a
reseller by the vendor or the financing company. As of November 1, 1998, such
repurchases have been insignificant.
The Company also provides a program whereby the Company may guarantee an
addition to a reseller's credit facility with certain finance companies. The
Company's maximum exposure for guaranteed amounts at November 1, 1998 is $28
million. On an ongoing basis, the Company assesses the exposure under the
guarantee program and provides a reserve for potential losses. As of November 1,
1998, losses and reserves related to the guarantee program have not been
material.
NOTE 12 - EMPLOYEE BENEFIT PLAN
In July 1988, a deferred compensation plan (the "Savings Plan") became effective
for all eligible employees of the Company under the provisions of Section 401(k)
of the Internal Revenue Code. Employees are eligible to participate after one
year of service and may contribute a percentage of their salary subject to
certain limitations. Subject to certain profitability requirements, the Company
has historically matched 25% of the employee contribution up to a maximum
employee contribution of 6%, as defined in the Savings Plan. Participants are at
all times fully vested in their contributions, and the Company contributions, if
any, become fully vested to the participant after five years of employment.
In addition to the Savings Plan, the Company has also adopted a supplemental
deferred compensation plan (the "Supplemental Savings Plan") for employees
holding key management positions or highly compensated employees for purposes of
Title I of ERISA. Eligible employees may contribute a percentage of their salary
subject to certain limitations as established by the Plan Administrator. The
Company has historically matched 25% of the employee contribution. Participants
are at all times fully vested in their contributions, and the company
contributions, if any, become fully vested to the participant after five years
of employment. Contributions to the Supplemental Savings Plan are held by a
Trustee, however it is not qualified under the provisions of Section 401(k) of
the Internal Revenue Code. All benefits payable under the Supplemental Savings
Plan therefore are unsecured obligations of the Company.
The Company recognized matching contribution expense for the Savings Plan and
the Supplemental Savings Plan of $1.0 million, $740,000 and $570,000 in fiscal
years 1998, 1997 and 1996, respectively.
F-20
<PAGE>
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
Fiscal years ended
-----------------------------------------
November 1, November 2, November 3,
1998 1997 1996
---- ---- ----
(in thousands)
Details of acquisitions:
Fair value of assets acquired $53,793 $47,816 $ 2,000
Liabilities assumed and acquisition-
related accruals $59,080 $73,321 $ --
Cash acquired $ 101 $ 76 $ --
Note forgiven $ -- $ 124 $ 2,000
Purchase obligation forgiven $ -- $ -- $ 1,029
Details of other financing activities:
Capital lease obligations executed
for equipment $ 4,875 $ 3,834 $ 2,303
Cash paid for:
Interest $ 5,041 $ 4,635 $ 2,000
Income taxes $ 3,332 $27,301 $ 6,029
NOTE 14 - RESTRUCTURING AND OTHER ONE-TIME CHARGES
In February 1998, the Company initiated a plan to restructure the Company into
two independent businesses - an integration business ("MicroAge IT Services")
and a distribution business operated through a wholly-owned subsidiary, Pinacor,
Inc. ("Pinacor"). These businesses now have separate management teams, operate
autonomously in their respective marketplaces, and contract with headquarters
for a limited number of services.
In connection with the restructuring plan discussed above, the Company recorded
a $5.6 million charge. The restructuring and other one-time charges included
$3.6 million for employee termination benefits, $1.1 million for the closing and
consolidation of redundant locations, and $0.9 million for other costs related
to the restructuring, primarily one-time costs incurred in establishing Pinacor
and MicroAge IT Services as separate businesses. The charges associated with
employee termination benefits consist primarily of severance pay for
approximately 250 associates. The reductions occurred in virtually all areas of
the Company and have been completed. As of November 1, 1998, the remaining
liability for restructuring activities was not material.
NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") to establish standards for
reporting information about operating segments in annual financial statements,
selected information about operating segments in interim financial reports and
disclosures about products and services, geographic areas and major customers.
SFAS 131 may require the Company to report financial information on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments, which may result in more detailed information in
the notes to the Company's consolidated financial statements than is currently
required and provided under FASB Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business Enterprise". SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.
F-21
<PAGE>
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Consolidated quarterly financial information for fiscal 1998 and 1997, restated
to reflect acquisitions accounted for as poolings of interests, is as follows
(in thousands except per share data):
Fiscal 1998
-----------------------------------------------
Quarter ended February 1 May 3 August 2 November 1
---------- ----- -------- ----------
Revenue
As previously reported $1,179,011 $1,326,950 $1,441,246 $1,572,824
Pooling converted to purchase -- -- -- --
---------- ---------- ---------- ----------
Combined $1,179,011 $1,326,950 $1,441,246 $1,572,824
Gross profit
As previously reported $ 73,825 $ 84,581 $ 86,671 $ 108,164
Pooling converted to purchase -- -- -- --
---------- ---------- ---------- ----------
Combined $ 73,825 $ 84,581 $ 86,671 $ 108,164
Operating income (loss)
As previously reported $ 764 $ (671) $ 8,884 $ 16,981
Pooling converted to purchase -- -- -- --
---------- ---------- ---------- ----------
Combined $ 764 $ (671) $ 8,884 $ 16,981
Net income (loss)
As previously reported $ (5,414) $ (5,255) $ 728 $ 3,722
Pooling converted to purchase (702) (702) (702) --
---------- ---------- ---------- ----------
Combined $ (6,116) $ (5,957) $ 26 $ 3,722
========== ========== ========== ==========
Diluted net income (loss) per
common and common equivalent
share, combined $ (0.31) $ (0.30) $ 0.00 $ 0.18
========== ========== ========== ==========
F-22
<PAGE>
Fiscal 1997
-----------------------------------------------
Quarter ended February 2 May 4 August 3 November 2
---------- ----- -------- ----------
Revenue
As previously reported $890,748 $1,086,018 $1,147,632 $1,321,910
Pooled enterprise 6,672 15,089 14,207 9,592
Pooling converted to purchase (12,662) (42,803) (44,564) (12,631)
-------- ---------- ---------- ----------
Combined $884,758 $1,058,304 $1,117,275 $1,318,871
Gross profit
As previously reported $ 62,103 $ 75,982 $ 82,302 $ 89,293
Pooled enterprise 807 2,187 2,069 1,997
Pooling converted to purchase (2,370) (7,218) (7,718) (1,969)
-------- ---------- ---------- ----------
Combined $ 60,540 $ 70,951 $ 76,653 $ 89,321
Operating income
As previously reported $ 13,412 $ 18,113 $ 18,727 $ 20,451
Pooled enterprise 225 444 199 129
Pooling converted to purchase 33 (172) (328) (28)
-------- ---------- ---------- ----------
Combined $ 13,670 $ 18,385 $ 18,598 $ 20,552
Net income
As previously reported $ 4,857 $ 6,244 $ 6,484 $ 7,380
Pooled enterprise 180 323 122 43
Pooling converted to purchase 33 (191) (253) (25)
-------- ---------- ---------- ----------
Combined $ 5,070 $ 6,376 $ 6,353 $ 7,398
======== ========== ========== ==========
Diluted net income per common
and common equivalent share,
combined $ 0.29 $ 0.38 $ 0.37 $ 0.39
======== ========== ========== ==========
F-23
<PAGE>
MicroAge, Inc.
Schedule 1
Valuation and Qualifying Accounts and Reserves
(in thousands)
Years ended November 1, 1998, November 2, 1997 and November 3, 1996
<TABLE>
<CAPTION>
Balance at Charged to Charged to
of beginning costs and other Dedcutions/ Balance at end
Description period expenses accounts write-offs of period
----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 3, 1996 12,394 7,629 - (11,618) 8,405
======= ======= === ======= =======
Year ended November 2, 1997 8,405 9,208 - (6,647) 10,966
======= ======= === ======= =======
Year ended November 1, 1998 10,966 13,640 - (4,188) 20,418
======= ======= === ======= =======
</TABLE>
S-1
<PAGE>
1998 10-K EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation of MicroAge, Inc. (Incorporated
by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994)
3.2 By-Laws of MicroAge, Inc., amended and restated as of July 16, 1998
(Incorporated by reference to Exhibit 4.2 to Registration Statement
No. 333-62763, filed on September 2, 1998)
4.1 Specimen Common Stock Certificate (reference is also made to Exhibits
3.1 and 3.2) (Incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-45510)
4.2 Amended and Restated Rights Agreement, dated as of September 28, 1994,
between MicroAge, Inc. and First Interstate Bank of California
(Incorporated by reference to Exhibit 1.1 to the Form 8-A filed
January 13, 1994)
4.2.1 First Amendment, dated as of November 5, 1996, by and between
MicroAge, Inc. and American Stock Transfer and Trust Company to
Amended and Restated Rights Agreement, dated as of September 28, 1994,
between MicroAge, Inc. and First Interstate Bank of California
(Incorporated by reference to Exhibit 4.2.1 to the Annual Report on
Form 10-K for year ended November 3, 1996)
10.1 MicroAge, Inc. Executive Supplemental Savings Plan (1), amended and
restated as of October 31, 1997 (Incorporated by reference to Exhibit
10.1 to the Annual Report on Form 10-K for the fiscal year ended
November 2, 1997)
10.2 Form of MicroAge 1994 Management Equity Program Award Agreement by and
between MicroAge, Inc. and certain executives (1) (Incorporated by
reference to Exhibit 10.2 to the Annual Report on Form 10-K for the
fiscal year ended October 30, 1994)
10.2.1 Form of First Amendment, dated as of December 14, 1995, to the
MicroAge 1994 Management Equity Program Award Agreement by and between
MicroAge, Inc. and certain executives (1) (Incorporated by reference
to Exhibit 10.2.1 to the Annual Report on Form 10-K for the year ended
November 3, 1996)
10.3 MicroAge, Inc. 1998 Associate Stock Award Plan, effective as of
September 24, 1998 (1)
10.4 Form of MicroAge, Inc. 1997 Management Equity Program Award Agreement
by and between MicroAge, Inc. and certain executives (1) (Incorporated
by reference to Exhibit 10.4 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.5 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Jeffrey D. McKeever and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.5 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
E-1
<PAGE>
10.6 Supplemental Executive Retirement Plan, dated as of October 1, 1992
(1) (Incorporated by reference to Exhibit 10.65.2 to Registration
Statement No. 33-33094)
10.6.1 First Amendment to Supplemental Executive Retirement Plan, dated
September 26, 1996 (1) (Incorporated by reference to Exhibit 10.6.1 to
the Annual Report on Form 10-K for fiscal year ended November 2, 1997)
10.6.2 Second Amendment to Supplemental Executive Retirement Plan, dated
October 1, 1997 (1) (Incorporated by reference to Exhibit 10.6.2 to
the Annual Report on Form 10-K for fiscal year ended November 2, 1997)
10.7 Amended and Restated Split-Dollar Insurance Agreement, dated as of
December 14, 1994, by and between MicroAge, Inc. and Jeffrey D.
McKeever (1) (Incorporated by reference to the Quarterly Report on
Form 10-Q for the quarter ended July 30, 1995)
10.8 Endorsement Split-Dollar Insurance Agreement, dated November 25, 1997,
by and between MicroAge, Inc. and Jeffrey D. McKeever (1)
(Incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q for the quarter ended February 1, 1998)
10.9 MicroAge, Inc. Compensation Trust, dated February 1, 1998, by and
between MicroAge, Inc. and Northern Trust Bank of Arizona, N.A. (1)
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended February 1, 1998)
10.10 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D.
McKeever (1) (Incorporated by reference to Exhibit 10.5.2 to the
Annual Report on Form 10-K for fiscal year ended November 3, 1996)
10.10.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1)
(Incorporated by reference to Exhibit 10.5.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.11 Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and
MCCI Holding Company, effective as of May 2, 1998 (1)
10.11.1 First Amendment, dated as of December 31, 1998, to Non-Qualified Stock
Option Agreement between Jeffrey D. McKeever and MCCI Holding Company
(1)
10.12 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Alan P. Hald and MicroAge, Inc. (1) (Incorporated
by reference to Exhibit 10.6 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.13 Split-Dollar Insurance Agreement, dated as of January 29, 1997, by and
between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference
to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year
ended November 3, 1996)
E-2
<PAGE>
10.14 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Alan P.
Hald (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual
Report on Form 10-K for fiscal year ended November 3, 1996)
10.14.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated
by reference to Exhibit 10.6.3 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.15 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between James R. Daniel and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.7 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.16 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by
and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the
fiscal year ended October 29, 1995)
10.17 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and James R.
Daniel (1) (Incorporated by reference to Exhibit 10.7.2 to the Annual
Report on Form 10-K for fiscal year ended November 3, 1996)
10.17.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and James R. Daniel (1)
(Incorporated by reference to Exhibit 10.7.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.18 Employment Agreement, dated as of January 4, 1999, by and between
Robert G. O'Malley and Pinacor Inc.
10.19 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by
and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.8.1 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
10.20 Split-Dollar Insurance Agreement, dated as of January 27, 1997, by and
between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by
reference to Exhibit 10.8.2 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
10.21 MicroAge, Inc. 1997 Management Equity Program Award Agreement by and
between MicroAge, Inc. and Robert G. O'Malley (1) (Incorporated by
reference to Exhibit 10.8.3 to the Annual Report on Form 10-K for the
fiscal year ended November 3, 1996)
10.22 Amended and Restated Employment Agreement, dated as of November 4,
1996, by and between Christopher J. Koziol and MicroAge, Inc. (1)
(Incorporated by reference to Exhibit 10.9 to the Annual Report on
Form 10-K for the fiscal year ended November 3, 1996)
E-3
<PAGE>
10.23 Split Dollar Insurance Agreement, dated as of September 1, 1995, by
and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated
by reference to Exhibit 10.9.1 to the Annual Report on Form 10-K for
the fiscal year ended November 3, 1996)
10.24 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated
as of December 14, 1993, by and between MicroAge, Inc. and Christopher
J. Koziol (1) (Incorporated by reference to Exhibit 10.9.2 to the
Annual Report on Form 10-K for the fiscal year ended November 3, 1996)
10.24.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994
Management Equity Program Award Agreement, dated as of December 14,
1993, by and between MicroAge, Inc. and Christopher J. Koziol (1)
(Incorporated by reference to Exhibit 10.9.3 to the Annual Report on
Form 10-K for fiscal year ended November 3, 1996)
10.25 Form of Employment Agreement, dated as of November 4, 1996, by and
between MicroAge, Inc. and certain executives (1) (Incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-K for
fiscal year ended November 3, 1996)
10.26 Form of Split-Dollar Insurance Agreement, dated September 1, 1995, by
and between MicroAge, Inc. and certain executives (1) (Incorporated by
reference to Exhibit 10.9 to the Annual Report on Form 10-K for the
fiscal year ended October 29, 1995)
10.27 The Amended and Restated MicroAge, Inc. 1989 Stock Option Plan (1)
(Incorporated by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q for the quarter ended January 30, 1994)
10.28 The Amended and Restated MicroAge, Inc. Directors' Stock Option Plan
(1) (Incorporated by reference to Exhibit 10.5 to the Quarterly Report
on Form 10-Q for the quarter ended January 30, 1994)
10.29 Amended and Restated MicroAge, Inc. Retirement Savings and Employee
Stock Ownership Plan and Trust Agreement (1) (Incorporated by
reference to Exhibit 10.14 to the Annual Report on Form 10-K for the
fiscal year ended October 30, 1994)
10.29.1 First Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement (1)
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended April 30, 1995)
10.29.2 Second Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
March 14, 1996 (1) (Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended July 28, 1996)
10.29.3 Third Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
October 28, 1996 (1) (Incorporated by reference to Exhibit 10.22.3 to
the Annual Report on Form 10-K for fiscal year ended November 3, 1996)
E-4
<PAGE>
10.29.4 Fourth Amendment to the Amended and Restated MicroAge, Inc. Retirement
Savings and Employee Stock Ownership Plan and Trust Agreement, dated
December 4, 1996 (1) (Incorporated by reference to Exhibit 10.23.4 to
the Annual Report on Form 10-K for fiscal year ended November 3, 1996)
10.29.5 Fifth Amendment, dated January 31, 1997, to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan
and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended February 2,
1997).
10.29.6 Sixth Amendment, dated August 1, 1997, to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan
and Trust Agreement (1) (Incorporated by reference to Exhibit 10.3 to
the Quarterly Report on Form 10-Q for the quarter ended August 3,
1997).
10.29.7 Seventh Amendment to the MicroAge, Inc. Retirement Savings and
Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1)
(Incorporated by reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998).
10.29.8 Eighth Amendment to the MicroAge, Inc. Retirement Savings and Employee
Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated
by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the quarter ended May 3, 1998).
10.30 MicroAge 1994 Long-Term Incentive Plan (1) (Incorporated by reference
to Exhibit A to the Proxy Statement for the Annual Meeting of
Stockholders of MicroAge, Inc. held on March 23, 1994, File No.
0-15995)
10.31 MicroAge, Inc. 1997 Long-Term Incentive Plan (1) (Incorporated by
reference to Appendix B to the Proxy Statement for the Annual Meeting
of Stockholders of MicroAge, Inc. held on April 1, 1998, File No.
0-15995)
10.32 1995 MicroAge, Inc. Director Incentive Plan, as amended and restated
(1) (Incorporated by reference to Appendix C to the Proxy Statement
for the Annual Meeting of Stockholders of MicroAge, Inc. held on April
1, 1998, File No. 0-15995)
10.33 MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by
reference to Appendix B to the Proxy Statement for the Annual Meeting
of Stockholders of MicroAge, Inc. held on March 15, 1995, File No.
0-15995)
10.33.1 First Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1) (Incorporated by reference to Exhibit 99.1 to Registration
Statement No. 33-58901)
10.33.2 Second Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase
Plan (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for fiscal quarter ended January 28, 1996)
E-5
<PAGE>
10.34 Inventory Financing Agreement, dated as of July 9, 1993, by and
between MicroAge Computer Centers, Inc. and IBM Credit Corporation
(Incorporated by reference to Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994)
10.34.1 First Amendment, dated January 27, 1994, to Inventory Financing
Agreement by and between MicroAge Computer Centers, Inc. and IBM
Credit Corporation dated as of July 9, 1993 (Incorporated by reference
to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994)
10.35 Agreement For Wholesale Financing, dated December 17, 1993, by and
between IBM Credit Corporation and MicroAge Computer Centers, Inc.
(Incorporated by reference to Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994)
10.36 Second Restated Agreement for Wholesale Financing Agreement, dated as
of December 17, 1993, by MicroAge Computer Centers, Inc. and Deutsche
Financial Services Corporation (Incorporated by reference to Exhibit
10.3.1 to the Quarterly Report on Form 10-Q for the quarter ended July
30, 1995)
10.36.1 Amendment to Second Restated Agreement for Wholesale Financing, dated
as of March 3, 1997, by and between MicroAge Computer Centers, Inc.,
et. al., and Deutsche Financial Services Corporation (Incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
quarter ended May 4, 1997)
10.36.2 Amendment to Second Restated Agreement for Wholesale Financing by and
between MicroAge Computer Centers, Inc., et. al., and Deutsche
Financial Services Corporation, dated as of the 31st day of March,
1997 (Incorporated by reference to Exhibit 10.10 to the Quarterly
Report on Form 10-Q for the quarter ended May 3, 1998)
10.36.3 Amendment to Second Restated Agreement for Wholesale Financing, dated
as of July 31, 1997, by and between MicroAge Computer Centers, Inc.,
et. al., and Deutsche Financial Services Corporation (Incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997)
10.36.4 Amendment to Second Restated Agreement for Wholesale Financing by and
between MicroAge Computer Centers, Inc., et. al., and Deutsche
Financial Services Corporation, dated as of the 31st day of October,
1997 (Incorporated by reference to Exhibit 10.11 to the Quarterly
Report on Form 10-Q for the quarter ended May 3, 1998)
10.36.5 Amendment to Second Restated Agreement for Wholesale Financing by and
between MicroAge Computer Centers, Inc., et. al., and Deutsche
Financial Services Corporation, dated as of the 28th day of January,
1998 (Incorporated by reference to Exhibit 10.12 to the Quarterly
Report on Form 10-Q for the quarter ended May 3, 1998)
10.36.6 Amendment to Second Restated Agreement for Wholesale Financing by and
between MicroAge Computer Centers, Inc., et. al., and Deutsche
Financial Services Corporation, dated as of the 5th day of February,
1998 (Incorporated by reference to Exhibit 10.13 to the Quarterly
Report on Form 10-Q for the quarter ended May 3, 1998)
E-6
<PAGE>
10.36.7 Amendment to Second Restated Agreement for Wholesale Financing by and
between MicroAge Computer Centers, Inc., et. al., and Deutsche
Financial Services Corporation, dated as of the 30th day of April,
1998 (Incorporated by reference to Exhibit 10.14 to the Quarterly
Report on Form 10-Q for the quarter ended May 3, 1998)
10.37 Restated and Amended Purchase Agreement, dated as of August 3, 1995,
by and among MicroAge Computer Centers, Inc., et al, and Deutsche
Financial Services Corporation (Incorporated by reference to Exhibit
10.3 to the Quarterly Report on Form 10-Q for the quarter ended July
30, 1995)
10.37.1 Amendment to Restated and Amended Purchase Agreement, dated as of
March 31, 1997, by and among MicroAge Computer Centers, Inc., et. al.,
and Deutsche Financial Services Corporation (Incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended May 4, 1997)
10.37.2 Amendment to Restated and Amended Purchase Agreement, dated as of July
31, 1997, by and between MicroAge Computer Centers, Inc., et. al., and
Deutsche Financial Services Corporation (Incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997)
10.37.3 Amendment to Restated and Amended Purchase Agreement by and between
MicroAge Computer Centers, Inc., et. al., and Deutsche Financial
Services Corporation, dated as of the 31st day of October, 1997
(Incorporated by reference to Exhibit 10.6 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998)
10.37.4 Amendment to Restated and Amended Purchase Agreement by and between
MicroAge Computer Centers, Inc., et. al., and Deutsche Financial
Services Corporation, dated as of the 28th day of January, 1998
(Incorporated by reference to Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998)
10.37.5 Amendment to Restated and Amended Purchase Agreement by and between
MicroAge Computer Centers, Inc., et. al., and Deutsche Financial
Services Corporation, dated as of the 5th day of February, 1998
(Incorporated by reference to Exhibit 10.8 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998)
10.37.6 Amendment to Restated and Amended Purchase Agreement by and between
MicroAge Computer Centers, Inc., et. al., and Deutsche Financial
Services Corporation, dated as of the 30th day of April, 1998
(Incorporated by reference to Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998)
10.38 Agreement For Wholesale Financing, dated as of December 17, 1993, by
and between MicroAge Computer Centers, Inc. and IBM Credit Corporation
(Incorporated by reference to Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994)
10.38.1 Amendment No. 1 to Addendum, dated as of August 3, 1995, to the
Agreement For Wholesale Financing dated as of December 17, 1993, by
and between MicroAge Computer Centers, Inc. and IBM Credit Corporation
(Incorporated by reference to Exhibit 10.4.1 to the Quarterly Report
on Form 10-Q for the quarter ended July 30, 1995)
E-7
<PAGE>
10.38.2 Amendment #2 to Agreement for Wholesale Financing by and between
MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc. and
IBM Credit Corporation, dated as of August 25, 1997 (Incorporated by
reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q for
the quarter ended May 3, 1998)
10.38.3 Amendment #3 to Agreement for Wholesale Financing by and between
MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc. and
IBM Credit Corporation, dated as of March 13, 1998 (Incorporated by
reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for
the quarter ended May 3, 1998)
10.38.4 Amendment #4 to Agreement for Wholesale Financing by and between
MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc.,
Pinacor, Inc., and IBM Credit Corporation, dated as of April 30, 1998
(Incorporated by reference to Exhibit 10.17 to the Quarterly Report on
Form 10-Q for the quarter ended May 3, 1998)
10.39 COMPAQ Computer Corporation Dealer Agreement, dated April 1, 1984, by
and between COMPAQ Computer Corporation and MicroAge Computer Stores,
Inc. (Incorporated by reference to Exhibit 10.1 to Registration
Statement No. 33-14333)
10.40 COMPAQ Computer Corporation Central Purchase Agreement, dated November
21, 1983, by and between COMPAQ Computer Corporation and MicroAge
Computer Stores, Inc. (Incorporated by reference to Exhibit 10.2 to
Registration Statement No. 33-14333)
10.40.1 Amendment, dated June 15, 1992, to the COMPAQ Computer Corporation
Central Purchase Agreement dated November 21, 1983 by and between
COMPAQ Computer Corporation and MicroAge Computer Stores, Inc.
(Incorporated by reference to Exhibit 10.8 to Quarterly Report on Form
10-Q for the quarter ended March 31, 1993)
10.41 IBM Business Partner Agreement, effective October 1, 1998, by and
between International Business Machines Corporation and Pinacor Inc.
10.42 IBM Business Partner Agreement for Resellers, by and between IBM and
MicroAge Integration Co.
10.43 Apple Authorized Dealer Sales Agreement, dated as of April 1, 1989, by
and between Apple Computer, Inc. and MicroAge Computer Stores, Inc.
(Incorporated by reference to Exhibit 10.4 to the Annual Report on
Form 10-K for the fiscal year ended September 30, 1989)
10.43.1 Amendment, dated April 1, 1989, to the Apple Authorized Dealer Sales
Agreement dated as of April 1, 1989 by and between Apple Computer,
Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to
Exhibit 10.4.1 to the Annual Report on Form 10-K for the fiscal year
ended September 30, 1990)
10.43.2 Letter Agreement, dated September 30, 1992, to the Apple Authorized
Dealer Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993)
E-8
<PAGE>
10.43.3 Letter Agreement, dated February 28, 1994, to the Apple Authorized
Dealer Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.24.3 to the Annual Report on Form 10- K for
the fiscal year ended October 30, 1994)
10.43.4 Letter Agreement, dated June 23, 1994, to the Apple Authorized Dealer
Sales Agreement dated as of April 1, 1989 by and between Apple
Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.24.4 to the Annual Report on Form 10- K for
the fiscal year ended October 30, 1994)
10.44 Authorized Apple Wholesaler U.S. Sales Agreement, dated April 2, 1998,
by and between Apple Computer, Inc. and MicroAge Computer Centers,
Inc.
10.45 U.S. First Tier Reseller Agreement, dated as of March 1, 1997, by and
between Hewlett-Packard Company and MicroAge, Inc. (Incorporated by
reference to Exhibit 10.46 to the Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
10.46 Hewlett-Packard Company U.S. Agreement for Authorized Distributors,
effective April 1, 1998, by and between Hewlett-Packard Company and
MicroAge Computer Centers, Inc.
10.47 U.S. Reseller Agreement by and between Hewlett-Packard Company and
MicroAge Integration Co.
10.48 Form of Franchise Agreement, effective December 8, 1993, by and
between MicroAge, Inc. and its franchisees (Incorporated by reference
to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994)
10.48.1 Rider to Franchise Agreement, effective December 1993, by and between
MicroAge, Inc. and its existing franchisees (Incorporated by reference
to Exhibit 10.26.1 to the Annual Report on Form 10-K for the fiscal
year ended October 30, 1994)
10.48.2 Rider to Franchise Agreement, effective December 1993, by and between
MicroAge, Inc. and its new franchisees (Incorporated by reference to
Exhibit 10.26.2 to the Annual Report on Form 10-K for the fiscal year
ended October 30, 1994)
10.49 Form of Franchise Agreement by and between MicroAge, Inc. and its
franchisees effective as to franchise agreements executed after March
1997 (Incorporated by reference to Exhibit 10.48 to the Annual Report
on Form 10-K for the fiscal year ended November 2, 1997)
10.50 Form of Purchasing Agreement, effective January 1997, by and between
MicroAge, Inc. and its Independent Computer Dealers (Incorporated by
reference to Exhibit 10.49 to the Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
10.51 Form of Purchase Agreement, effective January 1997, by and between
MicroAge, Inc. and its resellers (Incorporated by reference to Exhibit
10.38 to the Annual Report on Form 10-K for fiscal year ended November
3, 1996)
E-9
<PAGE>
10.52 Triple Net Industrial Lease, dated as of December 21, 1993, by and
between Catellus Development Corporation and MicroAge Computer
Centers, Inc. (Incorporated by reference to Exhibit 10.22 to the
Quarterly Report on Form 10-Q for the quarter ended May 1, 1994)
10.53 Triple Net Industrial Lease, dated July 28, 1993, by and between
Catellus Development Corporation and MicroAge Computer Centers, Inc.
(Incorporated by reference to Exhibit 10.24 to the Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994)
10.53.1 Amendment No. One, dated December 21, 1993, to Triple Net Industrial
Lease dated July 28, 1993 by and between Catellus Development
Corporation and MicroAge Computer Centers, Inc. (Incorporated by
reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994)
10.53.2 Lease Amendment, dated September 9, 1994, to Triple Net Industrial
Leases dated July 16, 1985, July 28, 1993, and December 21, 1993 by
and between Catellus Development Corporation and MicroAge Computer
Centers, Inc. (Incorporated by reference to Exhibit 10.34.2 to the
Annual Report on Form 10-K for the fiscal year ended October 30, 1994)
10.54 Lease Agreement, dated November 18, 1994, by and between Duke Realty
Limited partnership and Kenco Group, Inc. (Incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended July 30, 1995)
10.54.1 Assignment and Assumption of Lease Agreement, dated July 18, 1994, to
Lease dated November 18, 1994 by and between Duke Realty Limited
partnership and Kenco Group, Inc. (Incorporated by reference to
Exhibit 10.2.1 to the Quarterly Report on Form 10-Q for the quarter
ended July 30, 1995)
10.55 Standard Industrial Lease, dated September 27, 1996, by and between
Dermody Properties and MicroAge Logistics Services, Inc. (Incorporated
by reference to Exhibit 10.49 to the Annual Report on Form 10-K for
the fiscal year ended November 3, 1996)
10.56 Industrial Lease, dated August 28, 1996, by and between MICC Venture
and MicroRetailing Inc., d/b/a Inter PC and d/b/a Micro Age
(Incorporated by reference to Exhibit 10.55 to the Annual Report on
Form 10-K for the fiscal year ended November 2, 1997)
10.57 Standard Commercial Lease Agreement, dated September 28, 1998, by and
between Riggs & Company and Pinacor, Inc.
11 EPS Calculation
21 List of Subsidiaries of MicroAge, Inc.
23 Consent of Independent Accountants
27.1 Financial Data Schedule for the fiscal year ended November 1, 1998
27.2 Restated Financial Data Schedule for the 1997 three quarters and
fiscal year ended November 2, 1997
27.3 Restated Financial Data Schedule for the fiscal year ended November 3,
1996
E-10
<PAGE>
99.1 Private Securities Litigation Reform Act of 1995 Safe Harbor
Compliance Statement for Forward-Looking Statements.
99.2 Common Stock Purchase and Sale Agreement, dated as of April 27, 1990,
by and among MicroAge, Inc., Olivetti Holding N.V., Banstock Company
Limited, The MicroAge, Inc. Retirement Savings and Employee Stock
Ownership Trust and Citizens and Southern Trust Company (Georgia),
N.A., solely as Trustee of the ESOT and not in its individual capacity
(Incorporated by reference to Exhibit 28.2 to the Current Report on
Form 8-K dated May 7, 1990)
99.3 Company and Purchasers Rights Agreement, dated as of April 27, 1990,
by and between MicroAge, Inc., Banstock Company Limited and Fred
Israel (Incorporated by reference to Exhibit 28.3 to the Current
Report on Form 8-K dated May 7, 1990)
99.4 Company and ESOT Rights Agreement, dated as of April 27, 1990, by and
between MicroAge, Inc., The MicroAge, Inc. Retirement Savings and
Employee Stock Ownership Trust and Citizens and Southern Trust Company
(Georgia), N.A., solely as Trustee of the ESOT and not in its
individual capacity (Incorporated by reference to Exhibit 28.4 to the
Current Report on Form 8-K dated May 7, 1990)
99.5 Parent Agreement, dated as of April 27, 1990, by and among MicroAge,
Inc., Olivetti Holding N.V. and Kokudo Sangyo, Inc. (Incorporated by
reference to Exhibit 28.5 to the Current Report on Form 8-K dated May
7, 1990)
99.6 Loan Agreement, dated as of April 27, 1990, by and between MicroAge,
Inc., and Citizens and Southern Trust Company (Georgia), N.A., as
Trustee for The MicroAge, Inc. Retirement Savings and Employee Stock
Ownership Trust (Incorporated by reference to Exhibit 28.7 to the
Current Report on Form 8-K dated May 7, 1990)
99.7 Nonrecourse Promissory Note, dated as of April 27, 1990, made by
Citizens and Southern Trust Company as Trustee on behalf of The
MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust
(Incorporated by reference to Exhibit 28.8 to the Current Report on
Form 8-K dated May 7, 1990)
99.8 Stock Pledge Agreement, dated as of April 27, 1990, by and between
MicroAge, Inc. and Citizens and Southern Trust Company (Georgia),
N.A., as Trustee on behalf of The MicroAge, Inc. Retirement Savings
and Employee Stock Ownership Trust (Incorporated by reference to
Exhibit 28.9 to the Current Report on Form 8-K dated May 7, 1990)
99.9 Trust Agreement, dated December 30, 1994, by and between MicroAge,
Inc. and First Interstate Bank of Arizona, N.A., as Trustee on behalf
of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership
Plan and Trust (Incorporated by reference to Exhibit 99.8 to the
Annual Report on Form 10-K for the fiscal year ended October 30, 1994)
- ----------
(1) Management contract for compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
E-11
MICROAGE, INC.
1998 ASSOCIATE STOCK AWARD PLAN
ARTICLE 1 PURPOSE
1.1 GENERAL. The purpose of the MicroAge, Inc. 1998 Associate Stock
Award Plan (the "Plan") is to promote the success, and enhance the value, of
MicroAge, Inc. (the "Company") by linking the personal interests of its
associates to those of Company shareholders and by providing its associates with
an incentive for outstanding performance. The Plan is further intended to
provide flexibility to the Company in its ability to motivate, attract, and
retain the services of such individuals upon whose judgment, interest, and
special effort the successful conduct of the Company's operation is largely
dependent. Accordingly, the Plan permits the grant of stock awards from time to
time to associates.
ARTICLE 2 EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan is effective as of September 24, 1998 (the
"Effective Date").
ARTICLE 3 DEFINITIONS AND CONSTRUCTION.
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Associate" means an individual, including an officer, who is
characterized by the Company as a common law employee of the Company or any
of its Subsidiaries.
(b) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, or Performance Share Award granted to a Participant under the
Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Board" means the Board of Directors of the Company.
<PAGE>
(e) "Change of Control" means and includes each of the following:
(1) A change of control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
the Securities Exchange Act of 1934, as amended ("1934 Act")
regardless of whether the Company is subject to such reporting
requirement;
(2) A change of control of the Company through a transaction or
series of transactions, such that any person (as that term is used in
Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates of the
Company as of the Effective Date, is or becomes the beneficial owner
(as that term is used in Section 13(d) of the 1934 Act) directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding
securities;
(3) The individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least 80% of the Board; provided, however, that any person becoming a
member of the Board subsequent to the Effective Date whose election,
or nomination for election by the Company's stockholders, was approved
by a vote of at least 80% of the members then comprising the Incumbent
Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act or any successor provision thereto)
shall be, for purposes of this paragraph, considered as though such
person were a member of the Incumbent Board;
(4) Any consolidation or liquidation of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
the shares of Stock immediately before the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger;
(5) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
(6) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a "controlled
group of corporations" (as defined in Section 1563 of the Code) in
which the Company is a member.
2
<PAGE>
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the committee of the Board described in Article
4.
(h) "Disability" shall mean any illness or other physical or mental
condition of a Participant which renders the Participant incapable of
performing his customary and usual duties for the Company, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which in the judgment of the
Committee is permanent and continuous in nature. The Committee may require
such medical or other evidence as it deems necessary to judge the nature
and permanency of the Participant's condition.
(i) "Fair Market Value" means, as of any given date, the fair market
value of Stock or other property determined by such methods or procedures
as may be established from time to time by the Committee. Unless otherwise
determined by the Committee, the Fair Market Value of Stock as of any date
shall be the closing price for the Stock as reported on the NASDAQ National
Market System (or on any national securities exchange on which the Stock is
then listed) for that date or, if no closing price is so reported for that
date, the closing price on the next preceding date for which a closing
price was reported.
(j) "Incentive Stock Option" means an option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(k) "Non-Employee Director" means a member of the Board who qualifies
as a "Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange
Act, or any successor definition adopted by the Board.
(l) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods.
(m) "Participant" means an Associate who has been granted an Award
under the Plan.
(n) "Performance Share" means a right granted to a Participant under
Article 9 to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(o) "Plan" means the MicroAge, Inc. 1998 Associate Stock Award Plan,
as amended from time to time.
3
<PAGE>
(p) "Restricted Stock Award" means Stock granted to a Participant
under Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(q) "Retirement" means a Participant's termination of employment with
the Company after attaining any normal or early retirement age specified in
any pension, profit sharing or other retirement program sponsored by the
Company.
(r) "Stock" means the common stock of the Company and such other
securities of the Company that may be substituted for Stock pursuant to
Article 12.
(s) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(t) "Subsidiary" means any corporation of which a majority of the
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.
ARTICLE 4 ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by a Committee that is
appointed by, and shall serve at the discretion of, the Board. The Committee
shall consist of at least two individuals, each of whom qualifies as a
Non-Employee Director. Subject to the foregoing, the Compensation Committee of
the Board shall constitute the Committee, unless the Board determines otherwise.
4.2 ACTION BY THE COMMITTEE. A majority of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present and acts approved in writing by a majority
of the Committee in lieu of a meeting shall be deemed the acts of the Committee.
Each member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other
associate of the Company or any Subsidiary, the Company's independent certified
public accountants, or any executive compensation consultant or other
professional retained by the Company to assist in the administration of the
Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each
Participant;
4
<PAGE>
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(g) Decide all other matters that must be determined in connection
with an Award;
(h) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan.
4.4 DECISIONS BINDING. All decisions and determinations made by the
Committee with respect to any Award granted under the Plan, any Award Agreement,
or the interpretation of the Plan are final, binding and conclusive on all
parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 12.1,
the aggregate number of shares of Stock reserved and available for grant under
the Plan shall be 2,000,000.
5.2 LAPSED AWARDS. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards settled in cash will be available
for the grant of an Award under the Plan.
5
<PAGE>
5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
ARTICLE 6 ELIGIBILITY AND PARTICIPATION
6.1 ELIGIBILITY. Persons eligible to participate in this Plan include
all Associates, as determined by the Committee, but excluding those Associates
who are also members of the
Board.
6.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from among all eligible Associates
those to whom Awards shall be granted and shall determine the nature and amount
of each Award. No Associate shall have any right to be granted an Award under
this Plan.
ARTICLE 7 STOCK OPTIONS
7.1 GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock under an
Option shall be determined by the Committee and set forth in the Award
Agreement. The exercise price for any Option shall not be less than the
Fair Market Value as of the date of grant.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part. The
Committee also shall determine the performance or other conditions, if any,
that must be satisfied before all or part of an Option may be exercised.
(c) PAYMENT. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
broker-assisted "cashless exercise" arrangements), and the methods by which
shares of Stock shall be delivered or deemed to be delivered to
Participants.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant. The Award
Agreement shall include such provisions as may be specified by the
Committee.
(e) LIMITATION ON NUMBER OF OPTIONS GRANTED TO OFFICERS.
Notwithstanding any provision in the Plan to the contrary, the total number
of Options granted to those Associates who are officers of the Company
during any fiscal year of the
6
<PAGE>
Company shall not exceed 20% of the total number of Options granted to all
Associates (including officers) during such fiscal year.
7.2 INCENTIVE STOCK OPTIONS. None of the Options granted pursuant to
the Plan shall be Incentive Stock Options.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1 GRANT OF SARS. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right,
the Participant to whom it is granted has the right to receive the excess,
if any, of:
(1) The Fair Market Value of a share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Committee.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9 PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
9.2 RIGHT TO PAYMENT. Upon the Award of a Performance Share, the
Participant has the right to receive the cash, stock, or other property
evidenced by the Award Agreement. The Committee shall set performance goals and
other terms or conditions to payment of the Performance Shares in its discretion
which, depending on the extent to which they are met, will determine the number
and value of Performance Shares that will be paid to the Participant, provided
that the time period during which the performance goals must be met shall, in
all cases, exceed six months.
7
<PAGE>
9.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
10.3 FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the Company,
provided, however, that the Committee may provide in any Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part
restrictions or forfeiture conditions relating to Restricted Stock.
10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
ARTICLE 11 PROVISIONS APPLICABLE TO AWARDS
11.1 STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan. If an Award is granted in substitution for another
Award, the Committee may require the surrender of such other Award in
consideration of the grant of the new Award. Awards granted in addition to or in
tandem with other
8
<PAGE>
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
11.2 EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 11.1), based on the terms and conditions
the Committee determines and communicates to
the Participant at the time the offer is made.
11.3 TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee.
11.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Committee determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Committee.
11.5 LIMITS ON TRANSFER. No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided by the Committee, no Award
shall be assignable or transferable by a Participant other than by will or the
laws of descent and distribution.
11.6 BENEFICIARIES. Notwithstanding Section 11.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If the Participant is married, a designation of a person other
than the Participant's spouse as his beneficiary with respect to more than 50%
of the Participant's interest in the Award shall not be effective without the
written consent of the Participant's spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Committee.
9
<PAGE>
11.7 STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on with the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
11.8 TENDER OFFERS. In the event of a public tender for all or any
portion of the Stock, or in the event that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for shareholder approval,
the Committee may in its sole discretion declare previously granted Options to
be immediately exercisable.
11.9 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability, all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then
lapse in accordance with the other provisions of this Plan and the Award
Agreement.
11.10 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control
occurs, all outstanding Options, Stock Appreciation Rights, and other Awards in
the nature of rights that may be exercised shall become fully exercisable and
all restrictions on outstanding Awards shall lapse. In the event that the
Committee becomes aware of an event that will cause a Change of Control to
occur, the Committee may give each Participant the right to exercise Awards
prior to the occurrence of the event over such period as the Committee, in its
sole and absolute discretion, shall determine.
ARTICLE 12 ADJUSTMENTS
12.1 GENERAL. The Committee may make or provide for such adjustments in
the (a) number of shares of Stock covered by outstanding Awards granted
hereunder, (b) prices per share applicable to outstanding Awards and (c) kind of
shares covered thereby, as the Committee in its sole discretion may in good
faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants that otherwise would result from (x)
any stock dividend, stock split, combination or exchange of shares of Stock,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation, or other distribution of assets
(other than a normal cash dividend), issuance of rights or warrants to purchase
securities, or (z) any other corporate transaction or event having an effect
similar to any of the foregoing. Moreover, in the event of any such transaction
or event, the Committee may provide in substitution for any or all outstanding
Awards under this Plan such alternative consideration as it may in good faith
10
<PAGE>
determine to be equitable under the circumstances and may require in connection
therewith the surrender of all Awards so replaced. The Committee may also make
or provide for such adjustments in the number of shares of Stock specified in
Section 5.1 as the Committee in its sole discretion may in good faith determine
to be appropriate in order to reflect any transaction or event described in this
Section 12.1. Any adjustment pursuant to this Section 12.1 will be conclusive
and binding for all purposes of the Plan.
ARTICLE 13 AMENDMENT, MODIFICATION AND TERMINATION
13.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan.
13.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant. The Committee also may modify the terms of a previously granted
Award; provided, however, that the Committee may not amend a previously granted
Award to the detriment of the Participant without the Participant's consent.
ARTICLE 14 GENERAL PROVISIONS
14.1 NO RIGHTS TO AWARDS. No Participant or employee shall have any
claim to be granted any Award under the Plan, and neither the Company nor the
Committee is obligated to treat
Participants and Associates uniformly.
14.2 NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
14.3 WITHHOLDING. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of this Plan.
14.4 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
14.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant
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<PAGE>
pursuant to an Award, nothing contained in the Plan or any Award Agreement shall
give the Participant any rights that are greater than those of a general
creditor of the Company or any Subsidiary.
14.6 INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
14.7 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
14.8 EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
14.9 TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
14.10 FRACTIONAL SHARES. No fractional shares of stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
14.11 SECURITIES LAW COMPLIANCE. With respect to any person who is, on
the relevant date, obligated to file reports under Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
void to the extent permitted by law and voidable as deemed advisable by the
Committee.
14.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall
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be under no obligation to register under the Securities Act of 1933, as amended
(the "1933 Act"), any of the shares of Stock paid under the Plan. If the shares
paid under the Plan may in certain circumstances be exempt from registration
under the 1933 Act, the Company may restrict the transfer of such shares in such
manner as it deems advisable to ensure the availability of any such exemption.
14.13 GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Delaware.
13
NON-QUALIFIED STOCK OPTION AGREEMENT
(JEFFREY D. MCKEEVER)
Mr. Jeffrey D. McKeever
2400 South MicroAge Way
Tempe, Arizona 85282
Dear Jeff:
Pursuant to action taken by the Compensation Committee (the
"COMMITTEE") of the Board of Directors of MicroAge, Inc. ("MICROAGE") on May 2,
1998 (the "GRANT DATE") and action by written consent of the sole director of
MCCI Holding Company ("HOLDING COMPANY"), you are hereby granted the option
(hereinafter the "OPTION") to purchase a total of sixty (60) shares of common
stock of Pinacor, Inc. ("PINACOR") owned by Holding Company as of the Grant Date
(the "COMMON STOCK"), representing six percent (6%) of Pinacor's outstanding
Common Stock as of the Grant Date, at an exercise price of One Hundred Fifty
Thousand Dollars ($150,000.00) per share, subject to the provisions and
conditions set forth below. The Option granted under this Agreement is NOT
intended to be an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended. Moreover, the Option is not being
granted pursuant to any stock option or other plan. For purposes of this
Agreement, MicroAge and Holding Company are referred to collectively as the
"Company."
1. You may purchase all or any of the shares of Common Stock included
in any installment under this Option on or after the date the installment vests
in accordance with the schedule below:
NUMBER OF SHARES
EXERCISABLE IN DATE
INSTALLMENT INSTALLMENT VESTS
----------- -----------------
20 May 2, 1999
20 May 2, 2000
20 May 2, 2001
2. In the event of your death or Disability, any portion of your Option
that is not exercisable shall become fully exercisable. Notwithstanding the
above, you may not exercise the Option at any time after the Expiration Date
hereinafter set forth.
<PAGE>
3. The Option may be exercised by making payment in full to the
Treasurer of Holding Company, 2400 South MicroAge Way, Tempe, Arizona 85282, for
the shares which you so elect to purchase, at the price per share herein
prescribed, whereupon you will receive a stock certificate representing the
shares for which you have made payment. Holding Company, however, will not be
obligated to deliver any stock unless and until:
(a) there has been compliance with any federal or state laws or
regulations or national securities exchange requirements which Holding
Company may deem applicable; and
(b) all legal matters in connection with the sale and delivery of the
Common Stock have been approved by Holding Company's legal counsel.
4. Upon the exercise of an Option, the purchase price will be paid in
cash or in Common Stock, or a combination thereof, unless the Committee approves
an alternative arrangement, including a loan to you from the Company for all or
a portion of the purchase price. Each share of Common Stock received by Holding
Company in payment of all or a portion of the purchase price specified in this
Option will be valued at its Fair Market Value on the date of exercise.
5. The Committee may require, in its sole discretion, that you satisfy
the payment of any federal, state, or local tax withholding amount due as a
result of your exercise of an Option by:
(a) requiring you to deliver to Holding Company that number of shares
of Common Stock then owned by you, duly endorsed for transfer to Holding
Company and free and clear of any liens, claims, security interests or
encumbrances whatsoever (based on the Fair Market Value of the Common Stock
on the date such Option is exercised), which are required to satisfy the
payment of such tax withholding amount; or
(b) requiring you to deliver to Holding Company a check, made payable
to the order of Holding Company, in the aggregate amount required to
satisfy the payment of such tax withholding amount.
The right described in (a) or (b) above shall be exercised in a written
notice by the Committee delivered to you as soon as practicable after receipt of
your written exercise of any Option hereunder.
6. The Committee may suspend or postpone the receipt of shares in
payment of the exercise price specified in this Agreement if at any time:
(a) it has knowledge of information concerning Pinacor which upon
disclosure to the public might, in its opinion, materially affect the
market price of the Common Stock;
(b) non-Pinacor events of an extraordinary nature occur which, in its
opinion, may not have been effectively reflected in the market; or
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(c) such suspension or postponement for any other reason would, in its
opinion, be in the best interests of Pinacor or the Company.
7. The Committee hereby reserves and will have the right, by written
notice to you, to change the provisions of this Option in any manner that it may
deem necessary or advisable to carry out the purpose of this grant as a result
of, or to comply with, any change in applicable regulations, interpretations or
statutory enactments, provided that any such change will be applicable only to
shares for which payment will not then have been made as herein provided.
8. This Option will terminate upon the earliest to occur of:
(a) May 2, 2008 at 5:00 p.m. Arizona time (the "EXPIRATION DATE");
(b) the date you cease to be employed by the Company or any of its
subsidiaries for any reason other than your retirement, death or
Disability; or
(c) one (1) year after the date you cease to be employed by the
Company or any of its subsidiaries by reason of your retirement, death or
Disability.
9. Anything herein to the contrary notwithstanding, the following
provisions will apply:
(a) If, at any time within the term of this Option or within one (1)
year after termination of employment or within one (1) year after you
exercise any portion of this Option, whichever is the latest, you engage in
any activity in competition with any activity of the Company, or inimical,
contrary, or harmful to the interests of the Company, including, but not
limited to: (i) conduct related to your employment for which either civil
or criminal penalties against you may be sought, (ii) violation of Company
policies, including, without limitation, the Company's insider trading
policy, (iii) failing to give the Company at least thirty (30) days'
written notice of your intent to terminate your employment with the
Company, (iv) accepting employment with or serving as a consultant,
advisor, or in any other capacity to an employer that is in competition
with or acting against the interests of the Company, including employing or
recruiting any present, former, or future employee of the Company, (v)
disclosing or misusing any confidential information or material concerning
the Company, or (vi) participating in a hostile takeover attempt of
MicroAge, then (A) this Option shall terminate effective the date upon
which you enter into such activity, unless terminated sooner by operation
of another term or condition of this Agreement, (B) you will return any
shares of Common Stock that you then own if the Company tenders to you, in
the exercise of its discretion, the amount you paid to acquire those
shares, and (C) you will pay the Company an amount equal to the difference
between the amount you paid for said shares and the amount you received for
a sale of any shares that you have disposed of in an arms length
transaction. If you dispose of any shares in other than an arms length
transaction, you will pay to the Company an amount equal to the difference
between the amount you paid for the shares and the Fair Market Value of the
shares.
3
<PAGE>
(b) By accepting this Option, you consent to a deduction from any
amounts the Company owes you from time to time (including amounts owed to
you as wages or other compensation, fringe benefits, or vacation pay, as
well as any other amounts owed to you by the Company), to the extent of the
amounts you owe the Company under clause (a) of this Section 9. Whether or
not the Company elects to make any set-off in whole or in part, if the
Company does not recover by means of set-off the full amounts you owe it,
calculated as set forth above, you agree to pay immediately the unpaid
balance to the Company.
(c) You may be released from your obligations under clause (a) of this
Section 9 only if the Committee determines, in its sole discretion, that
such action is in the best interests of the Company.
10. The Committee will have the discretion to accelerate the vesting in
whole or in part with respect to any Options that may otherwise not be
exercisable on the date you cease to be employed by the Company or any of its
subsidiaries for any reason other than your death or Disability, upon such terms
and conditions established by the Committee at that time, or upon such other
dates that the Committee will determine in its sole and absolute discretion.
11. In the event of a stock dividend, stock split, combination or
exchange of shares, recapitalization or other change in the capital structure of
Pinacor, any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation, or other distribution of assets
(other than a normal cash dividend), issuance of rights or warrants to purchase
securities or any other corporate transaction or event having an effect similar
to any of the foregoing, the Committee shall make such adjustments in the number
of unpurchased shares subject to this Option and in the exercise price per share
as it may determine to be appropriate and equitable to preserve your
proportionate interest in this Option and to prevent dilution or enlargement of
your rights hereunder. The Committee may, in its discretion, upon the occurrence
of any of the foregoing events, provide in substitution for any or all
outstanding shares subject to this Option such alternative consideration as it
may in good faith determine to be equitable under the circumstances and may
require your surrender of this Option in connection with such substitution.
12. This Option will be exercisable until the Expiration Date as
defined in Section 8(a) and, except as provided in Section 8 above, only by you
during your lifetime and only while you are employed by the Company. Unless
otherwise provided in writing by the Committee in its sole discretion, the
Option shall not be transferable by you, expressly or by operation of law, other
than by will or the laws of descent and distribution. Any other attempted
transfer or other disposition of this Option by you will be void and will
constitute valid grounds for cancellation of this Option by the Company.
13. In the event that a "Disposition" of Pinacor is approved by the
Board of Directors of MicroAge, Holding Company, or Pinacor or a proposed
Disposition is submitted to the shareholders of MicroAge, Holding Company, or
Pinacor for approval, all of the Options will become immediately exercisable,
despite any provisions in Section 1 to the contrary. Additionally, upon a Change
of Control, your Options will automatically become immediately exercisable,
despite any provisions in Section 1 to the contrary.
4
<PAGE>
14. The term "Disposition" as used in Section 13, means and includes
each of the following:
(a) the sale or other transfer of all or substantially all of the
Common Stock of Pinacor or Holding Company to any individual or entity
other than an "Affiliate." For this purpose, an "Affiliate" is any entity
that is part of the same controlled group of corporations as MicroAge
within the meaning of Section 1563 of the Internal Revenue Code of 1986
(the "CODE").
(b) Pinacor or Holding Company is merged, consolidated, or otherwise
combined with any entity other than an Affiliate of MicroAge.
15. The term "Change of Control" means and includes each of the
following:
(a) A change of control of MicroAge of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of the Securities
Exchange Act of 1934, as amended ("1934 ACT"), regardless of whether
MicroAge is subject to such reporting requirement;
(b) A change of control of MicroAge through a transaction or series of
transactions, such that any person (as that term is used in Section 13 and
14(d)(2) of the 1934 Act), excluding affiliates of MicroAge as of the Grant
Date, is or becomes the beneficial owner (as that term is used in Section
13(d) of the 1934 Act), directly or indirectly, of securities of MicroAge
representing twenty percent (20%) or more of the combined voting power of
MicroAge's then outstanding securities;
(c) The individuals who, as of the Grant Date, constitute the Board of
Directors of MicroAge (the "INCUMBENT BOARD") cease for any reason to
constitute at least eighty percent (80%) of the Board of Directors of
MicroAge; provided, however, that any person becoming a member of the Board
of Directors of MicroAge subsequent to the Grant Date whose election, or
nomination for election by MicroAge's stockholders, was approved by a vote
of at least eighty percent (80%) of the members then comprising the
Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of
MicroAge, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act or any successor provision thereto) shall
be, for purposes of this paragraph, considered as though such person were a
member of the Incumbent Board;
(d) Any consolidation or liquidation of MicroAge in which MicroAge is
not the continuing or surviving corporation or pursuant to which common
stock of MicroAge would be converted into cash, securities or other
property, other than a merger of MicroAge in which the holders of the
shares of MicroAge's common stock immediately before the merger have the
same proportionate ownership of common stock of the surviving corporation
immediately after the merger;
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<PAGE>
(e) The shareholders of MicroAge approve any plan or proposal for the
liquidation or dissolution of MicroAge; or
(f) Substantially all of the assets of MicroAge are sold or otherwise
transferred to parties that are not Affiliates (as such term is defined in
Section 14(a) above).
16. The term "Disability" shall mean any illness or other physical or
mental condition which renders you incapable of performing your customary and
usual duties for the Company, or any medically determinable illness or other
physical or mental condition resulting from a bodily injury, disease or mental
disorder which in the judgment of the Committee is permanent and continuous in
nature. The Committee may require such medical or other evidence as it deems
necessary to judge the nature and permanency of your condition.
17. The term "Fair Market Value" with respect to the Common Stock shall
mean as of any given date, the fair market value of the Common Stock determined
by such methods or procedures
as may be established from time to time by the Committee.
18. This Agreement shall be governed in all respects by the laws of the
state of Delaware.
19. No Option gives you any of the rights of a shareholder of Pinacor
unless and until shares of Common Stock are in fact issued to you.
20. The Agreement is intended to be an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to you pursuant to an
Option, nothing contained in this Agreement shall give you any rights that are
greater than those of a general creditor of the Company
or any subsidiary.
21. No payment under this Agreement shall be taken into account in
determining any benefits under any pension, retirement, savings, profit sharing,
group insurance, welfare or other benefit plan of the Company or any subsidiary.
22. The expenses of administering this Agreement shall be borne by
MicroAge.
23. With respect to any person who is, on the relevant date, obligated
to file reports under Section 16 of the 1934 Act, transactions pursuant to this
Agreement are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of this Agreement
or action by the Committee fails to so comply, it shall be void to the extent
permitted by law and voidable as deemed advisable by the Committee.
24. Neither the Company nor Pinacor shall be under any obligation to
register under the Securities Act of 1933, as amended (the "1933 Act"), any of
the shares of Common Stock. If the shares may in certain circumstances be exempt
from registration under the 1933 Act, the Committee may restrict the transfer of
such shares in such manner as it deems advisable to ensure the availability of
any such exemption.
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<PAGE>
25. The Company shall not be required to deliver any shares of Common
Stock pursuant to the exercise of all or any part of the Option if, in the
opinion of counsel for MicroAge, such issuance would violate the Securities Act
of 1933 or any other applicable federal or state securities or other laws or
regulations. The Board of Directors of MicroAge may require that you, prior to
the issuance of any such shares pursuant to exercise of the Option, sign and
deliver to MicroAge a written statement ("INVESTMENT LETTER") stating (a) that
you are purchasing the shares for investment and not with a view to the sale or
distribution thereof; (b) that you will not sell any shares received upon
exercise of the Option or any other shares of Pinacor that you may then own or
thereafter acquire except either (i) through a broker on a national securities
exchange or (ii) with the prior written approval of MicroAge; and (c) containing
such other terms and conditions as counsel for MicroAge may reasonably require
to assure compliance with the Securities Act of 1933 or other applicable federal
or state securities laws and regulations. Such Investment Letter shall be in
form and content acceptable to the Board of Directors of MicroAge in its sole
discretion.
26. This Agreement may be amended only by a written agreement executed
by MicroAge, Holding Company, and you.
27. This Agreement shall be effective as of May 2, 1998.
PLEASE ACKNOWLEDGE RECEIPT OF THIS OPTION AND ACCEPTANCE OF ITS TERMS BY
COMPLETING THE BOTTOM PORTION OF BOTH LETTERS, THEN RETURN ONE OF THE LETTERS TO
JAMES DOMAZ IN THE LEGAL DEPARTMENT.
MICROAGE, INC. I HEREBY ACKNOWLEDGE RECEIPT OF THE
FOREGOING OPTION AND ACCEPT ITS TERMS.
By: /s/ William H. Mallender Signature: /s/ Jeffrey D. McKeever
-------------------------- ---------------------------
William H. Mallender Jeffrey D. McKeever
Chairman, Compensation Social Security No. ###-##-####
Committee
MCCI HOLDING COMPANY
By: /s/ Jeffrey D. McKeever
--------------------------
Jeffrey D. McKeever
Chairman of the Board and
President
7
AMENDMENT TO
NON-QUALIFIED STOCK OPTION AGREEMENT
(JEFFREY D. MCKEEVER)
Mr. Jeffrey D. McKeever
2400 South MicroAge Way
Tempe, Arizona 85282
Re: Amendment of May 2, 1998 Option Agreement
Dear Jeff:
Effective May 2, 1998, you were granted the option (hereinafter the
"OPTION") to purchase a total of sixty (60) shares of common stock of Pinacor,
Inc. ("PINACOR") owned by MCCI Holding Company ("HOLDING COMPANY"). The terms of
the Option were set forth in a letter agreement executed by MicroAge, Inc.
("MicroAge"), Holding Company and you, which was effective
May 2, 1998 (the "AGREEMENT").
Section 13 of the Agreement provides that the exercisability of the
Option will be accelerated if the Board of Directors of MicroAge, the Holding
Company or Pinacor approves a Disposition. The term "Disposition" is defined in
Section 14 of the Agreement. As you know, the Compensation Committee of the
Board of Directors of MicroAge has concluded that the acceleration of the
exercisability of the Option should take place on the closing of the transaction
that constitutes a Disposition, rather than on approval of a Disposition by the
Board of Directors of MicroAge, Holding Company or Pinacor.
The purpose of this letter is to amend Section 13 of the Agreement to
read as follows:
13. All of the Options will become immediately exercisable,
despite any provisions in Section 1 to the contrary,
immediately prior to the closing of any sale, transfer,
merger, consolidation, combination or other transaction that
will constitute a "Disposition". Additionally, upon a Change
of Control, your Options will automatically become immediately
exercisable, despite any provisions in Section 1 to the
contrary.
If you agree with this amendment, please sign this letter and return it
to James Domaz in the Legal Department as soon as possible. This letter will
constitute an amendment of the Agreement as soon as you sign it. Except as set
forth in this letter, the terms of the Agreement will
remain in full force and effect.
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THIS LETTER MAY BE SIGNED IN ANY NUMBER OF COUNTERPARTS.
MICROAGE, INC. I HEREBY ACKNOWLEDGE RECEIPT OF THE
FOREGOING LETTER AND ACCEPT ITS TERMS.
By: /s/ William H. Mallender Signature: /s/ Jeffrey D. McKeever
-------------------------- ---------------------------
William H. Mallender Jeffrey D. McKeever
Chairman, Compensation Social Security No. ###-##-####
Committee
MCCI HOLDING COMPANY
By: /s/ Jeffrey D. McKeever
--------------------------
Jeffrey D. McKeever
Chairman of the Board and
President
2
EMPLOYMENT AGREEMENT
(ROBERT G. O'MALLEY)
(PINACOR, INC.)
This Employment Agreement (the "AGREEMENT") is made and entered into as
of January 4, 1999, by and between Pinacor, Inc., a Delaware corporation (the
"COMPANY"), a wholly-owned subsidiary of MicroAge, Inc., a Delaware corporation
("MICROAGE"), and Robert G. O'Malley ("EXECUTIVE").
R E C I T A L S:
WHEREAS, MicroAge and Executive entered into an Amended and Restated
Employment Agreement dated as of November 4, 1996 (the "MICROAGE EMPLOYMENT
AGREEMENT"); and
WHEREAS, MicroAge, Pinacor, and Executive desire to terminate the
MicroAge Employment Agreement and replace the MicroAge Employment Agreement with
this Agreement.
ARTICLE I
DUTIES AND TERM
1.1 EMPLOYMENT. In consideration of their mutual covenants and other
good and valuable consideration, the receipt, adequacy, and sufficiency of which
is hereby acknowledged, the Company agrees to employ Executive, and Executive
agrees to remain in the employ of the Company, upon the terms and conditions
herein provided.
1.2 POSITION AND RESPONSIBILITIES.
(a) Executive will serve as the Chief Executive Officer of the Company
(or in a capacity and with a title of at least substantially equivalent
quality), reporting directly to the Board. Executive agrees to perform services
not inconsistent with his position as shall from time to time be assigned to him
by the Chairman of the Board or by the Board.
(b) Executive further agrees to serve, if elected, as a director of the
Company and as an officer or director of any subsidiary or affiliate of the
Company.
(c) During the period of his employment hereunder, Executive will
devote substantially all of his business time, attention, skill, and efforts to
the faithful performance of his duties hereunder.
1.3 TERM. The term of Executive's employment under this Agreement will
commence on the date first above written and will continue, unless sooner
terminated, until January 4, 2001; provided, however, that commencing on January
4, 1999 and on each subsequent day thereafter, the
<PAGE>
Executive's term of employment will automatically be extended without further
action by the Company or Executive to the second anniversary of each such day.
1.4 LOCATION. During the period of his employment under this Agreement,
Executive will not be required, except with his prior written consent, to
relocate his principal place of employment outside Maricopa County, Arizona.
Required travel on the Company's business will not be deemed a relocation so
long as Executive is not required to provide his services hereunder outside of
Maricopa County, Arizona, for more than fifty (50%) percent of his working days
during any consecutive six (6) month period.
1.5 TERMINATION OF MICROAGE EMPLOYMENT AGREEMENT. MicroAge and
Executive hereby terminate the MicroAge Employment Agreement, effective as of
January 4, 1999. Executive agrees that Executive is not entitled to any payments
as a result of the termination of the MicroAge Employment Agreement.
1.6 SPECIAL BONUSES AND MODIFICATION OF 1997 MEP AGREEMENT. Promptly
following the execution of this Agreement by all parties hereto, MicroAge will
declare a bonus in favor of Executive in an amount equal to $80,000, all of
which will be waived by Executive pursuant to the terms and provisions of the
1997 Management Equity Program Award Agreement, dated October 11, 1996, between
MicroAge and Executive (the "1997 MEP AGREEMENT"). MicroAge also will declare a
second bonus in favor of Executive in an amount equal to $33,333, but the second
bonus will be conditional on Executive's execution of an amendment to the 1997
MEP Agreement pursuant to which he agrees to waive 100% of said second bonus in
lieu of any additional salary waivers for the current fiscal year. MicroAge and
Executive understand and agree that (a) following the waiver of the bonuses as
described above, Executive will not be required to waive any further
compensation amounts pursuant to the 1997 MEP Agreement, (b) the total number of
options granted to Executive under the 1997 MEP Agreement will not be reduced,
and (c) such options will continue to vest in accordance with Section 4 of the
1997 MEP Agreement as if all compensation that Executive agreed to waive under
the 1997 MEP Agreement has been waived. MicroAge agrees to such other actions as
may be required to effectuate the foregoing.
ARTICLE II
COMPENSATION
For all services rendered by Executive in any capacity during his
employment under this Agreement, including, without limitation, services as a
director, officer, or member of any committee of the Board of the Company or of
the board of directors of any subsidiary or Affiliate of the
Company, the Company will compensate Executive as follows:
2.1 BASE SALARY. The Company will pay to Executive an annual base
salary of not less that $370,000 (such amount, less any salary waivers under the
1997 Management Equity Program or any subsequent management equity or other
waiver program adopted by the Company is hereinafter referred to as the "BASE
SALARY") during the term hereof; PROVIDED, HOWEVER, that in the event the
2
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Company or MicroAge institutes a salary reduction program which affects all
exempt employees (as defined by standard Company policies in compliance with the
Fair Labor Standards Act) by the same percentage, then Executive's Base Salary
may be reduced by such percentage (and the term "Base Salary" as used in this
Agreement will refer to Base Salary as so adjusted). Executive's Base Salary
will be paid in equal semi-monthly installments. The Base Salary will be
reviewed annually by the Board or a committee designated by the Board and the
Board or such committee may, in its discretion, increase the Base Salary.
2.2 BONUS PAYMENTS.
(a) During the period of Executive's employment under this Agreement,
the Company shall pay to Executive annually a fixed cash bonus equal to $4,612
and, in addition, such amount as may be necessary after payment by the Executive
of all taxes, including, without limitation, any federal or state income taxes,
on such fixed cash bonus payment, so that Executive shall have remaining, on a
grossed-up basis, the amount of $4,612 (the "ANNUAL FIXED CASH BONUS").
(b) The Board, a committee thereof, or the Chairman of the Board will
establish in each fiscal year during the term hereof an executive bonus plan
that provides for incentive compensation to Executive. Any bonus under any such
plan is referred to herein as the "ANNUAL INCENTIVE BONUS".
2.3 STOCK OPTIONS. The Company will use all reasonable efforts to cause
MicroAge to establish and maintain one or more stock option plans in which
Executive will be entitled to participate. The terms and conditions of such
plan(s) will be determined and administered by the
MicroAge's Board of Directors or a committee thereof.
2.4 ADDITIONAL BENEFITS. Executive will be entitled to participate in
all employee benefit and welfare programs, plans and arrangements (including,
without limitation, pension, profit sharing, supplemental pension and other
retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits,
such as dues and fees of professional organizations and associations, which are
from time to time available to the Company's executive officers; PROVIDED,
HOWEVER, there will be no duplication of termination or severance benefits, and
to the extent that such benefits are specifically provided by the Company to
Executive under other provisions of this Agreement, the benefits available under
the foregoing plans and programs will be reduced by any benefit amounts paid
under such other provisions. Executive will during the period of his employment
hereunder continue to be provided with benefits at a level which will in no
event be less in any material respect than the benefits made available to
Executive by the Company as of the date of this Agreement. Notwithstanding the
foregoing, the Company may terminate or reduce benefits under any benefit plans
and programs to the extent such reductions apply uniformly to the Company's
executive officers to participate therein, and Executive's benefits will be
reduced or terminated accordingly. Specifically, without limitation, Executive
will receive the following benefits:
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(a) SPLIT DOLLAR INSURANCE AGREEMENT. Executive will remain entitled to
the benefits under the Split Dollar Insurance Agreements, dated as of September
1, 1995 and January 27, 1997, between MicroAge and Executive.
(b) SHORT-TERM DISABILITY BENEFITS. In the event of Executive's failure
substantially to perform his duties hereunder on a full-time basis for a period
not exceeding 180 consecutive days or for periods aggregating not more than 180
days during any twelve-month period as a result of incapacity due to physical or
mental illness, the Company will continue to pay the Base Salary to Executive
during the period of such incapacity, but only in the amounts and to the extent
that disability benefits payable to Executive under Company-sponsored insurance
policies are less than Executive's Base Salary.
(c) RELOCATION EXPENSES. In the event Executive's principal place of
employment is relocated by mutual consent of the parties outside Maricopa
County, Arizona, the Company will reimburse Executive for all usual relocation
expenses incurred by Executive and his household in moving to the new location,
including, without limitation, moving expenses and rental payments for temporary
living quarters in the area of relocation for a period not to exceed six months.
(d) REIMBURSEMENT OF BUSINESS EXPENSES. The Company will, in accordance
with standard Company policies, pay, or reimburse Executive for, all reasonable
travel and other expenses incurred by Executive in performing his obligations
under this Agreement.
(e) VACATIONS. Executive will be entitled to 20 business days,
excluding Company holidays, of paid vacation during each year of employment,
which he will earn in arrears, beginning as of May 15, 1995, the date that
Executive first became a MicroAge associate. Executive may accrue and carry
forward vacation days from any particular year of his employment to the next to
the extent permitted by the Company's policies in this regard, as the same may
be changed from time to time.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's employment under this
Agreement will automatically terminate upon the death or Retirement (as defined
in Section 6.1) of Executive.
3.2 BY EXECUTIVE. Executive will be entitled to terminate his
employment under this Agreement by giving Notice of Termination (as defined in
Section 6.1) to the Company:
(a) for Good Reason (as defined in Section 6.1);
(b) at any time commencing with the date six (6) months following the
date of a Change in Control (as defined in Section 6.1) and ending with the date
twelve months after the date of such Change in Control (a "CHANGE IN CONTROL
RESIGNATION"); and
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(c) at any time without Good Reason.
3.3 BY COMPANY. The Company will be entitled to terminate Executive's
employment under this Agreement by giving Notice of Termination to Executive:
(a) in the event of Executive's Total Disability (as defined in Section
6.1);
(b) for Cause (as defined in Section 6.1); and
(c) at any time without Cause.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
If Executive's employment hereunder is terminated in accordance with
the provisions of Article III hereof, except for any other rights or benefits
specifically provided for herein following his period of employment, the Company
will be obligated to provide compensation and benefits to Executive only as
follows, subject to the provisions of Section 5.12 hereof:
4.1 UPON TERMINATION FOR DEATH OR DISABILITY. If Executive's employment
hereunder is terminated by reason of his death or Total Disability, the Company
will:
(a) pay Executive (or his estate) or beneficiaries any Base Salary that
has accrued but not been paid as of the termination date (the "ACCRUED BASE
SALARY");
(b) pay Executive (or his estate) or beneficiaries for unused vacation
days accrued as of the termination date in an amount equal to his Base Salary
multiplied by a fraction the numerator of which is the number of accrued unused
vacation days and the denominator of which is 260 (the "ACCRUED VACATION
PAYMENT");
(c) reimburse Executive (or his estate) or beneficiaries for expenses
incurred by him prior to the date of termination that are subject to
reimbursement pursuant to this Agreement (the "ACCRUED REIMBURSABLE EXPENSES");
(d) provide to Executive (or his estate) or beneficiaries any accrued
and vested benefits required to be provided by the terms of any
Company-sponsored benefit plans or programs (the "ACCRUED BENEFITS"), together
with any benefits required to be paid or provided in the event of Executive's
death or Total Disability under applicable law;
(e) pay Executive (or his estate) or beneficiaries any Annual Incentive
Bonus with respect to a prior fiscal year which has accrued but has not been
paid (the "ACCRUED ANNUAL INCENTIVE BONUS"); and
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(f) Executive (or his estate) or beneficiaries will have the right to
exercise all vested unexercised stock options and warrants outstanding at the
termination date in accordance with terms of the plans and agreements pursuant
to which such options or warrants were issued.
4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD
Reason. If Executive's employment is terminated by the Company for Cause, or if
Executive terminates his employment with the Company other than (x) upon
Executive's death or Total Disability, (y) for Good Reason, or (z) pursuant to a
Change in Control Resignation (as defined in Section 3.2(b)), the Company will:
(a) pay Executive the Accrued Base Salary;
(b) pay Executive the Accrued Vacation Payment;
(c) pay Executive the Accrued Reimbursable Expenses;
(d) pay Executive the Accrued Benefits, together with any benefits
required to be paid or provided under applicable law;
(e) pay Executive any accrued Annual Fixed Cash Bonus and Annual
Incentive Bonus with respect to a prior year which has accrued but has not been
paid (together, such bonus payments are referred to herein as the "ACCRUED
ANNUAL BONUS PAYMENTS"); and
(f) Executive will have the right to exercise vested options and
warrants in accordance with Section 4.1(f).
4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR
GOOD REASON PRIOR TO A CHANGE IN CONTROL. If Executive's employment is
terminated by the Company without Cause or by Executive for Good Reason, the
Company will:
(a) pay Executive the Accrued Base Salary;
(b) pay Executive the Accrued Vacation Payment;
(c) pay Executive the Accrued Reimbursable Expenses;
(d) pay Executive the Accrued Benefits, together with any benefits
required to be paid or provided under applicable law;
(e) pay Executive any Accrued Annual Incentive Bonus;
(f) pay Executive commencing on the thirtieth day following the
termination date twenty-four (24) monthly payments equal to one-twelfth of the
sum of (1) Executive's Base Salary
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in effect immediately prior to the time such termination occurs, plus (2) the
average of the Annual Incentive Bonuses paid to Executive for the two (2) fiscal
years immediately preceding the fiscal year in which the termination occurs (or
if less than two, the amount of his single Annual Incentive Bonus, if any);
provided, however, should Executive attain alternative employment during the
twenty-four (24) month payment period, the Company's obligations under this
Section 4.3(f) will be reduced by the amount of Executive's compensation from
his new employer. For example, if Executive were entitled to receive $30,000 per
month for twenty-four (24) months under this Section 4.3(f), and if, at the
beginning of the seventh (7th) month following his termination date, he finds
alternative employment that pays him $25,000 per month, the Company would be
obligated to pay Executive six (6) monthly payments of $30,000, and eighteen
(18) monthly payments of $5,000 under this Section 4.3(f);
(g) maintain in full force and effect, for Executive's and his eligible
beneficiaries' continued benefit, until the first to occur of (x) his attainment
of alternative employment or (y) twenty-four (24) months following the
termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans, programs or other arrangements in
which Executive was entitled to participate as a full-time employee immediately
prior to such termi nation in accordance with Section 2.4 hereof, subject to the
terms and conditions of such plans and programs (the "CONTINUED BENEFITS"). If
Executive's continued participation is not permitted under the general terms and
provisions of such plans, programs and arrangements, the Company will arrange to
provide Executive with Continued Benefits substantially similar to those which
Executive would have been entitled to receive under such plans, programs and
arrangements; and
(h) Executive will have the right to exercise vested options and
warrants in accordance with Section 4.1(f).
Notwithstanding anything to the contrary in this Agreement, Executive's
employment will not be deemed to have been terminated "without Cause," nor will
Executive be deemed to have terminated his employment for "Good Reason" if, (i)
at the date of Executive's termination of employment with the Company, the
Company is, or was, within the three (3) month period preceding such date, an
Affiliate of MicroAge AND (ii) within thirty (30) days following Executive's
termination of employment with the Company, MicroAge or any of its Affiliates
offers a senior executive position based in Maricopa County to Executive with at
least the same Base Salary and term of employment to which Executive is entitled
hereunder (any such offer made under the circumstances described in clauses (i)
and (ii) of this sentence is hereinafter referred to as a "MICROAGE EMPLOYMENT
Offer"). If Executive accepts a MicroAge Employment Offer, Executive will not be
entitled to any payments as a result of the termination of his employment under
this Agreement. If Executive does not accept a MicroAge Employment Offer,
Executive's termination of employment will be treated as termination pursuant to
Section 4.2 of this Agreement. The Company agrees to provide MicroAge with
written notice of Executive's termination of employment with the Company no
later than ten (10) days following such termination.
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4.4 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE FOLLOWING A CHANGE IN
CONTROL OR BY EXECUTIVE FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL OR
PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If following a Change in Control,
Executive's employment is terminated by the Company without Cause or by
Executive for Good Reason or pursuant to a Change in Control Resignation, the
Company shall:
(a) make the payments and provide to Executive the benefits under
Section 4.3 other than under Section 4.3(f) hereof; and in addition
(b) pay to Executive a lump sum payment on or prior to the thirtieth
day following the termination date of Executive's employment hereunder in an
amount equal to 200% of Executive's aggregate total compensation under Sections
2.1 and 2.2 hereof for the fiscal year immediately prior to the fiscal year in
which the Change in Control occurs; provided, however, the total payments
received by Executive under this Section 4.4(b) plus (i) any payments received
by Executive under Section 4.4(a) which would be classified as parachute
payments and (ii) any payments or value received by Executive from stock options
which would be classified as parachute payments determined in accordance with
Prop. Reg. ss. 1.280G-1A-24(e) Examples (7) and (8) may not exceed 299% of
Executive's "Base Amount" as such term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended ("Code") and the regulations
promulgated thereunder ("Regulations"). Company and Executive agree that for
purposes of making any present value calculation under this Agreement, the
Applicable Federal Rate in effect on the date this Agreement is executed shall
control as permitted by Q&A 32 of Treas. Reg. ss. 1.280G-1.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIAL INFORMATION AND MATERIALS. Executive hereby agrees and
acknowledges that the following ideas, information, and materials in written,
oral, magnetic, photographic, optical or other form and whether now existing or
developed or created during the period of Executive's employment or engagement
with the Company (the "Confidential Information") are proprietary to the Company
and are highly sensitive in nature:
(a) HARDWARE. Any and all ideas, concepts, know-how, techniques,
structures, information and materials relating to the design, development,
engineering, invention, patent, patent application, manufacture or improvement
of any and all equipment, components, devices, techniques, processes or formulas
(including, without limitation, mask works, semi-conductor chips, processors,
memories, disc drives, tape heads, computer terminals, keyboards, storage
devices, printers, and optical storage media) and any and all components,
devices, techniques or circuitry incorporated in any of the above which is or
are constructed, designed, improved, altered or used by the Company and which is
or are not generally known to the public or within the industries in which the
Company competes.
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(b) SOFTWARE. Any and all ideas, concepts, know-how, techniques,
structures, information and materials relating to existing computer software or
firmware products and computer software or firmware in various stages of
research and development including without limitation source code, object and
load modules, requirements specifications, design specifications, design notes,
flow charts, coding sheets, annotations, documentation, technical and
engineering data, laboratory studies, benchmark test results, and the
structures, organization, designs, formulas and algorithms which reside in the
software and which are not generally known to the public or within the
industries or trades in which the Company competes.
(c) BUSINESS PROCEDURES. Internal business procedures and business
plans, including analytical methods and procedures, licensing techniques,
manufacturing information and procedures such as formulations, processes and
equipment, technical and engineering data, vendor names, other vendor
information, purchasing information, financial information, service and
operational manuals and documentation therefor, ideas for new products and
services and other such information which relates to the way the Company
conducts its business and which is not generally known to the public.
(d) LEGAL RIGHTS. All patents, copyrights, trade secrets, trademarks
and service marks, and the like.
(e) MARKETING PLANS AND CUSTOMERS LISTS. Any and all customer and
marketing information and materials, such as (i) strategic data, including
marketing and development plans, forecasts and forecast assumptions and volumes,
and future plans and potential strategies of the Company which have been or are
being discussed; (ii) financial data, price and cost objectives, price lists,
pricing policies and procedures, and estimating and quoting policies and
procedures; and (iii) customer data, including customer lists, names of
existing, past or prospective customers and their representatives, data about or
provided by prospective, existing or past customers, customer service
information and materials, data about the terms, conditions and expiration dates
of existing contracts with customers and the type, quantity and specifications
of products and services purchased, leased or licensed by customers of the
Company.
(f) NOT GENERALLY KNOWN. Any and all information not generally known to
the public or within the industries or trades in which the Company competes.
5.2 GENERAL KNOWLEDGE. The general skills and experience gained by
Executive during Executive's employment or engagement by the Company, and
information publicly available or generally known within the industries or
trades in which the Company competes, is not considered Confidential
Information. Following the Non-Competition Period (as defined in Section
5.9(a)), Executive is not restricted from working with a person or entity which
has independently developed information or materials similar to the Confidential
Information, but in such a circumstance, Executive agrees not to disclose the
fact that any similarity exists between the Confidential Information and the
independently developed information and materials, and Executive understands
that such similarity does not excuse Executive from the non-disclosure and other
obligations in this Agreement.
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5.3 EXECUTIVE OBLIGATIONS AS TO CONFIDENTIAL INFORMATION AND MATERIALS.
During Executive's employment or engagement by the Company, Executive will have
access to the Confidential Information and will occupy a position of trust and
confidence with respect to the Confidential Information and the Company's
affairs and business. Executive agrees to take the following steps to preserve
the confidential and proprietary nature of the Confidential Information:
(a) NON-DISCLOSURE. During and after Executive's employment or
engagement by the Company, Executive will not use, disclose or otherwise permit
any person or entity access to any of the Confidential Information other than as
required in the performance of Executive's duties with the Company. Executive
understands that Executive is not allowed to sell, license, market or otherwise
exploit any products or services (including software or firmware in any form)
which embody in whole or in part any Confidential Information.
(b) PREVENT DISCLOSURE. Executive will take all reasonable precautions
to prevent disclosure of the Confidential Information to unauthorized persons or
entities.
(c) ABIDE BY THE COMPANY'S RESTRICTIONS. Executive will treat as
confidential and proprietary any information or materials from outside the
Company which the Company is obligated to treat as confidential or proprietary,
in accordance with the Company's reasonable instructions to Executive.
(d) RETURN ALL MATERIALS. Upon termination of Executive's employment or
engagement by the Company for any reason whatsoever, Executive will deliver to
the Company all tangible materials embodying the Confidential Information,
including any documentation, records, listings, notes, data, sketches, drawings,
memoranda, models, accounts, reference materials, samples, machine-readable
media and equipment which in any way relate to the Confidential Information. Of
course, Executive agrees not to retain any copies of any of the above materials.
5.4 INFORM SUBSEQUENT EMPLOYERS. Executive covenants and agrees that,
for a period beginning on the date of Executive's termination of employment with
the Company and ending twenty-four (24) months following termination of the
Non-Competition Period, prior to accepting subsequent employment with an
employer engaged in substantially the same line of work as the Company,
Executive will: (a) inform any such subsequent employer in writing that this
Agreement exists; and (b) provide the Company with a copy of such writing.
5.5 IDEAS AND INVENTIONS. Executive agrees to assign to the Company all
of Executive's right, title and interest in or to any and all ideas, concepts,
know-how, techniques, processes, inventions, discoveries, developments, works of
authorship, innovations and improvements ("Inventions") conceived or made by
Executive, whether alone or with others, whether patentable or not, except those
that the Executive developed entirely on Executive's own time without using the
Company's equipment, supplies, facilities, or trade secret information and which
neither (1) relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company nor (2) result from any work
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performed by the Executive for the Company. Executive agrees to disclose all
Inventions to the Company promptly, and to provide all assistance reasonably
requested by the Company in the preservation of its interests in the Inventions
(such as by executing documents, testifying, etc.), such assistance to be
provided at the Company's expense but without any additional compensation to
Executive.
5.6 INVENTIONS AND PATENTS; ASSERTION OF RIGHTS. Executive agrees that
from this date until Executive leaves the Company's employment, Executive will
keep the Company informed of any Inventions made by Executive, in whole or in
part, or conceived by Executive, alone or with others, which result from any
work Executive may do for, or at the request of, the Company, or which relate to
the Company's activities, investigations, or obligations. Executive will, at the
expense of the Company, assist the Company or its nominees to obtain patents for
such Inventions in any countries throughout the world. Such Inventions will be
the property of the Company or its nominees, whether patented or not. Executive
will and does, without charge to the Company, assign to the Company, all of
Executive's right, title, and interest in and to such Inventions, including
patents and patent applications and reissues thereof. Executive agrees to
execute, acknowledge, and deliver any instruments confirming the complete
ownership by the Company of such Inventions. Such assignments will include the
right to sue for infringement.
5.7 COPYRIGHTS. Executive agrees that any work prepared by Executive
during the course of Executive's employment or engagement hereunder which is
eligible for United States copyright protection or protection under the
Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos
Aires Copyright Convention will be a work made for hire. In the event any such
work is deemed not to be a work made for hire, Executive hereby assigns all
right, title and interest in and to the copyright in such work to the Company,
and agrees to provide all assistance reasonably requested by the Company in the
establishment, preservation and enforcement of its copyright in such work, such
assistance to be provided at the Company's expense but without any additional
compensation to Executive.
5.8 CONFLICTING OBLIGATIONS AND RIGHTS. Executive agrees to inform the
Company in writing of any apparent conflict between Executive's work for the
Company and (i) any obligations Executive may have to preserve the
confidentiality of another's proprietary information or materials, or (ii) any
rights Executive claims to any patents, copyrights, trade secrets, or other
inventions, ideas or similar rights, before performing that work. Otherwise, the
Company may conclude that no such conflict exists and Executive agrees
thereafter to make no such claim against the Company. The Company will receive
such disclosures in confidence. There are no such existing obligations and
claims of Executive as of the date of this Agreement.
5.9 NON-COMPETITION/NON-SOLICITATION.
(a) NON-COMPETITION/NON-SOLICITATION. During the Non-Competition Period
(as defined herein), Executive agrees that Executive will not Compete (as
defined herein) with the Business in the Business Territory. The term "BUSINESS
TERRITORY" means the United States of
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America, including (i) the Western United States (Alaska, Arizona, California,
Colorado, Hawaii, Idaho, Oregon, Montana, New Mexico, Nevada, Utah, Washington,
and Wyoming); (ii) the Central United States (Alabama, Arkansas, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri,
Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee,
Texas, and Wisconsin); (iii) the Eastern United States (Connecticut, Delaware,
Florida, Georgia, Massachusetts, Maryland, Maine, North Carolina, New Hampshire,
New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, Virginia,
Vermont, and Washington, DC, and West Virginia); and (iv) a 30-mile radius
around each of the following: (A) the Company's or MicroAge's corporate
headquarters, (B) any distribution or logistics centers operated by the Company,
MicroAge, or any of their Affiliates, (C) any quality integration centers
operated by the Company, MicroAge, or any of their Affiliates, (D) the Company's
or MicroAge's company-owned reseller locations, (E) any call centers operated by
the Company, MicroAge, or any of their Affiliates, (F) any other facility owned
or operated by the Company, MicroAge, or any of their Affiliates not covered by
clauses (A) - (E) of this Section 5.9(a), (G) the Company's or MicroAge's MIS
branches (whether owned by MicroAge or not), and (H) MicroAge's franchisee
locations.
For purposes of this Section 5.9(a), the "NON-COMPETITION PERIOD" means
the period of Executive's employment by the Company, MicroAge, or any of their
Affiliates, and an additional period of twenty-four (24) months following the
date of termination of Executive's employment for any reason, whether such
termination is voluntary or involuntary. Executive agrees that the
Non-Competition Period will be extended by the number of days during any such
period in which Executive is or was engaged in activities constituting a breach
of this Article V.
(b) For purposes of this Section 5.9, the term "COMPETE" or "COMPETING"
means, with respect to the Business: (i) managing, supervising, or otherwise
participating in a management or sales capacity; or (ii) otherwise managing,
operating, controlling, participating in the ownership, management, or control
of, or being connected with or having any interest in, as a stockholder, agent,
partner, lender, consultant, advisor or otherwise, any business or Person which
provides goods, products, or services competitive with those provided by the
Business; PROVIDED, HOWEVER, that nothing contained herein will prohibit
Executive from owning less than one percent of any class of securities listed on
a national securities exchange or traded publicly in the over-the-counter
market; or (iii) entering into or attempting to enter into any business
substantially similar to the Business, either alone or with any other Person.
(c) For the purposes of this Section 5.9, the words "directly or
indirectly", as they modify the word "Compete" or "Competing" mean (i) acting as
an agent, representative, consultant, officer, director, member, independent
contractor, or employee of any Person that is Competing with the Business; (ii)
participating in any such Competing Person or enterprise as an owner, partner,
limited partner, joint venturer, member, creditor, or shareholder (except as
expressly permitted herein); or (iii) or communicating to any such Competing
Person or enterprise the names or addresses or any other information concerning
any past, present, or identified prospective client or customer or any other
confidential information of the Business, the Company, MicroAge, or any of their
Affiliates.
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(d) For purposes of this Article V, the term "BUSINESS" means the
delivery of systems integration, management, and support services and/or the
distribution of information technology products and services, as conducted by
the Company, MicroAge, or any of their Affiliates immediately prior to the date
hereof and/or developed during Executive's employment hereunder.
(e) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that the
Company's employees are a valuable resource of the Company. Accordingly, during
the Employee Non-Solicitation Period (as defined herein), Executive agrees that
Executive will not, either alone or in conjunction with any other Person,
directly or indirectly, go into business with any Company employee or solicit,
induce, or recruit any Company employee to leave the employ of the Company. For
the purpose of this Section 5.9(e), Company employee means (i) any employee of
the Company, MicroAge, or any of their Affiliates as of, or immediately prior to
the date hereof or during the Non-Competition Period, the Employee
Non-Solicitation Period, and the Customer Non-Solicitation Period; or (ii) any
former employee of the Company, MicroAge, or any of their Affiliates whose
employment with the Company, MicroAge, or any of their Affiliates ceased less
than one (1) year before the date of such co-venturing, solicitation,
inducement, or recruitment.
For purposes of this Section 5.9(e), the "EMPLOYEE NON-SOLICITATION
Period"means the period of Executive's employment by the Company, MicroAge, or
any of their Affiliates, and an additional period of twenty-four (24) months
following the date of termination of Executive's employment for any reason,
whether such termination is voluntary or involuntary. The Employee
Non-Solicitation Period described herein will be extended by the number of days
during any such period in which Executive is or was engaged in activities
constituting a breach of this Article V.
(f) NON-SOLICITATION OF CUSTOMERS AND PROSPECTIVE CUSTOMERS. Executive
recognizes that the Company's customers and Prospective Customers are a valuable
asset of the Company. Accordingly, during the Customer Non-Solicitation Period,
Executive will not, either alone or in conjunction with any other Person,
directly or indirectly, call on, solicit, take away, accept as a client,
customer, or prospective client or customer, or attempt to call on, solicit,
take away, or accept as a client, customer, or prospective client or customer,
any Person that, as of the date of the termination of Executive's employment
hereunder, (i) was a client, customer, or Prospective Customer of the Company,
MicroAge, or any of their Affiliates, or (ii) was a client, customer, or
Prospective Customer of the Company, MicroAge, or any of their Affiliates within
the Business Territory, or (iii) was a client, customer, or Prospective Customer
of the Company, MicroAge, or any of their Affiliates, with which the Executive
had any significant contact, either individually or with another.
For purposes of this Section 5.9(f), (i) the "CUSTOMER NON-SOLICITATION
PERIOD" means the period of Executive's employment by the Company, MicroAge, or
any of their Affiliates, and an additional period of twenty-four (24) months
following the date of termination of Executive's employment for any reason,
whether such termination is voluntary or involuntary, and (ii) "PROSPECTIVE
CUSTOMER" means any Person that the Company, MicroAge, or any of their
Affiliates have contacted, or have developed a strategy or plan to contact, for
the purpose of acquiring such Person as a client. The Customer Non-Solicitation
Period described herein will be extended by the
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number of days during any such period in which Executive is or was engaged in
activities constituting a breach of this Article V.
(g) During the Non-Competition Period (as defined in Section 5.9(a))
Executive agrees that Executive will not, either within or outside of the
Business Territory, act as an agent, representative, consultant, officer,
director, member, independent contractor, or employee of Arrow Electronics,
Inc.; Avnet, Inc.; CHS Electronics, Inc.; Cambridge Research Associates, Inc.;
Compaq Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; EnPointe
Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office
Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy
Computer Resources, Inc.; Tech Data Corporation; Vanstar Corporation; Xerox
Connect; or any Affiliates or successors of the foregoing.
(h) Executive hereby expressly agrees and acknowledges that:
(i) the Company has protectable business interests throughout the
Business Territory, and elsewhere, and that competition with and against such
business interests would be harmful to the Company;
(ii) the covenants contained in this Article V are reasonable as
to time and geographical area and do not place any unreasonable burden upon
Executive's ability to earn a livelihood;
(iii) the public will not be harmed as a result of enforcement of
the covenants contained in this Article V;
(iv) the personal legal counsel for Executive has reviewed the
covenants contained in this Article V; and
(v) Executive understands and hereby agrees to each and every
term and condition contained in this Article V.
5.10 NON-DISPARAGEMENT. During the term of this Agreement, the
Non-Competition Period, the Employee Non-Solicitation Period, and the Customer
Non-Solicitation Period, neither the Executive nor the Company will disparage
the other, and neither will disclose to any third party the conditions of
Executive's employment with the Company, except as may be required (i) pursuant
to applicable law or regulations, including the rules and regulations of the
Securities and Exchange Commission, (ii) to effectuate the provisions of
employee plans or programs and insurance policies, or (iii) as may be otherwise
contemplated herein or unless such information becomes publicly available
without fault of the party making such disclosure.
5.11 REMEDIES. Executive expressly agrees and acknowledges that the
covenants set forth in Sections 5.1 through Section 5.10 are necessary for the
protection of the interests of the Company and its Affiliates because of the
nature and scope of their business and his position with the Company
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and, consistent with Section 6.2(b), such covenants may be enforced in any court
of competent jurisdiction. Further, Executive acknowledges that any breach of
such covenants would result in irreparable damage to the Company, and that money
damages will not sufficiently compensate the Company for its injury caused
thereby, and that the remedy at law for any breach or threatened breach of any
of such covenants will be inadequate and, accordingly agrees, that the Company
will, in addition to all other available remedies (including without limitation,
seeking such damages as it can show it has sustained by reason of such breach),
be entitled to injunctive relief or specific performance and that in addition to
such money damages he may be restrained and enjoined from any continuing breach
of this covenant not to compete without any bond or other security being
required of any court. The remedies set forth in this Section 5.11 will be
included in any award in favor of the Company under EXHIBIT A hereto.
5.12 SEVERABILITY OF ARTICLE V PROVISIONS. If any provision of this
Article V shall be adjudicated by a court of competent jurisdiction to be
invalid or unenforceable because of the scope, duration, area of its
applicability, or any other reason, the court making such determination will
have the power to modify such scope, duration, or area, or all of them, or to
strike an invalid or unenforceable provision, in whole or in part, to make such
scope, duration, area, or provision valid and enforceable. Executive further
acknowledges and agrees that if such covenants, or any of them, are deemed to be
unenforceable and/or the Executive fails to comply with this Article V, the
Company has no obligation to provide any compensation or other benefits
described in Article IV hereof.
5.13 OTHER AGREEMENTS . In the event that Executive has previously
signed, or does sign in the future, any one or more separate non-competition,
non-solicitation, confidentiality or similar agreement(s) with the Company, such
agreement(s) will remain binding and enforceable and the Company may, at its
option, assert any and all such agreement(s) against Executive in addition to,
or in lieu of, this Agreement.
5.14 SCOPE OF ARTICLE . For purposes of this Article V, unless the
context otherwise requires, the term "Company" includes MicroAge, Inc., its
direct and indirect subsidiaries, and its Affiliates.
ARTICLE VI
MISCELLANEOUS
6.1 DEFINITIONS. For purposes of this Agreement, the following terms
will have the following meanings:
"Accrued Base Salary" - as defined in Section 4.1(a).
"Accrued Benefits" - as defined in Section 4.1(d).
"Accrued Annual Bonus Payment" - as defined in Section 4.1(e).
15
<PAGE>
"Accrued Reimbursable Expenses" - as defined in Section 4.1(c).
"Accrued Vacation Payment" - as defined in Section 4.1(b).
"Affiliate" - of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
"Annual Fixed Cash Bonus" - as defined in Section 2.2(a);
"Annual Incentive Bonus" - as defined in Section 2.2(b);
"Base Amount" - as defined in Section 4.4(b).
"Base Salary" - as defined in Section 2.1.
"Board" - will mean the Board of Directors of the Company.
"Business" - as defined in Section 5.9(d).
"Business Territory" - as defined in Section 5.9(a).
"Cause" will mean the occurrence of any of the following:
(a) Executive's gross and willful misconduct which is injurious
to the Company or any of its Affiliates;
(b) Executive's engaging in fraudulent conduct with respect to
the Company's or any of its Affiliate's business or in conduct of a
criminal nature that may have an adverse impact on the Company's or
any of its Affiliate's standing and reputation;
(c) the failure or refusal by Executive to perform the duties
required of him by this Agreement, which failure or refusal shall not
be cured within fifteen (15) days following receipt by Executive of
written notice from the Company specifying the factors or events
constituting such failure or refusal; or
(d) Executive's use of drugs and/or alcohol in violation of then
current Company policy. .
"Change of Control" will mean and will be deemed to have occurred if:
16
<PAGE>
(i) After the date of this Agreement, any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any successor provision
thereto) becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act or any successor provision thereto)
directly or indirectly of securities of MicroAge representing 15
percent or more of the combined voting power of MicroAge's then
outstanding securities ordinarily having the right to vote at an
election of directors; PROVIDED, HOWEVER, that, for purposes of this
subparagraph, "person" will exclude MicroAge, its Affiliates, any
person acquiring such securities directly from MicroAge, any employee
benefit plan sponsored by MicroAge or from Executive or any
stockholder owning 15% or more of the combined voting power of
MicroAge's outstanding securities as of the date of this Agreement; or
(ii) Any stockholder of MicroAge owning 15 percent or more of the
combined voting power of the Company's outstanding securities as of
the date of this Agreement becomes the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of MicroAge (other than through the acquisition of
securities directly from MicroAge or from Executive) representing 25
percent or more of the combined voting power of MicroAge's then
outstanding securities ordinarily having the right to vote at an
election of directors; or
(iii) Individuals who, as of the date hereof, constitute the
Board (the "INCUMBENT BOARD") cease for any reason to constitute at
least 80 percent of the Board, provided, however, that any person
becoming a member of the Board subsequent to the date hereof whose
election, or nomination for election by MicroAge's stockholders, was
approved by a vote of at least 80 percent of the members then
comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election
of directors of MicroAge, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act or any successor
provision thereto) will be, for purposes of this Agreement, considered
as though such person were a member of the Incumbent Board; or
(iv) Approval by the stockholders of MicroAge and consummation of
(A) a reorganization, merger, consolidation, or sale or other
disposition of all or substantially all of the assets of MicroAge, in
each case, with or to a corporation or other person or entity of which
persons who were the stockholders of MicroAge immediately prior to
such transaction do not, immediately thereafter, own more than 60
percent of the combined voting power of the outstanding voting
securities entitled to vote generally in the election of directors of
the reorganized, merged, consolidated or purchasing corporation (or in
the case of a non-corporate person or entity, functionally equivalent
voting power) and 80 percent of the members of the Board of which
corporation (or functional equivalent in the case of a non-corporate
person or entity) were not members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger, consolidation or sale, or (B) a liquidation or
dissolution of MicroAge.
17
<PAGE>
Notwithstanding anything to the contrary in the foregoing definition of
Change of Control, a Change of Control will not be deemed to have occurred (i)
as a result of the sale or other disposition of all of a portion of the
Company's outstanding securities or assets if such sale or disposition has been
approved by MicroAge's Board of Directors or (ii) if, following a sale or
disposition described in the immediately preceding clause (i), an event occurs
that would have otherwise been a Change of Control hereunder.
"Change of Control Resignation" - as defined in Section 3.2(b).
"Code" - as defined in Section 4.4(b).
"Common Stock" - shall mean shares of the common stock, par value $.01
per share, of the Company.
"Compete" or "Competing" - as defined in Section 5.9(b).
"Confidential Information" - as defined in Section 5.1.
"Continued Benefits" - as defined in Section 4.3(g).
"Customer Non-Solicitation Period" - as defined in Section 5.9(f).
"Employee Non-Solicitation Period" - as defined in Section 5.9(e).
"Good Reason" will mean the occurrence of any of the following (subject
to Section 4.3):
(a) The Company's failure to elect or reelect or to appoint or
reappoint Executive to offices, titles or positions carrying
comparable authority, responsibilities, dignity and importance to that
of Executive's offices and positions as of the date of this Agreement
or, in the case of a Change in Control, involving duties of a scope
comparable to those of Executive's most significant offices or
positions held at any time during the 90 day period immediately
preceding the date such Change in Control occurs;
(b) Material change by the Company in Executive's function,
duties or responsibilities (including report responsibilities) which
would cause Executive's position with the Company to become of less
dignity, responsibility and importance than those associated with his
functions, duties or responsibilities as of the date of this Agreement
or, in the case of a Change in Control, involving duties of a scope
less than that associated with Executive's most significant position
with the Company during the 90 day period immediately preceding the
date such Change in Control occurs;
18
<PAGE>
(c) Executive's Base Salary is reduced by the Company (unless
such reduction is pursuant to a salary reduction program as described
in Section 2.1 hereof) or there is a material reduction in the
benefits that are in effect for the Executive on the date of this
Agreement in accordance with Section 2.4 (unless such reduction is
pursuant to a uniform reduction in benefits for all senior
executives);
(d) Except with Executive's prior written consent, relocation of
Executive's principal place of employment to a location outside of
Maricopa County, Arizona, or requiring Executive to travel on the
Company's business more than is required by Section 1.4 hereof;
(e) The failure by the Company to obtain the assumption by
operation of law or otherwise of this Agreement by any entity which is
the surviving entity in any merger or other form of corporate
reorganization involving the Company or by any entity which acquires
all or substantially all of the Company's assets; or
(f) Other material breach of this Agreement by the Company, which
breach is not cured within fifteen (15) days after written notice
thereof is received by the Company.
"Inventions" - as defined in Section 5.5.
"MicroAge Employment Offer" - as defined in Section 4.3
"Non-Competition Period" - as defined in Section 5.9(a).
"Notice of Termination" will mean a notice which indicates the specific
termination provision of this Agreement relied upon and will set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
"Person" - means any natural person, firm, partnership, association,
corporation, company, limited liability company, limited partnership, trust,
business trust, governmental authority, or other entity.
"Prospective Customer" - as defined in Section 5.9(f).
"Retirement" will mean normal retirement at age 65.
"Total Disability" will mean Executive's failure substantially to
perform his duties hereunder on a full-time basis for a period exceeding 180
consecutive days or for periods aggregating more than 180 days during any
twelve-month period as a result of incapacity due to physical or mental illness.
If there is a dispute as to whether Executive is or was physically or mentally
unable to perform his duties under this Agreement, such dispute will be
submitted for resolution to a licensed
19
<PAGE>
physician agreed upon by the Company and Executive, or if an agreement cannot be
promptly reached, the Company and Executive will promptly select a physician,
and if these physicians cannot agree, the physicians will promptly select a
third physician whose decision will be binding on all parties. If such a dispute
arises, Executive will submit to such examinations and will provide such
information as such physician(s) may request, and the determination of the
physician(s) as to Executive's physical or mental condition will be binding and
conclusive. Notwithstanding the foregoing, if Executive participates in any
group disability plan provided by the Company which offers long-term disability
benefits, "Total Disability" will mean total disability as defined therein.
6.2 KEY MAN INSURANCE. The Company will have the right, in its sole
discretion, to purchase "key man" insurance on the life of Executive. The
Company will be the owner and beneficiary of any such policy. If the Company
elects to purchase such a policy, Executive will take such physical examinations
and supply such information as may be reasonably requested by the
insurer.
6.3 MITIGATION OF DAMAGES; SET-OFF; DISPUTE RESOLUTION.
(a) Executive will be required to mitigate the amount of any payment
provided for in this Agreement (other than payments received pursuant to Section
4.4 hereof) by seeking other employment.
(b) If there shall be any dispute between the Company and Executive (i)
in the event of any termination of Executive's employment by the Company,
whether or not such termination was for Cause, or (ii) in the event of any
termination of employment by Executive, or (iii) otherwise arising out of this
Agreement, the dispute will be resolved in accordance with the "Arbitration
Procedure" contained in the MicroAge, Inc. Complaint Arbitration and Termination
Dispute Resolution Policy attached hereto as EXHIBIT A, the provisions of which
are incorporated as a part hereof; provided, however, that notwithstanding the
first sentence of Section 4.1 of the "Arbitration Procedure," the Company or
Executive must initiate arbitration within one (1) year from the date any claim
under this Agreement accrues; and provided further, that either party may seek
injunctive relief in court to avoid irreparable injury during the pendency of
arbitration proceedings. In the event of a dispute hereunder as to whether a
termination by the Company was for Cause or by the Executive for Good Reason,
until there is a resolution and award as provided in EXHIBIT A the Company will
pay all amounts, and provide all benefits, to Executive and/or Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide hereunder as though such termination were by the
Company without Cause or by Executive for Good Reason and will pay the
reasonable legal fees and expenses of counsel for Executive in connection with
such dispute resolution; provided, however, that the Company will not be
required to pay any disputed amounts or any legal fees and expenses pursuant to
this subparagraph (b) except upon receipt of a written undertaking by or on
behalf of Executive (and/or Executive's family or other beneficiaries, as the
case may be) to repay, without interest or penalty, as soon as practicable after
completion of the dispute resolution (A) all such amounts to which Executive (or
Executive's family or other beneficiaries, as the case may be) is ultimately
adjudged not be entitled with respect to the
20
<PAGE>
payment of such disputed amount(s) and (B) in addition, in the case of legal
fees and expenses, a proportionate amount of legal fees and expenses
attributable to any of Executive's claim(s) (or any of Executive's defenses or
counter-claims(s)), if any, which are found by the dispute resolver to have been
frivolous or without merit. IT IS EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS
AGREEMENT, WHICH INCORPORATES BINDING ARBITRATION, THE COMPANY AND EXECUTIVE
AGREE, EXCEPT AS SPECIFICALLY PROVIDED OTHERWISE IN SECTIONS 5.11 AND THIS
SECTION 6.2(B), TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY,
CONSEQUENTIAL, AND ANY DAMAGES, OTHER THAN COMPENSATORY DAMAGES.
6.4 SUCCESSORS; BINDING AGREEMENT. This Agreement will be binding upon
any successor to the Company and will inure to the benefit of and be enforceable
by any such successor and by Executive's personal or legal representatives,
beneficiaries, designees, executors, administrators, heirs,
distributees, devisees, and legatees.
6.5 MODIFICATION; NO WAIVER. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement will be deemed to have been waived, nor will
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument by the party charged with such waiver or
estoppel. No such written waiver will be deemed a continuing waiver unless
specifically stated therein, and each such waiver will operate only as to the
specific term or condition waived and will not constitute a waiver of such term
or condition for the future or as to any other term or condition.
6.6 SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the employment arrangement
that is the basis for this Agreement, will not affect the validity or
enforceability of any other covenant or agreement contained herein.
6.7 NOTICES. All notices, demands, and other communications provided
for hereunder will be in writing (including facsimile or similar transmission)
and mailed (by U.S. certified mail, return receipt requested, postage prepaid),
sent, or delivered (including by way of overnight courier service), (i) if to
the Company, 3001 South Priest Drive, Tempe, Arizona 85282, Attention: Chief
Executive Officer, telecopy no. (602) 366-2877, with a copy to MicroAge, Inc.,
2400 South MicroAge Way, Tempe, Arizona 85292-1896, Attention: Chief Executive
Officer, telecopy no. (602) 366-2444, and to Matthew P. Feeney, Snell & Wilmer
L.L.P., One Arizona Center, Phoenix, Arizona 85004-0001, telecopy no. (602)
382-6070; and (ii) if to Executive, 6211 East Huntress Drive, Paradise Valley,
Arizona 85253; or, as to any party, to such other person and/or at such other
address or number as shall be designated by such party in a written notice to
the other party. All such notices, demands, and communications, if mailed, will
be effective upon the earlier of (i) actual receipt by the addressee, (ii) the
date shown on the return receipt of such mailing, or (iii) three (3) days after
deposit in the mail. All such notices, demands, and communications, if not
mailed, will be effective upon the earlier of (i) actual receipt by the
addressee, (ii) with respect to facsimile and similar electronic transmission,
the earlier of (x) the time that electronic confirmation of a successful
transmission is received, or (y)
21
<PAGE>
the date of transmission, if a confirming copy of the transmission is also
mailed as described above on the date of transmission, and (iii) with respect to
delivery by overnight courier service, the day after deposit with the courier
service, if delivery on such day by such courier is confirmed with the
courier or the recipient orally or in writing.
6.8 ASSIGNMENT. This Agreement and any rights hereunder will not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided
for herein.
6.9 ENTIRE UNDERSTANDING. This Agreement (together with EXHIBIT A
incorporated as a part hereof) constitute the entire understanding between the
parties hereto and no agreement, representation, warranty or covenant has been
made by either party except as expressly set forth herein.
6.10 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound.
6.11 LIABILITY OF COMPANY WITH RESPECT TO INSURANCE POLICY. Executive
has selected the insurer and policy referred to in Section 2.4(a) hereof, and
the Company will not have any liability to Executive (or his beneficiaries)
should the insurance company which issues the policy referred to therein fail or
refuse to pay (whether voluntarily or by reason of any order, injunction or
otherwise) thereunder or if any rights or elections otherwise available to
Executive thereunder are restricted or eliminated.
6.12 GOVERNING LAW. This Agreement will be construed in accordance with
and governed for all purposes by the laws of the State of Arizona applicable to
contracts executed and wholly performed within such state.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PINACOR, INC.
By: /s/ Jeffrey D. McKeever
----------------------------------
Jeffrey D. McKeever
Chairman of the Board of Directors
22
<PAGE>
EXECUTIVE
By: /s/ Robert G. O'Malley
----------------------------------
Robert G. O'Malley
AGREED AND ACCEPTED (AS TO SECTIONS 1.5 AND 1.6):
MICROAGE, INC.
By: /s/ Jeffrey D. McKeever
----------------------------------
Jeffrey D. McKeever
Chairman of the Board and Chief Executive Officer
23
<PAGE>
EXHIBIT A
MICROAGE COMPLAINT ARBITRATION
AND TERMINATION DISPUTE RESOLUTION POLICY
(ATTACHED)
IBM BUSINESS PARTNER AGREEMENT
DISTRIBUTOR PROFILE
- --------------------------------------------------------------------------------
We welcome you as an IBM Business Partner-Distributor.
This Profile covers the details of your approval to actively market Products and
Services, as our Distributor.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(a) this Profile;
(b) General Terms (Z125-5478-03 11/97);
(c) the applicable Attachments referred to in this Profile; and
(d) the Exhibit.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is signed, 1) any reproduction of
this Agreement or a transaction document made by reliable means (for example,
photocopy or facsimile) is considered an original, to the extent permissible
under applicable law, and 2) all Products and Services you market and Services
you perform under this Agreement are subject to it. If you have not already
signed an Agreement for Exchange of Confidential Information (AECI), your
signature on this Profile includes your acceptance of the AECI.
After signing this Profile, please return a copy to the IBM address shown below.
Revised Profile (yes/no): No Date received by IBM: 10/1/98
AGREED TO: (IBM Business Partner name) AGREED TO:
Pinacor, Inc. a subsidiary of International Business Machines
MicroAge Computer Centers, Inc. Corporation
By /s/ Robert Ward By /s/ James K. Rooney
---------------------------------- ------------------------------------
Authorized signature Authorized signature
Name (type of print) Robert Ward Name (type or print: James K. Rooney
VP, Product Management
Operations
Date: 7/12/98 Date: 10/1/98
IBM Business Partner address: IBM address:
2400 South MicroAge Way 3039 Cornwallis Road
Tempe, AZ 85282-1896 Bldg 203
Research Triangle Park, NC 27709
Page 1 of 4
<PAGE>
DETAILS OF OUR RELATIONSHIP
CONTRACT PERIOD START DATE (MONTH/YEAR): 10/1/98 DURATION: 24 MONTHS
RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS:
FOR EACH APPROVED RELATIONSHIP, EACH OF US AGREES TO THE TERMS OF THE FOLLOWING
BY SIGNING THIS PROFILE. COPIES OF THE ATTACHMENTS ARE INCLUDED.
<TABLE>
<CAPTION>
APPLICABLE
APPROVED RELATIONSHIP (YES/NO) ATTACHMENT
<S> <C> <C>
Distributor Attachment yes Z125-5486-02 04/98
Remarketer Terms Attachment yes Z125-5497-01 11/97
Warranty Service Attachment yes Z125-5499-01 11/97
Complementary Marketing Terms Attachment
for Distributors no Z125-5775-00 03/98
Authorized Assembler Attachment no Z125-5530-01 04/97
North American Distributor Attachment no Z125-5527-00 11/96
Federal Remarketer Attachment no Z125-5514-00 11/96
Attachment for SERVICES Marketing for Remarketers yes Z125-5750-00 11/97
Attachment for Finance Services from IBM Credit Corp. no Z125-5795-00 02/98
</TABLE>
PRODUCT AND SERVICES APPROVAL:
THE FOLLOWING PRODUCTS ARE LISTED IN THE EXHIBIT. THE TERMS OF AN EXHIBIT APPLY
TO THE PRODUCTS LISTED IN IT. WHEN WE APPROVE YOU FOR PRODUCTS LISTED IN THE
EXHIBIT, YOU ARE ALSO APPROVED TO MARKET THEIR ASSOCIATED PROGRAMS AND
PERIPHERALS.
WHEN WE APPROVE YOU FOR PRODUCTS INCLUDED IN THE IBM BUSINESS PARTNER EXHIBIT,
YOU ARE ALSO APPROVED FOR THEIR ASSOCIATED PRODUCTS LISTED IN THE IBM PERSONAL
COMPUTER PRODUCTS EXHIBIT AND THOSE ELIGIBLE PRODUCTS LISTED IN PARTNERLINK.
WE MAY SPECIFY IN YOUR EXHIBIT THAT YOU ACQUIRE THE PRODUCTS AND SERVICES FROM A
SUPPLIER INSTEAD OF FROM US. WHEN YOU ACQUIRE THE PRODUCTS AND SERVICES FROM THE
SUPPLIER, THE TERMS OF THE AGREEMENT RELATING TO YOUR ACQUISITION OF PRODUCTS
AND SERVICES DIRECTLY FROM US (FOR EXAMPLE, TERMS RELATING TO THE RETURN OF
PRODUCTS AND SERVICES, AND TERMS RELATING TO THE ORDERING OF PRODUCTS AND
SERVICES ) ARE NOT APPLICABLE. ALL OTHER TERMS APPLY.
<TABLE>
<CAPTION>
APPROVED TO MARKET TO:
IBM APPROVED REMARKETERS; ALL REMARKETERS END USERS
SYSTEM TYPES (1) (YES/NO) (YES/NO) (YES/NO)
<S> <C> <C> <C>
1) IBM System/390(2)(5) no
IBM R/390 no
IBM P/390 no
2) IBM RS/6000 no
3) IBM RS/6000 SP no
4) ISM AS/400
9401 no
9401/150 no
9402 no
9406 no
5) IBM 469X Point of Sale Products no
IBM 4614 SureOne no
6) IBM Network integration Products no
IBM PERSONAL COMPUTER PRODUCTS (3)
1) IBM PC Desktop yes
2) IBM PC Server yes
3) IBM Mobile yes
4) ASCII Terminals yes yes yes
5) Cables & Associated Products yes yes yes
6) PC Features & Options (6) yes yes yes
</TABLE>
Page 2 of 4
<PAGE>
<TABLE>
<CAPTION>
APPROVED TO MARKET TO:
IBM APPROVED REMARKETERS; ALL REMARKETERS END USERS
ADDITIONAL PRODUCTS (1) (YES/NO) (YES/NO) (YES/NO)
<S> <C> <C> <C>
1) Graphics
2) Finance Products Category J1 no
3) IBM Storage Products no
Category S I Products no
Category S2 Products no
Category S3 Products no
Category S4 Products no
Category S5 Products no
Category S6 Products no
Category S7 Products no
IBM PRINTING SYSTEMS COMPANY PRODUCTS
1) Distributed/Production no
2) Network no
3) High End Production no
4) Software no
IBM GLOBAL SERVICES (4)
1) Product Support Services
a) Hardware Product Services no
b) Software Services no
c) Systems Management Services no
d) Site & Connectivity Services no
e) Business & Technology Solutions no
f) Business Recovery Services no
g) Other Services no
2) IBM Professional Services
a) IBM Consulting Services no
</TABLE>
CERTIFIED PRODUCTS YOU ARE APPROVED TO MARKET.
044 AIX PRODUCTS 069 PSG: NETWARE PLATINUM
079 PSG: VOICE TYPE 256 EDUQUEST: K12 HARDWARE
340 PSG: AUTH ASSEMBLER PRODUCTS 343 PSG: AETNA PCMCIA ETHERNET
038 PSG: IBM PRINTING SYSTEMS
EXCLUSIONS, IF APPLICABLE:
ALTHOUGH INCLUDED BY REFERENCE IN PRODUCT AND SERVICES APPROVAL, YOU ARE NOT
APPROVED TO MARKET THESE INDIVIDUAL PRODUCTS AND SERVICES.
- ------------------------- ---------------------- -----------------------
- ------------------------- ---------------------- -----------------------
- ------------------------- ---------------------- -----------------------
(1) When approved for other than IBM Personal Computer Company Products or IBM
Printing Systems Company Products, additional terms apply. These terms are
included in the attached Transaction Document The IBM Distributor Schedule
A.
(2) Eligible Products are identified in Schedule A.
(3) Please refer to the IBM Personal Computer Products Exhibit for details an
direct acquisition criteria.
(4) You may market this Service without the requirement to have marketed a
Machine or Program.
(5) When we approve you to market these Products, you are also approved to
market the associated Programs under complementary marketing terms only.
These Programs are not available for marketing under remarketer terms
(6) When we approve you to market these Products, you are also approved to
market items 4 and 5 directly above.
Page 3 of 4
<PAGE>
MINIMUM ANNUAL ATTAINMENT:
PRODUCT/SERVICE VOLUME/REVENUE MEASUREMENT
PERIOD DATES
--------------------------- -------------- ------------
--------------------------- -------------- ------------
--------------------------- -------------- ------------
LOCATIONS:
LOCATION (STREET ADDRESS, CITY, STATE, ZIP CODE)
2400 SOUTH MICROAGE WAY
TEMPE, AZ 85282-1896
ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY, IF APPLICABLE:
YOU ASSIGN TO US, OR AN IBM PREMIER PERSONAL COMPUTER SERVICER, WARRANTY SERVICE
RESPONSIBILITY FOR THE FOLLOWING MACHINES.
TYPE/MODEL TYPE/MODEL TYPE/MODEL TYPE/MODEL
- ------------------ ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------ ------------------
UNLESS YOU ARE ASSIGNING TO US, PLEASE SPECIFY THE NAME OF THE IBM PREMIER
PERSONAL COMPUTER SERVICER.
Page 4 of 4
<PAGE>
IBM BUSINESS PARTNER AGREEMENT
GENERAL TERMS
TABLE OF CONTENTS
Section Title Page
1. Definitions ............................................... 2
2. Agreement Structure and Contract Duration ................. 3
3. Our Relationship .......................................... 4
4. Status Change ............................................. 5
5. Confidential Information .................................. 5
6. Marketing Funds and Promotional Offerings ................. 6
7. Production Status ......................................... 6
8. Patents and Copyrights .................................... 6
9. Liability ................................................. 7
10. Trademarks ................................................ 7
11. Changes to the Agreement Terms ............................ 8
12. Internal Use Products ..................................... 8
13. Demonstration, Development and
Evaluation Products ....................................... 8
14. Electronic Communications ................................. 9
15. Geographic Scope .......................................... 9
16. Governing Law. ............................................ 9
Page 1 of 9
<PAGE>
IBM BUSINESS PARTNER AGREEMENT
GENERAL TERMS
1. DEFINITIONS
BUSINESS PARTNER is a business entity which is approved by us to market
Products and Services under this Agreement.
CUSTOMER is either an End User or a Remarketer. We specify in your Profile
if we approve you to market to End Users or Remarketers, or both.
END USER is anyone, who is not part of the Enterprise of which you are a
part, who uses Services or acquires Products for its own use and not for
resale.
ENTERPRISE is any legal entity (such as a corporation) and the subsidiaries
it owns by more than 50 percent. An Enterprise also includes other entities
as IBM and the Enterprise agree in writing.
LICENSED INTERNAL CODE is called' Certain Machines we specify (called
"Specific Machines") use Code. International Business Machines Corporation
or one of its subsidiaries owns copyrights in Code or has the right to
license Code. IBM or a third party owns all copies of Code, including all
copies made from them.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine' includes an IBM
Machine and any non-IBM Machine (including other equipment) that we approve
you to market.
PRODUCT is a Machine or Program, that we approve you to market, as we
specify in your Profile.
PROGRAM is an IBM Program or a non-IBM Program provided by us, under its
applicable license terms, that we approve you to market.
RELATED COMPANY is any corporation, company or other business entity:
1. more than 50 percent of whose voting shares are owned or controlled,
directly or indirectly, by either of us, or
2. which owns or controls, directly or indirectly, more than 50 percent
of the voting shares of either of us, or
3. more than 50 percent of whose voting shares are under common ownership
or control, directly or indirectly, with the voting shares of either
of us.
However, any such corporation, company or other business entity is
considered to be a Related Company only so long as such ownership or
control exists. "Voting shares" are outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority.
REMARKETER is a business entity which acquires Products and Services, as
applicable, for the purpose of marketing.
SERVICE is performance of a task, provision of advice and counsel,
assistance, or use of a resource (such as a network and associated enhanced
communication and support) that we approve you to market.
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2. AGREEMENT STRUCTURE AND CONTRACT DURATION
PROFILES
We specify the details of our relationship (for example, the type of
Business Partner you are) in a document called a "Profile." Each of us
agrees to the terms of the Profile, the General Terms, the applicable
Attachments referred to in the Profile, and the Exhibit (collectively
called the "Agreement") by signing the Profile.
GENERAL TERMS
The General Terms apply to all of our Business Partners.
ATTACHMENTS
We describe, in a document entitled an 'Attachment-, additional terms that
apply. Attachments may include, for example, terms that apply to the method
of Product distribution (Remarketer Terms Attachment or Complementary
Marketing Terms Attachment) and terms that apply to the type of Business
Partner you are, for example, the terms that apply to a Distributor
relationship as described in the Distributor Attachment. We specify in your
Profile the Attachments that apply,
EXHIBITS
We describe in an Exhibit, specific information about Products and
Services, for example, the Products and Services you may market, and
warranty information about the Products.
TRANSACTION DOCUMENTS
We will provide to you the appropriate "transaction documents." The
following are examples of transaction documents, with examples of the
information and responsibilities they may contain:
1. invoices (item, quantity, price, payment terms and amount due); and
2. order acknowledgements (confirmation of Products and quantities
ordered).
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, the terms
of
1. a transaction document prevail over those of all the documents;
2. an Exhibit prevail over the terms of the Profile, Attachments and the
General Terms;
3. a Profile prevail over the terms of an Attachment and the General
Terms; and
4. an Attachment prevail over the terms of the General Terms.
If there is an order of precedence within a type of document, such order
will be stated in the document (for example, the terms of the Distributor
Attachment prevail over the terms of the Remarketer Terms Attachment, and
will be so stated in the Distributor Attachment).
OUR ACCEPTANCE OF YOUR ORDER
Products and Services become subject to this Agreement when we accept your
order by:
1. sending you a transaction document; or
2. providing the Products or Services.
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ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT
You accept the terms in a transaction document by doing any of the
following:
1. signing it (those requiring a signature must be signed);
2. accepting the Product or Services;
3. providing the Product or Services to your Customer or
4. making any payment for the Product or Services.
CONTRACT DURATION
We specify the contract start date and the duration in your Profile. Unless
we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. Each of us is responsible to
provide the other with three months written notice if this Agreement will
not be renewed.
3. OUR RELATIONSHIP
RESPONSIBILITIES
Each of us agrees that:
1. you are an independent contractor, and this Agreement is
non-exclusive. Neither of us is a legal representative or legal agent
of the other. Neither of us is legally a partner of the other (for
example, neither of us is responsible for debts incurred by the
other), and neither of us is an employee or franchise of the other,
nor does this Agreement create a joint venture between us;
2. each of us is responsible for our own expenses regarding fulfillment
of our responsibilities and obligations under the terms of this
Agreement;
3. neither of us will disclose the terms of this Agreement, unless both
of us agree in writing to do so, or unless required by law;
4. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other, other
than those authorized;
5. any terms of this Agreement, which by their nature extend beyond the
date this Agreement ends, remain in effect until fulfilled and apply
to respective successors and assignees;
6. we may withdraw a Product or Service from marketing at any time;
7. we will allow the other a reasonable opportunity to comply before it
claims the other has not met its obligations, unless we specify
otherwise in the Agreement;
8. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided
by local law without the possibility of contractual waiver;
9. failure by either of us to insist on strict performance or to exercise
a right when entitled does not prevent either of us from doing so at a
later time, either in relation to that default or any subsequent one;
10. neither of us is responsible for failure to fulfill obligations due to
causes beyond the reasonable control of either of us;
11. IBM reserves the right to assign, in whole or in part, this Agreement,
to a Related Company, but may assign its rights to payment or orders
to any third party;
12. IBM does not guarantee the results of any of its marketing plans; and
13. each of us will comply with all applicable laws and regulations (such
as those governing consumer transactions).
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OTHER RESPONSIBILITIES
You agree:
1. to be responsible for customer satisfaction for all your activities,
and to participate in customer satisfaction programs as we determine;
2. that your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way. For example, you can not sell your approval to market our
Products or Services or your rights to use our Trademarks;
3. to maintain the criteria we specified when we approved you;
4. to achieve and maintain the certification requirements for the
Products and Services you are approved to market, as we specify in
your Profile;
5. not to assign or otherwise transfer this Agreement, your rights under
it, or any of its approvals, or delegate any duties, unless expressly
permitted to do so under this Agreement. Otherwise, any attempt to do
so is void;
6. to conduct business activities with us (including placing orders)
which we specify in the operations guide, using our automated
-electronic system if available. You agree to pay all your expenses
associated with it such as your equipment and communication costs;
7. that when we provide you with access to our information systems, it is
only in support of your marketing activities. Programs we provide to
you for your use with our information systems, which are in support of
your marketing activities, are subject to the terms of their
applicable license agreements, except you may not transfer them;
8. to promptly provide us with documents we may require from you or the
End User (for example, our license agreement signed by the End User)
when applicable; and
9. to comply with the highest ethical principles in performing under the
Agreement. You will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing
decisions in favor of IBM, directly or indirectly. IBM may terminate
this Agreement immediately in case of 1) a breach of this clause or 2)
when IBM reasonably believes such a breach has occurred.
OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT
We may periodically review your compliance with this Agreement. You agree
to provide us with relevant records on request. We may reproduce and retain
copies of these records. We, or an independent auditor, may conduct a
review of your compliance with this Agreement on your premises during your
normal business hours.
If, during our review of your compliance with this Agreement, we find you
have materially breached the terms of this relationship, in addition to our
rights under law and the terms of this Agreement, for transactions that are
the subject of the breach, you agree to refund the amount equal to the
discount (or fee, if applicable) we gave you for the Products or Services
or we may offset any amounts due to you from us.
4. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any change or anticipated change in your financial
condition, business structure, or operating environment (for example, a
material change in equity ownership or management or any substantive change
to information supplied in your application). Upon notification of such
change, (or in the event of failure to give notice of such change) IBM may,
at its sole discretion, immediately terminate this Agreement.
5. CONFIDENTIAL INFORMATION
This section comprises a Supplement to the IBM Agreement for Exchange of
Confidential Information. "Confidential Information" means:
1. all information IBM marks or otherwise states to be confidential;
2. any of the following prepared or provided by IBM:
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a. sales leads,
b. information regarding prospects or Customers
c. unannounced information about Products and Services, .
d. business plans, or
e. market intelligence;
3. any of the following written information you provide to us on our
request and which you mark as confidential:
a. reporting data,
b. financial data, or
c. the business plan.
All other information exchanged between us is nonconfidential, unless
disclosed under a separate Supplement to the IBM Agreement for Exchange of
Confidential Information.
6. MARKETING FUND AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings to you. If we do,
you agree to use them according to our guidelines and to maintain records
of your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional offerings
from you if you breach any terms of the Agreement. Upon notification of
termination of the Agreement, marketing funds and promotional offerings
will no longer be available for use by you, unless we specify otherwise in
writing.
7. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. Regardless of the IBM Machine's production status, our
appropriate warranty terms apply. You agree to inform your Customer of
these terms in writing (for example, in your proposal or brochure).
8. PATENTS AND COPYRIGHTS
For the purpose of this section only, the term Product includes Licensed
Internal Code (if applicable).
If a third party claims that a Product we provide under this Agreement
infringes that party's patents or copyrights, we will defend you against
that claim at our expense and pay all costs, damages, and attorneys' fees
that a court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If you maintain an inventory, and such a claim is made or appears likely to
be made about a Product in your inventory, you agree to permit us either to
enable you to continue to market and use the Product, or to modify or
replace it. If we determine that none of these alternatives is reasonably
available, you agree to return the Product to us on our written request. We
will then give you a credit, as we determine, which will be either 1) the
price you paid us for the Product (less any price-reduction credit), or 2)
the depreciated price.
This is our entire obligation to you regarding any claim of infringement.
CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the following:
1. anything you provide which is incorporated into a Product;
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2. your modification of a Product, or a Program's use in other than its
specified operating environment;
3. the combination, operation, or use of a Product with any Products not
provided by us as a system, or the combination, operation, or use of a
Product with any product, data, or apparatus that we did not provide;
or
4. infringement by a non-IBM Product alone, as opposed to its combination
with Products we provide to you as a system.
9. LIABILITY
Circumstances may arise where, because of a default or other liability, one
of us is entitled to recover damages from the other. In each such instance,
regardless of the basis on which damages can be claimed, the following
terms apply as your exclusive remedy and our exclusive liability.
OUR LIABILITY
We are responsible only for:
1. payments referred to in the 'Patents and Copyrights* section above;
2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products; and
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply) for
the Product or Service that is the subject of the claim.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances (except as required by law) are we liable for any of
the following:
1. third-party claims against you for losses or damages (other than those
under the first two items above in the subsection entitled 'Our
Liability');'
2. loss of, or damage to, your records or data; or
3. special, incidental, or indirect damages, or for any economic
consequential damages (including lost profits or savings) even if we
are informed of their possibility.
YOUR LIABILITY
In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims made against us by others
(particularly regarding statements, representations, or warranties not
authorized by us) arising out of your conduct under this Agreement or as a
result of your relations with anyone else.
10. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner title
and emblem which you are authorized to use. You may not modify the emblem
in any way. You may use our Trademarks (which include the title, emblem,
IBM trade marks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the Trademarks
will be waived, since the use of this asset is in conjunction with
marketing activities for Products and Services.
You agree to promptly modify any advertising or promotional materials that
do not comply with our guidelines. If you receive any complaints about your
use of a Trademark, you agree to promptly notify us. When this Agreement
ends, you agree to promptly stop using our
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Trademarks. If you do not, you agree to pay any expenses and fees we incur
in getting you to stop.
You agree not to register or use any mark that is confusingly similar to
any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them, belong to
us.
11. CHANGES TO THE AGREEMENT TERMS
We may change the terms of this Agreement by giving you one month's written
notice.
We may, however, change the following terms without advance notice:
1. those we specify in this Agreement as not requiring advance notice;
2. those of the Exhibit unless otherwise limited by this Agreement; and
3. those relating to safety and security.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in an
order or other communication from you are void.
12. INTERNAL USE PRODUCTS
You may acquire Products you are approved to market for your internal use
within your Business Partner operations. Except for personal computer
Products, you are required to advise us when you order Products for your
internal use.
We will specify in your Exhibit the discount or price, as applicable, at
which you may acquire the Products for internal use. Such Products do not
count (except for personal computer and Printing System Products which do
count) toward 1) your minimum annual attainment, 2) determination of your
discount or price, as applicable, or 3) determining your marketing or
promotional funds.
Any value added enhancement or systems integration services otherwise
required by your relationship is not applicable when you acquire Products
for internal use. You must retain such Products for a minimum of 12 months,
unless we specify otherwise in the Exhibit.
13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS
You may acquire Products you are approved to market for demonstration,
development and evaluation purposes, unless we specify otherwise in the
Exhibit. Such Products must be used primarily in support of your Product
marketing activities. Additionally, such Products do not count (except for
personal computer and Printing System Products which do count) toward 1)
your minimum annual attainment, 2) determination of your discount or price,
as applicable, or 3) determining your marketing or promotional funds.
We will specify in your Exhibit the Products we make available to you for
such purposes, the applicable discount or price, and the maximum quantity
of such Products you may acquire and the period they are to be retained.
The maximum number of input/output devices you may acquire is the number
supported by the system to which they attach.
If you acquired the maximum quantity of Machines, you may still acquire a
field upgrade, if available.
We may decrease the discount we provide for such Products on one month's
written notice.
You may make these Products available to a Customer for the purpose of
demonstration and evaluation. Such Products may be provided to an End User
for no more than three months. For a Program, you agree to ensure the
Customer has been advised of the requirement to accept the terms of a
license agreement before using the Program.
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14. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent permissible
under applicable law. Both of us agree that for all electronic
communications, an identification code (called a "user ID") contained in an
electronic document is sufficient to verify the sender's identity and the
document's authenticity.
15. GEOGRAPHIC SCOPE
All the rights and obligations of both of us are valid only in the United
States and Puerto Rico.
16. GOVERNING LAW
The laws of the State of New York govern this Agreement.
The 'United Nations Convention on Contracts for the International Sale of
Goods' does not apply.
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IBM BUSINESS PARTNER AGREEMENT
DISTRIBUTOR ATTACHMENT
These terms prevail over and are in addition to or modify the Remarketer Terms
Attachment, and the Complementary Marketing Terms Attachment for Distributors.
1. MARKETING APPROVAL
You may be approved as a Distributor under a remarketer relationship or
under a complementary marketing relationship, or both. If we approve you to
market the Products and Services under both remarketer and complementary
marketing term transactions will be under remarketer terms. You may
unilaterally elect not to participate under remarketer terms for a specific
transaction or business segment by providing signed IBM Business Partner
Statement of Election. If you meet the requirements o Marketing Approval
section of the Complementary Marketing Terms Attachment for Distributors,
you may participate under those terms.
You are approved to market Products and Services to Business Partners (but
not to IBM approved Distributors unless we specify otherwise in your
Profile) and to End Users. Your Profile will specify to whom you may market
Products and Services.
2. YOUR RESPONSIBILITIES TO IBM
You agree:
1. to develop a mutually acceptable business plan with us, if we require
one. Such plan will document each of our marketing plans as they apply
to our relationship. We will review the plan, at a minimum, once a
year;
2. that, unless precluded by applicable law, one of the requirements for
you to retain this relationship is that you achieve the minimum annual
attainment we specify in your Profile;
3. for marketing to Remarketers, to order Products and Services as we
specify in the operations guide;
4. to maintain trained personnel, as we specify in your Profile or
Exhibit, as applicable;
5. to provide us, on our request, relevant financial information about
your business so we may, for example, use this information in our
consideration to extend credit terms to you. We may require an annual
audited financial report;
6. unless we specify otherwise in the Exhibit, to maintain the capability
to demonstrate the Products we approve you to market;
7. to maintain sufficient inventory of Products to meet Remarketer
demands. We may specify in your Exhibit certain Products we require
you to have regularly available;
8. to secure from your Business Partners a signed Program license
agreement for Programs requiring signature; and
9. to ensure that the terms in any agreement you may have with your
Business Partners are not in conflict with this Agreement.
If, during our review of your Remarketer's compliance with its Business
Partner agree with us, we find the Business Partner has materially breached
the terms of such agree you agree to refund the amount equal to the
discount or fee, as applicable we gave you the Products that are the
subject of the breach, if we require you to do so.
3. YOUR RESPONSIBILITIES TO YOUR BUSINESS PARTNERS
THE FOLLOWING TERMS APPLY ONLY WHEN YOU ARE MARKETING UNDER REMARKETING
TERMS.
You agree to:
1. provide Products and Services to them on an equitable basis; and
2. fulfill all their valid orders for eligible Products and Services; and
3. give written notification to the Remarketer of any modification you
make to a Product and the name of the warranty service provider and
advise that such modification may void the warranty for the Product.
THE FOLLOWING TERMS APPLY WHEN YOU ARE MARKETING UNDER EITHER REMARKETING
OR COMPLEMENTARY TERMS:
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You agree to:
1. provide development, demonstration, evaluation and internal use
Products (we specify eligible Products in the Exhibit) to those
Business Partners who are eligible to acquire such Products. You must
make such Products available to each of them on the same terms,
regarding the maximum quantity of Products that may be acquired and
the minimum retention period, as we make available to you;
2. provide the Program license agreement to them, if applicable, and
require them to provide the agreement to the End User;
3. provide a copy of the Licensed Internal Code agreement to Business
Partners and inform them of those Machines containing such Code; and
4. provide the following items to Business Partners when we have given
such items to you for distribution to them:
a. promotional offerings and material;
b. incentives;
c. marketing funds;
d. support documentation; and
e. advertising material.
You agree to distribute them proportionally and according to the
procedures we specify, and to require the Business Partner to properly
implement or distribute them, as applicable.
Except for personal computer Products, you also agree to:
1. inform them that you are available to provide Product and Services
support to them;
2. provide pre- and post-installation sales support to them. You agree
you are responsible for their satisfaction with such support;
3. provide configuration support to them, for Products we specify;
4. assist them in Product problem determination and resolution; and
5. advise them of the terms regarding the date of installation for
Products IBM installs.
4. YOUR REMARKETERS' RESPONSIBILITIES
When you market Products and Services to Remarketers who do not have a
contractual relationship with IBM for such Products and Services, you agree
to inform them of their responsibility to:
1. provide the support necessary to maintain customer satisfaction;
2. provide Program Services to their End Users;
3. provide Product configuration support to their End Users,
4. assist their End Users to achieve productive use of the Products and
Services they marketed;
5. inform their End Users of Product installation requirements;
6. comply with all terms regarding Program upgrades;
7. refund the amount paid for a Product returned if such return is
provided for in its warranty or license or a money-back guarantee we
offer End Users. The Remarketer may return the Product to you for
credit, as we specify in the operations guide
8. for a Program requiring the End User's signature on the Program
license agreement, obtain the signature before providing the Program
to the End User and return the agreement as we specify;
9. provide warranty information to their End Users, when applicable;
10. comply with all export laws and regulations including those of the
United States, the Governing Law section of this Agreement and any
laws and regulations of the country in which the Product is imported
or exported, and advise their End User that IBM's warranty
responsibilities do not apply (unless the warranty terms state
otherwise);
11. provide a dated sales receipt or its equivalent (such as an invoice)
to their End User;
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12. give written notice to their End Users of any modification you or the
Remarketer made to a Product and the name of the warranty service
provider and advise that such modification may void the warranty for
the Product;
13. if applicable, provide the Licensed Internal Code license agreement to
their End Users before the sale is finalized;
14. inform their End Users that the sales receipt (or other documentation,
such as Proof of Entitlement if it is required) will be necessary for
proof of warranty entitlement or for Program upgrades;
15. inform their End Users of educational offerings, as applicable;
16. advise their End Users of the terms regarding a Machine's production
status;
17. assist you in locating Products if we require such assistance from
you; and
18. retain records of each sales transaction for three years.
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IBM BUSINESS PARTNER AGREEMENT
REMARKETER TERMS ATTACHMENT
TABLE OF CONTENTS
SECTION TITLE PAGE
1. Our Relationship ................................................2
2. Ordering and Delivery ...........................................2
3. Inventory Adjustments ...........................................3
4. Price, Invoicing, Payment and Taxes .............................3
5. Licensed Internal Code ..........................................5
6. Machine Code ....................................................5
7. Programs ........................................................5
8. Export ..........................................................6
9. Title ...........................................................6
10. Risk of Loss ....................................................6
11. Installation and Warranty .......................................6
12. Warranty Service ................................................7
13. Marketing of Services ...........................................7
14. Marketing of Financing ..........................................9
15. Engineering Changes .............................................9
16. Ending the Agreement ............................................9
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IBM BUSINESS PARTNER AGREEMENT
REMARKETER TERMS ATTACHMENT
1. OUR RELATIONSHIP
As our IBM Business Partner, you market to your Customers the Products and
Services (including 'shrink-wrap" Services) we provide to you. These terms
apply to a Business Partner whose method of distribution is under our
remarketer terms, and includes Distributors, Resellers, Solution Providers,
and Systems Integrators.
RESPONSIBILITIES
Each of us agrees:
1. we offer a money-back guarantee to End Users for certain Products. You
agree to inform the End User of the terms of this guarantee before the
applicable sale. For any such Product, you agree to 1) accept its
return in the time frame we specify, 2) refund the full amount paid to
you for it, and 3) dispose of it (including all its components) as we
specify. We will pay a transportation charge for return of the Product
to us and will give you an appropriate credit.
2. each of us is free to set its own prices and terms; and
3. neither of us will discuss its Customer prices and terms in the
presence of the other.
OTHER RESPONSIBILITIES
You agree to:
1. refund the amount paid for a Product or Service returned to you if
such return is provided for in its warranty or license. You may return
the Product to us for credit at our expense, as we specify in the
operations guide;
2. provide us with sufficient, free and safe access to your facilities,
at a mutually convenient time, for us to fulfill our obligations;
3. retain records, as we specify in the operations guide, of each Product
and Service transaction (for example, a sale or credit) for three
years;
4. provide us with marketing, sales, installation reporting and inventory
information for our Products and Services, as we specify in the
operations guide;
5. when you are approved to market to Remarketers, market Products and
Services which require certification, only to Remarketers who are
certified to market them;
6. comply with all terms regarding Program upgrades;
7. provide a dated sales receipt (or its equivalent, such as an invoice)
as we specify in the operations guide, to your Customers, before or
upon delivery of Products and Services; and
8. report to us any suspected Product defects or safety problems, and to
assist us in tracing and locating Products.
2. ORDERING AND DELIVERY
You may order Products and Services from us as we specify in the operations
guide. You agree to order them in sufficient time to count toward your
minimum annual attainment, if applicable.
We will agree to a location to which we will ship. We may establish
criteria for you to maintain at such location (for example, certain
physical characteristics, such as a loading dock), as we specify in the
operations guide.
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Upon becoming aware of any discrepancy between our shipping manifest and
the Products and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
Although we do not warrant delivery dates, we will use reasonable efforts
to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Products and Services we ship.
We may not be able to honor your request for modification or cancellation
of an order. We may apply a cancellation charge for orders you cancel
within 10 business days before the order is scheduled to be shipped. The
Exhibit will specify if a cancellation charge applies and where we will
specify the charge.
If we are unable to stop shipment of an order you cancel, and you return
such Product to us after shipment, our inventory adjustment terms apply.
3. INVENTORY ADJUSTMENTS
We will specify in your Exhibit the Products and Services to which this
section applies.
Products and Services you return to us for credit must have been acquired
directly from us. You must request and receive approval from us to return
the Products and Services.
Products and Services must be received by us within one month of our
approving their return, unless we specify otherwise to you in writing. We
will issue a credit to you when we accept the returned Products and
Services.
Certain Products may be acquired only as Machines and Programs packaged
together as a solution. These Products must be returned with all their
components intact.
For certain Products and Services you return, a handling charge applies. We
will specify the handling charge percentage in the Exhibit. We determine
your total handling charge by multiplying the inventory adjustment credit
amount for the Products and Services by the handling charge percent.
You agree to pay transportation and associated charges for Products and
Services you return.
Unless we specify otherwise, returned Products and Services must be in
their unopened and undamaged packages.
You agree to ensure the returned Products and Services are free of any
legal obligations or restrictions that prevent their return. We accept them
only from locations within the country to which we ship Products and
Services.
We will reject any returned Products and Services that do not comply with
these terms.
4. PRICE, INVOICING, PAYMENT AND TAXES
PRICE AND DISCOUNT
The price, and discount if we specify one, for each Product and Service
will be made available to you in a communication which we provide to you in
published form or through our electronic information systems or a
combination of both. Unless we specify otherwise, discounts do not apply to
Program upgrades, accessories, or field-installed Machine features,
conversions, or upgrades.
The price for each Product and Service is the lower of the price in effect
on the date we receive your order, or the date we ship a product or
"shrink-wrap" Service, or the start date of a Service, if it is within six
months of the date we receive your order.
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PRICE AND DISCOUNT CHANGES
We may change prices and increase discounts at any time. We may decrease
discounts on one month's written notice.
Price increases for Products and Services included in a project do not
apply to you for up to two years from the start date of a project (we will
protect the price that was in effect at the time we received the first
order for the project) if you documented the project to us and we approved
and accepted such documentation. We will specify additional details, if
any, to you in writing.
We will specify in your Exhibit if the following credit terms do not apply
to Products and Services we approve you to market.
If we decrease the price or increase the discount for a Product or Service,
you will be eligible to receive a price decrease credit or a discount
increase credit for those you acquired directly from us that are in your
inventory, or in transit, or if the Product's date of installation or
Service start date has not occurred. However, Products acquired -from. us
under a special offering (for example, a promotional price or a special
incentive) may not be eligible for a full credit. You must certify your
inventory to us in writing within one month of the effective date of the
change. The credit is the difference between the price you paid, after any
adjustments, and the new price.
THE FOLLOWING TERMS APPLY TO PROGRAMS LICENSED ON A RECURRING-CHARGE BASIS:
We may increase a recurring charge for a Program by giving you three
months' written notice. An increase applies on the first day of the invoice
or charging period on or after the effective date we specify in the notice.
INVOICING, PAYMENT AND TAXES
Amounts are due upon receipt of invoice and payable as specified in a
transaction document. You agree to pay accordingly, including any late
payment fee. Details of any late payment fee will be provided upon request
at the time of order and will be included in the notice.
You may use a credit only after we issue it.
If any authority requires us to include in our invoice to you a duty, tax,
levy, or fee which they impose, excluding those based on our net income,
upon any transaction under this Agreement, then you agree to pay that
amount.
RESELLER TAX EXEMPTION
You agree to provide us with your valid reseller exemption documentation
for each applicable taxing jurisdiction to which we ship Products and
Services. If we do not receive such documentation, we will charge you
applicable taxes and duties. You agree to notify us promptly if this
documentation is rescinded or modified. You are liable for any claims or
assessments that result from any taxing jurisdiction refusing to recognize
your exemption.
PURCHASE MONEY SECURITY INTEREST
You grant us a purchase money security interest in your proceeds from the
sale of, and your accounts receivable for, Products and Services, until we
receive the amounts due. You agree to sign an appropriate document (for
example, a "UCC-1") to permit us to perfect our purchase money security
interest.
FAILURE TO PAY ANY AMOUNTS DUE
If you fail to pay any amounts due in the required period of time, you
agree that we may do one or more of the following, unless precluded by law:
1. impose a finance charge, as we specify to you in writing, up to the
maximum permitted by law, on the portion which was not paid during the
required period;
2. require payment on or before delivery of Products and Services;
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3. repossess any Products and Services for which you have not paid. If we
do so, you agree to pay all expenses associated with repossession and
collection, including reasonable attorneys' fees. You. agree to make
the Products and Services available to us at a site that is mutually
convenient;
4. not accept your order until any amounts due are paid;
5. terminate this Agreement; or
6. pursue any other remedy available at law.
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against amounts due us or any of
our Related Companies.
In addition, if your account with any of our Related Companies becomes
delinquent, we may invoke any of these options when allowable by applicable
law.
5. LICENSED INTERNAL CODE
Machines (Specific Machines) containing Licensed Internal Code (Code) will
be identified in the Exhibit. We grant the rightful possessor of a Specific
Machine a license to use the Code (or any replacement we provide) on, or in
conjunction with, only the Specific Machine, designated by serial number,
for which the Code is provided. We license the Code to only one rightful
possessor at a time. You agree that you are bound by the terms of the
separate license agreement that we will provide to you.
YOUR RESPONSIBILITIES
You agree to inform your Customer, and record on the sales receipt, that
the Machine you provide is a Specific Machine using Licensed Internal Code.
The license agreement must be provided to the Customer before the sale is
finalized.
6. MACHINE CODE
For certain Machines we may provide basic input/output system code,
utilities, diagnostics, device drivers, or microcode (collectively called
"Machine Code'). This Machine Code is licensed to the End User under the
terms of the agreement provided with it. You agree to ensure the End User
is provided such agreement.
7. PROGRAMS
You agree to ensure the End User has signed the license agreement for a
Program requiring a signature, as we specify in the Exhibit, before such
Program is provided to the End User, and to provide any required
documentation to us. All other Programs are licensed under the terms of the
agreement provided with them. You agree, where applicable, to provide the
Program license to the End User before such Program is provided to the End
User.
We will designate in the Exhibit if 1) we will ship the media and
documentation to you or, if you request and we agree, to the End User, 2)
you may copy and redistribute the media and documentation to the End User,
or 3) you must copy and redistribute the media and documentation to the End
User. If we ship the media and documentation, we may charge you. We will
specify such charge to you in writing. If you copy and redistribute, you
must be licensed to use the Program from which you make the copies. A
Program license you acquired for use under the Demonstration, Development
and Evaluation Products terms fulfill this requirement.
Programs licensed to you on a recurring-charge basis are licensed for the
period indicated in our invoice. You may market such Programs only on the
same basis as licensed to you. You may not charge an End User a one-time
charge for a Program you license from us on a recurring-charge basis.
However, you may charge the End User whatever amount you wish for the
recurring-charge.
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PROGRAM SERVICES
Program Services are described in the Program's license agreement. You are
responsible to provide your Customers, who are licensed for a Program, the
Program Services we make available to you.
If the End User agrees in writing, you may:
1. delegate this responsibility to another IBM Business Partner who is
approved to market the Program, or
2. provide an enhanced version of this support through the applicable IBM
Service you market to the End User.
If you delegate your support responsibilities to another IBM Business
Partner, you retain customer satisfaction responsibility. However, if you
market our applicable Services to the End User, we assume customer
satisfaction responsibility for such support.
8. EXPORT
You may actively market Products and Services only within the geographic
scope specified in this Agreement. You may not market outside this scope,
and you agree not to use anyone else to do so.
If a Customer acquires a Product for export, our responsibilities, if any,
under this Agreement no longer apply to that Product unless the Product's
warranty or license terms state otherwise. You agree to use your best
efforts to ensure that your Customer complies with all export laws and
regulations, including those of the United States and the country specified
in the Governing Law Section of this Agreement, and any laws and
regulations of the country in which the Product is imported or exported.
Before your sale of such Product, you agree to prepare a support plan for
it and obtain your Customers agreement to that plan. Within one month of
sale, you agree to provide us with the Customer's name and address, Machine
type/model and serial number, date of sale, and destination country.
We exclude these Products from:
1. any of your attainment toward your objectives; and
2. qualification for applicable promotional offerings and marketing
funds.
We may also reduce future supply allocations to you by the number of
exported Products.
9. TITLE
When you order a Machine, we transfer title to you when we ship the
Machine.
Any prior transfer to you of title to a Machine reverts back to IBM when it
is accepted by us as a returned Machine.
We do not transfer a Program's title.
10. RISK OF LOSS
We bear the risk of loss of, or damage to, a Product or Service until its
initial delivery from us to you or, if you request and we agree, delivery
from us to your Customer. Thereafter, you assume the risk.
11. INSTALLATION AND WARRANTY
We will ensure that Machines we install are in good working order and
conform to their specifications. We provide instructions to enable the
set-up of Customer-Set-Up Machines. We are not responsible for the
installation of Programs or non-IBM Machines. We do, however, preload
Programs onto certain Machines. We provide a copy of our applicable
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warranty statement to you. You agree to provide it to the End User for
review before the sale is finalized, unless we specify otherwise.
We calculate the expiration date of an IBM Machine's warranty period from
the Machine's Date of Installation. Warranty terms for Programs are
described in the Programs' license terms.
We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless we.
specify otherwise. However, non-IBM manufacturers, suppliers, or publishers
may provide their own warranties to you.
For non-IBM Products we approve you to market, you agree to inform your
Customer in writing 1) that the Products are non-IBM, 2) the manufacturer
or supplier who is responsible for warranty (if any), and 3) of the
procedure to obtain any warranty service.
DATE OF INSTALLATION FOR A MACHINE WE ARE RESPONSIBLE TO INSTALL
The Date of Installation for a Machine we are responsible to install is the
business day. after the day 1) we install it or, 2) it is made available
for installation, if you (or the End User) defer" installation. Otherwise
(for example, if others install or break its warranty seal), it is the day
we deliver the Machine to you (or the End User). In such event, we reserve
the right to inspect the Machine to ensure its qualification for warranty
entitlement.
THE DATE OF INSTALLATION FOR A CUSTOMER-SET-UP MACHINE
The Date of Installation for a Customer-Set-Up Machine is the date the
Machine is installed which you or your Remarketer, if applicable, record on
the End User's sales receipt. You must also notify us of this date upon our
request.
INSTALLATION OF MACHINE FEATURES, CONVERSIONS, AND UPGRADES
We sell features, conversions and upgrades for installation on Machines,
and, in certain instances, only for installation on a designated, serial
numbered Machine. Many of these transactions involve the removal of parts
and their return to us. As applicable, you represent that you have the
permission from the owner and any lien holders to 1) install features,
conversions and upgrades and 2) transfer the ownership and possession of
removed parts (which become our property) to us. You further represent that
all removed parts are genuine, and unaltered, and in good working order. A
part that replaces a removed part will assume the warranty and maintenance
Service status of the replaced part. You agree to allow us to install the
feature, conversion, or upgrade within 30 days of its delivery. Otherwise,
we may terminate the transaction and you must return the feature,
conversion, or upgrade to us at your expense.
12. WARRANTY SERVICE
We will specify in the Exhibit whether you or we are responsible to provide
Warranty Service for a Machine.
When we are responsible for providing Warranty Service for Machines, you
are not authorized to provide such Service, unless we specify otherwise in
the Exhibit.
When you are responsible for providing Warranty Service, you agree to do so
according to the terms we specify in the Warranty Service Attachment.
13. MARKETING OF SERVICES
The following are the conditions under which you may market Services;
1. if you marketed a Product to the End User, you may market the
Services, specified in the Exhibit; or
2. regardless of whether you marketed a Product to the End User you may
market the Services we specify in your Profile.
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If you are an IBM Distributor the following paragraph applies:
The following are the conditions under which you may market Services:
1. if your Remarketer marketed a Product to the End User, you may market
the Services, specified in the Exhibit, to your Remarketer only for
the Remarketer's marketing to such End User; and
2. regardless of whether your Remarketer marketed a Product to the End
User you may market the Services we specify in your Profile to your
Remarketer, who may market such Services.
You may market Services on eligible non-IBM Products regardless of whether
you marketed a Machine or Program to the End User.
MARKETING OF SERVICES FOR A FEE
The terms of this subsection apply when we perform the Services to the End
User at prices we set and under the terms of our Service agreement, signed
by the End User. We pay you a fee for marketing such Services.
You will receive a fee for marketing eligible Services when 1) you identify
the opportunity and perform the marketing activities, 2) you provide us
with the order and any required documents signed by the End User, and 3) a
standard Statement of Work is used and there are no changes, and no
marketing assistance from us is required.
Alternatively, you will receive a fee for a lead for eligible Services when
it 1) is submitted on the form we provide to you, 2) is for an opportunity
which is not known to us, and 3) results in the End User ordering the
Service from us within six months from the date we receive the lead from
you.
We will not pay you the fee if 1) the machine or program is already under
the applicable Service, 2) we have an agreement with the End User to place
the machine or program under the applicable Service, or 3) the Service was
terminated by the End User within the last six months.
If the Service is terminated within three months of the date payment from
the End User was due us, you agree to reimburse us for any associated
payments we made to you. The reimbursement may be prorated if the Service
is on a recurring charge basis.
We periodically reconcile amounts we paid you to amounts you actually
earned. We may deduct amounts due us from future payments we make to you,
or ask you to pay amounts due us. Each of us agrees to promptly pay the
other any amounts due.
REMARKETING OF SERVICES
We provide terms in an applicable Service Attachment governing your
remarketing of eligible Services the End User purchases from you and which
we perform under the terms of the IBM Service agreement with the End User.
Shrink-wrap Services are performed under the terms of the agreement
provided with them. If the terms of the agreement are not visible on the
shrink-wrap package, you agree to provide (or, if applicable, request your
Remarketer to provide) the Services terms to the End User before such
Services are acquired by the End User.
SERVICES WE PERFORM AS YOUR SUBCONTRACTOR
If approved on your Profile, we will provide terms in an applicable Service
Attachment governing our provision of the Services we perform as your
subcontractor. Such Services are those an End User purchases from you under
the terms of your service agreement.
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14. MARKETING OF FINANCING
If we approve you on your Profile, you may market our Financing Services
for Products and Services and any associated products and services you
market to the End User. If you market our Financing Services, we will pay
you a fee as we specify to you in your Exhibit.
We provide Financing Services to the End User under the terms of our
applicable agreements signed by the End User. You agree, that for the items
that will be financed, 1) you will promptly provide us any required
documents including invoices, with serial numbers, if applicable, 2) the
supplier will transfer clear title to us, and 3) you will not transfer to
us any obligations under your agreements with the End User. We will make
payment for the items to be financed when the End User has initiated
financing and acknowledged acceptance of the items being financed. Payment
will be made to you, or the supplier, as appropriate.
15. ENGINEERING CHANGES
You agree to allow us to install mandatory engineering changes (such as
those required for safety) on all Machines in your inventory, and to use
your best efforts to enable us to install such engineering changes on your
Customers' Machines. Mandatory engineering changes are installed at our
expense and any removed parts become our property.
During the warranty period, we manage and install engineering changes at:
1. your or your Customer's location for Machines for which we provide
Warranty Service; and
2. your location for other Machines.
Alternatively, we may provide you with the parts (at no charge) and
instructions to do the installation yourself We will reimburse you for your
labor as we specify.
16. ENDING THE AGREEMENT
Regardless of the contract duration specified in the Profile, or any
renewal period in effect, either of us may terminate this Agreement, with
or without cause, on three months' written notice. If, under applicable
law, a longer period is mandatory, then the notice period is the minimum
notice period allowable.
If we terminate for cause (such as you not meeting your minimum annual
attainment), we may, at our discretion, allow you a reasonable opportunity
to cure. If you fail to do so, the date of termination is that specified in
the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of such
breach by you are: if you do not maintain customer satisfaction; if you do
not comply with the terms of a transaction document; if you repudiate this
Agreement; or if you make any material misrepresentations to us. You agree
that our only obligation is to provide the notice called for in this
section and we are not liable for any claims or losses if we do so.
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Products or
shrink-wrap Services for which you have not paid; and
2. allow us, at our discretion, to acquire any that are in your
possession or control, at the price you paid us, less any credits
issued to you. Products and shrink-wrap Services to be returned must
be in their unopened and undamaged packages and in your inventory (or
in transit from us) on the day this Agreement ends. We will inspect
them, and reserve the right of rejection. You agree to pay all the
shipping charges.
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At the end of this Agreement, each of us agrees to immediately settle any
accounts with the other. We may offset any amounts due you against amounts
due us, or any of our Related Companies as allowable under applicable law.
You agree that if we permit you to perform certain activities after this
Agreement ends, you will do so under the terms of this Agreement.
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IBM BUSINESS PARTNER AGREEMENT
ATTACHMENT FOR SERVICES MARKETING FOR REMARKETERS
THESE TERMS PREVAIL OVER AND ARE IN ADDITION TO OR MODIFY THE REMARKETER TERMS
ATTACHMENT.
THE FOLLOWING TERMS GOVERN YOUR MARKETING OF SERVICES THE END USER PURCHASES
FROM YOU (OR IF YOU ARE OUR DISTRIBUTOR, FROM YOUR REMARKETER), AND WHICH WE
PERFORM UNDER THE TERMS OF THE IBM AGREEMENT FOR SERVICES ACQUIRED FROM AN IBM
BUSINESS PARTNER (IBM SERVICE AGREEMENT). WE PROVIDE ADDITIONAL TERMS TO YOU, IF
ANY, IN SPECIFIC SERVICE ATTACHMENTS, OR TRANSACTION DOCUMENTS.
1. IBM SERVICES
Services may be either standard offerings or customized to the End User's
specific requirements. Each Service transaction MAY include one or more
Services that:
1. expire at task completion or an agreed upon date;
2. automatically renew as another transaction with a specified contract
period. Renewals will continue until the Service is terminated; or
3. do not expire and are available for use until either of us terminates
the Service, or we withdraw the Service.
If we make a change to the terms of a renewable Service that affects the
End Users current Service Agreement contract period and the End User
considers it unfavorable and you advise us in writing, we will defer the
change until the end of that contract period.
2. PRICES AND PAYMENT
The amount payable for a Service will be based on one or more of the
following types of charges:
1. recurring (for example, a periodic charge for support Services).
2. time and materials (for example, charges for hourly Services); or
3. fixed price (for example, a specific amount agreed to between us for a
custom Service).
Services we make available to you on a recurring-charge basis are made
available for the period indicated in our invoice, statement of work, or
other transaction document, as applicable. You may market such Services
only on a recurring charge basis.
We may increase recurring charges for Services, as well as hourly or daily
rates and minimums for Services we perform under the IBM Service Agreement,
by giving you three month's written notice. An increase applies on the
first day of the applicable invoice or charging period, on or after the
effective date we specify in the notice;
We may increase one time charges without notice. However, an increase to
one time charges does not apply to you if 1) we receive your order before
the announcement date of the increase, and 2) we make the Service available
within three months of our receipt of your order.
Charges for Services are billed as we specify, which may be 1) in advance,
2) periodically during the performance of the Service, or 3) after the
Service is completed.
Prepaid Services must be used within the applicable contract period. If we
withdraw a Service for which you prepaid, and we have not fully provided
such Service, we will give a prorated refund. Unless we specify otherwise,
we do not give credits or refunds for unused prepaid Services.
If an End User is eligible for a credit under the terms of the IBM Service
Agreement (for example, a satisfaction guarantee credit, or a credit for
withdrawn Services not fulfilled), you
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agree to ensure the applicable prorated credit is issued to the End User.
We will issue the appropriate credit to you. If you are our Distributor,
you agree to issue the applicable credit to your Remarketer.
ADDITIONAL CHARGES
We specify in the IBM Service Agreement additional charges that apply under
specific conditions. When applicable, such charges apply to you. Depending
on the particular Service or circumstance, if other charges apply we will
inform you in advance.
3. NOTICES
Each of us agrees to give the other a copy of notices or requests received
from or sent to an End User applicable to the IBM Service Agreement.
You agree to ensure certain Services Attachments and transaction documents,
if any, are made available to End Users for their signature, if required.
Such documents may have terms in addition to those we specify in the IBM
Service Agreement.
4. SERVICES REQUIREMENTS CHANGES
During the Service period you may update the requirements, including adding
Products to be covered by the Service, as well as increasing the Service
requirements. We will adjust our invoicing to you accordingly.
5. TERMINATION OF SERVICES
If either IBM or the End User does not meet its obligations concerning a
Service, the other party may terminate the Service. We will inform you of
any such termination.
For a Service the End User terminates, you agree to ensure we are provided
one month's written notice from the End User. For a Service you decide to
terminate, you agree to provide one month's written notice to us and the
End User.
When an expiring or renewable Service transaction is terminated, such
termination will result in an adjustment charge equal to the lesser of
1. the charges remaining to complete the contract period; or
2. one of the following if specified in the transaction document
a. the charges remaining to complete the contract period multiplied
by the adjustment factor specified; or
b. the amount specified.
You also agree to pay us for all Services we provide and any Material we
deliver through Service termination and any charges we incur in terminating
subcontracts.
Adjustment charges do not apply if you terminate:
1. a non-expiring Service on one month's written notice provided the End
User has met all minimum requirements specified in the applicable
Attachments and transaction documents, if any,
2. a renewable Service or a non-expiring maintenance Service on written
notice, provided the End User has met the minimum requirements
specified in the applicable Attachments and transaction documents, if
any, and any of the following circumstances occur:
a. the eligible Product for which the Service is provided is
permanently removed from productive use within the End User's
enterprise;
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b. an increase in the Service charges, either alone or in
combination with prior increases over the previous twelve months,
is more than the maximum specified in the applicable transaction
document. If no maximum is specified, then the circumstance does
not apply;
c. the eligible location, for which the Service is provided, is no
longer controlled by the End User (for example, because of sale
or closing of the facility), or
d. the machine has been under maintenance Services for at least six
months and you ensure, for a Service the End User terminates, we
have been provided one month's written notice by the End User
prior to terminating the maintenance Service. For such Service
which you decide to terminate, you agree to provide one month's
written notice to us.
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IBM BUSINESS PARTNER AGREEMENT
IBM WARRANTY SERVICE ATTACHMENT
IBM WARRANTY SERVICE RESPONSIBILITY
You may provide IBM Warranty Service from locations we approve. You must apply
for approval and meet the criteria we specify in the Service support guidelines
we provide to you.
If we do not approve you to provide IBM Warranty Service from a location, you
agree to assign such Service to us or to any party approved by us to provide IBM
Warranty Service (unless we specify otherwise to you in the Service support
guidelines).
WHEN YOU ARE APPROVED TO PROVIDE IBM WARRANTY SERVICE FROM A LOCATION
When you are approved to provide IBM Warranty Service from a location, you agree
to do the following, as we specify in the Service support guidelines we provide:
1. validate that the End User is entitled to IBM Warranty Service;
2. maintain IBM Warranty Service approval status and capability;
3. ensure the Service is performed only by personnel trained to our standards
and consistent with our service terms;
4. provide the Service even for IBM Machines the End User did not acquire from
you (unless you have assigned responsibility, as described below in the
subsection entitled 'Assignment of IBM Warranty Service Responsibility',
for all units of such Machine type/model);
5. not assign, delegate or subcontract the IBM Warranty Service responsibility
unless approved by us in writing;
6. service Machines only at locations we approve or at your End Users'
locations;
7. submit only valid warranty-reimbursement requests to us: and
8. retain records for three years, by location, of each warranty claim you
submit to us.
We will:
1. inform you of the IBM Warranty Service approval process;
2. train you to provide IBM Warranty Service. We provide training for the
minimum number of your Service personnel that we require and additional
training at your request. We may charge a fee for the training. We will
specify if there is a fee.
Additionally, for each location from which we approve you to provide IBM
Warranty Service, we will specify if there is a one-time Warranty Service start
up fee, and we will:
1. provide you with necessary technical information; and
2. pay you for IBM Warranty Service you provided and exchange (or reimburse
you for) parts. Such parts must be received by us within the time period we
specify.
In the event you are no longer approved to provide IBM Warranty Service, you
agree to inform your End Users and any IBM Business Partner for whom you were
the assignee.
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IF YOU ARE NOT APPROVED TO PROVIDE WARRANTY SERVICE FROM A LOCATION
If you are not approved to provide IBM Warranty Service from a location, you
agree to:
1. assign, without delay, the IBM Warranty Service to us or any party approved
by us; and
2. notify your End User of the assignment.
ASSIGNMENT OF IBM WARRANTY SERVICE RESPONSIBILITY
YOUR IBM WARRANTY SERVICE RESPONSIBILITY AS AN ASSIGNOR.
Unless we specify otherwise to you in writing, you may assign IBM Warranty
Service responsibility to us or to any party approved by us to provide it for:
1) all IBM Machines, 2) all units of an IBM Machine type/model by specifying
that choice in your Profile, or 3) for individual IBM Machines at the time of
sale to the End User. For Machines for which you assign IBM Warranty Service
responsibility, you agree to:
1. ensure the assignee accepts IBM Warranty Service responsibility for each
Machine assigned;
2. provide a copy of the sales receipt to the assignee. Such sales receipt
must specify the End User's name, Machine type/model, serial number, date
of sale, date of delivery and installed-at location. If you do not indicate
an assignee's name or location on the sales receipt, or if the assignee's
name or location is not valid, you will be responsible for providing IBM
Warranty Service for that Machine;
3. notify your End User of the assignment; and
4. remain responsible for your End User's satisfaction with such Service.
If you assign IBM Warranty Service for all units of an IBM Machine type/model to
us or to a party approved by us as you specify in your Profile, you are not
required to maintain the capability to provide IBM Warranty Service for that IBM
Machine type/model.
The responsibility to provide IBM Warranty Service reverts to you if the End
User is not satisfied with the IBM Warranty Service provided by your assignee or
if the assignee loses its approval to provide IBM Warranty Service. You may
subsequently assign such responsibility consistent with the provisions of this
subsection. In such event, you are responsible to provide the End User and the
new assignee with written notice of the assignment.
YOUR IBM WARRANTY SERVICE RESPONSIBILITY AS AN ASSIGNEE.
If you accept assignment of IBM Warranty Service responsibility from an IBM
Business Partner, the applicable provisions of this Attachment apply to you.
As an assignee, you accept such responsibility for each Machine for which you
are named on the End User's sales receipt. You may not reassign such
responsibility. If, at a later date, the assignor is no longer approved to
market the Machine type/model, you will have the additional responsibility for
the End User's IBM Warranty Service satisfaction.
MAINTENANCE PARTS
We provide maintenance parts for use in providing IBM Warranty Service on IBM
Machines and for maintaining Machines. You agree to maintain an inventory of
such parts to meet your Customers' service requirements. We provide maintenance
parts for Warranty Service on an exchange basis. We will inform you of the price
of such parts. These maintenance parts may not be new, but will be in good
working order.
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IBM BUSINESS PARTNER AGREEMENT FOR RESELLERS
1. MARKETING APPROVAL
As our IBM Business Partner-Reseller, we approve you under the terms of
this Agreement to market to End Users Products and Services specified on
the signature page. You acquire such Products and Services from an IBM
Distributor.
2. DEFINITIONS
END USER is anyone, who is not part of the enterprise of which you are a
part, who uses Services or acquires Products for its own use and not for
resale.
ENTERPRISE is any legal entity and the subsidiaries it owns by more than
50%.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term 'Machine' includes an IBM
Machine and any non-IBM Machine (including other equipment) that we approve
you to market.
PRODUCT is a Machine or Program.
PROGRAM is an IBM Program or a non-IBM Program provided under its
applicable license terms, that we approve you to market.
SERVICE is the performance of a task, provision of advice and counsel,
assistance, or use of a resource that we approve you to market.
3. OUR RELATIONSHIP
Each of us agrees that:
1. each of us is responsible for our own expenses regarding fulfillment
of our responsibilities and obligations under the terms of this
Agreement;
2. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other, other
than those authorized;
3. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided
by local law without the possibility of contractual waiver;
4. failure by either of us to insist on strict performance or to exercise
a right when entitled does not prevent either of us from doing so at a
later time, either in relation to that default or any subsequent one;
5. all information exchanged between us is non-confidential, unless both
of us agree otherwise in writing;
6. IBM may change the terms of this Agreement on one month's written
notice. Otherwise, for any other change to be valid, both of us must
agree in writing. Changes are not retroactive. Additional or different
terms in a communication from you are void; and
7. IBM reserves the right to assign, in whole or in part, this Agreement
to any other IBM related company.
4. YOUR RESPONSIBILITIES TO IBM
You agree:
1. to provide us, or our representative, with access to your facilities
in order for us to fulfill our obligations and to review your
compliance with the Agreement;
2. your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way;
3. to maintain the criteria we specified when we approved you;
4. to retain records of each Product and Service transaction (for
example, a sale, a credit or a warranty claim) for three years and
provide us relevant records on request. We may reproduce and retain
copies of these records;
5. to report to us any suspected Product defects or safety problems, and
to assist us in tracing and locating Products; and
6. to comply with the highest ethical principles in performing under the
Agreement. You will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing
decisions in favor of IBM, directly or indirectly. IBM may terminate
this Agreement immediately in case of a) a breach of this clause or b)
when IBM reasonably believes such a breach has occurred.
5. YOUR RESPONSIBILITIES TO END USERS
You agree to:
1. be responsible for customer satisfaction and to participate in
customer satisfaction programs as we determine;
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<PAGE>
2. refund the amount paid for a Product returned to you because the End
User returned it to you under the terms of its warranty or did not
accept the terms of the license or a money back guarantee we offer End
Users. You may return such Products to the IBM Distributor from whom
you acquired them for credit;
3. Provide installation and post-installation support for the offering
you marketed. For Products and Services, to be the primary contact for
Product information, technical advice and operational advice
associated with the offering. You may delegate these support
responsibilities and those for any other associated products, to
another IBM Business Partner who is approved to market such Products.
If you do, you retain customer satisfaction responsibilities.
Alternatively, such support responsibilities will be provided by IBM
if you market the applicable IBM Services to the End User. If you do,
we assume customer satisfaction responsibilities for such support;
4. provide a dated written record, such as a sales receipt or an invoice,
which specifies the End User's name, the part number or the Machine
type/model, and serial number, if applicable;
5. inform your End User, in writing, who the warranty provider is, if
other than yourself, and of any other applicable Warranty information,
as well as any modification you or the IBM Distributor make to a
Product and advise that such modification may void the warranty; and
6. inform your End User that the sales receipt (or other documentation we
may specify, such as Proof of Entitlement, if it is required) will be
necessary for proof of warranty entitlement and for Program upgrades.
6. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) OF any substantive change or anticipated change to the
information supplied in your application. Upon notification OF such change,
(or in the event of failure to give notice of such change) IBM may, at its
sole discretion, immediately terminate this Agreement.
7. MARKETING FUNDS AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings. If we do, you
agree to use them according to our guidelines and to maintain records of
your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional offerings
from you if you breach any terms of the Agreement. Upon notification of
termination of the Agreement, marketing funds and promotional offerings
will no longer be available for use by you, unless we specify otherwise in
writing.
8. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. You agree to inform your End User of these terms in writing.
Regardless of the IBM Machine's production status, IBM's warranty terms
apply. Warranty information is available from your IBM Distributor.
9. WARRANTY SERVICE
If we approve you to provide Warranty Service, you agree to do so under the
guidelines we specify to you.
10. MARKETING OF SERVICES FOR A FEE
You may market IBM Services which IBM or your IBM Distributor make
available to you, to an End User if you 1) marketed a Product under this
Agreement to that End User, or 2) are approved on the signature page of
this Agreement to market such Services.
If you market an IBM Service which is eligible for a fee and which your IBM
Distributor makes available to you, we will pay the fee to your IBM
Distributor. Alternatively, if such IBM Service is not available from your
IBM Distributor, but is available to you, we will pay the fee to you.
In either case we will pay the fee when 1) you identify the opportunity and
perform the marketing activities, 2) you provide the order and any required
documents, signed by the End User, where required, and 3) if a standard
Statement of Work is used, there are no changes, and no marketing
assistance from us is required.
Additionally, for Services we specify, and which are not available from
your IBM Distributor, we will pay you a fee when you provide us a lead and
the following criteria are met: 1) it is submitted on a form we provide to
you, 2) it is for an opportunity which is not known to us, and 3) it
results in the End User ordering the Service from us within six months from
the date we receive the lead from you.
11. EXPORT
You may actively market Products and Services only within the geographic
scope specified in this Agreement. You may not market outside this scope,
and you agree not to use anyone else to do so. If a customer acquires a
Product for export, our responsibilities, if any, under this Agreement no
longer apply to that Product, unless the Product's warranty, or license
terms state otherwise. You agree to use your best efforts to ensure that
your customer complies-with all export laws and regulations including those
of the United States and the country specified in the Governing Law Section
of this Agreement, and any laws and regulations of, the country in which
the Product is imported or exported. Before your sale of such Product, you
agree to prepare a support plan for it and obtain your customer's agreement
to that plan. Within one month of sale, you agree to provide us with the
customer's name and address, Machine type/model and serial number, date of
sale, and destination country. We exclude these Products from any of your
attainment objectives and qualification for applicable promotional
offerings and marketing funds.
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<PAGE>
12. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner title
and emblem which you are authorized to use. You may not modify the emblem
in any way. You may use our Trademarks (which include the title, emblem,
IBM Trademarks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you,
The royalty normally associated with non-exclusive use of the Trademarks
will be waived, since the use of this asset is in conjunction with
marketing activities supporting sales of Products and Services.
You agree to promptly modify any advertising or promotional materials that
do not comply with our guidelines. If you receive any complaints about your
use of a Trademark, you agree to promptly notify us. When this Agreement
ends, you agree to promptly stop using our Trademarks. If you do not, you
agree to pay any expenses and fees we incur in getting you to stop.
You agree not to register or use any mark that is confusingly similar to
any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them, belong to
us.
13. LIABILITY
Circumstances may arise where, because of a default or other liability, one
of us is entitled to recover damages from the other. In each such instance,
regardless of the basis on which damages can be claimed, the following
terms apply as your exclusive remedy and our exclusive liability.
We are responsible for the amount of any actual loss or damage, up to the
greater of $100,000 or the charges (if recurring, 12 months' charges apply)
for the Product that is the subject of the claim.
Under no circumstances (except as required by law) are we liable for
third-party claims against you for losses or damages, or for special,
incidental, or indirect charges, or for any economic consequential damages
(including lost profits or savings) even if we are informed of their
possibility.
In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims by others made against us
by others (particularly regarding statements, representations, or
warranties not authorized by us) arising out of your conduct under this
Agreement or as a result of your relations with anyone else.
14. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent permissible
under applicable law. Both of us agree that for all electronic
communications, an identification code (called a 'user ID') contained in an
electronic document is legally sufficient to verify the sender's identity
and the document's authenticity.
15. ENDING THE AGREEMENT
Either of us may terminate this Agreement, with or without cause, on three
months' written notice. If, under applicable law, a longer period is
mandatory, then the notice period is the minimum notice period allowable.
If we terminate for cause we may, at our discretion, allow you a reasonable
opportunity to cure. If you fail to do so, the date of termination is that
specified in the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of such
breach by you are if you do not maintain customer satisfaction; if you
repudiate this Agreement; or if you make any material misrepresentations to
us. You agree that our only obligation is to provide the notice called for
in this section and we are not liable for any claims or losses if we do so,
You agree that if we permit you to perform certain activities after this
Agreement ends, you will do so under the terms of this Agreement.
16. GEOGRAPHIC SCOPE
All the rights and obligations of both of us are valid only in the United
States and Puerto Rico.
17. GOVERNING LAW
The laws of the State of New York govern this Agreement. The 'United
Nations Convention on the International Sale of Goods' does not apply.
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Contract Start Date Duration 24 months. Location ID 57198
-------------- -------------
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. Each of us is responsible to
provide the other three months' written notice if the Agreement will not be
renewed.
PRODUCTS AND SERVICES YOU ARE APPROVED TO MARKET:
Personal computer Products and associated Services.
MINIMUM ANNUAL ATTAINMENT: NOT APPLICABLE.
This Agreement is the complete agreement regarding this relationship, and
replaces any prior oral or written communications between us. Once this
Agreement is signed 1) any reproduction of this Agreement made by reliable means
(for example, photocopy or facsimile) is considered an original, to the extent
permissible under applicable law, and 2) all Products and Services you market
and Services you perform under this Agreement are subject to it.
<TABLE>
<S> <C>
Agreed to: MicroAge Integration Company Agreed to:
(IBM Business Partner name) International Business Machines Corporation
By:_____________________________________ By:____________________________________
(Authorized Signature) (Authorized Signature)
Name (type or print): Name (type or print): James K. Rooney
Date: Date:
IBM Business Partner Address: IBM Address: IBM Corporation
3039 Cornwallis Rd.
2400 S. MicroAge Way Building 201
Tempe, AZ 85282 Research Triangle Park, NC 27709
</TABLE>
AUTHORIZED APPLE WHOLESALER U.S. SALES AGREEMENT
This Agreement is made between Apple Computer, Inc., a California corporation
with its principal place of business located at 1 Infinite Loop, Cupertino,
California 95014, "Apple," and MICROAGE COMPUTER CENTERS, INCORPORATED, a
(corporation) (partnership) (sole proprietorship) organized under the laws of
Delaware - with its principal place of business located at 2400 S. Microage Way,
Tempe, AZ 85282, "Wholesaler."
DEFINITIONS
As used in this Agreement, the following terms have the meanings specified
below:
A. "Agreement" - this Authorized Apple Wholesaler U.S. Sales Agreement and all
documents incorporated herein by reference.
B. "Apple Reseller Program Attachment(s)" - the then-current attachment(s) to
this Agreement which describe specific Apple reseller categories and which
include additional terms and conditions with which Wholesaler must comply when
selling to specific reseller categories. As of the date of this Agreement, those
reseller categories include: Authorized Apple Dealer, Authorized Apple Retailer,
Authorized Apple Indirect Value Added Reseller, Authorized Apple Direct Value
Added Reseller, Authorized Apple Electronic Reseller, and Authorized Apple
Catalog Reseller.
C. "Authorized Product(s)" - those Products that Wholesaler is authorized by
this Agreement to resell to Authorized Resellers. Authorized Products may vary
by Authorized Reseller category and all products may not be available to all
categories.
D. "Authorized Reseller(s)"- those resellers which (1) have signed a U.S. sales
agreement with Apple, (2) are authorized by Apple to resell Products to end-user
purchasers in the U.S and/or as authorized by Apple in writing, and (3) meet all
requirements of at least one specific reseller category as described by Apple in
the attached Apple Reseller Program Attachments, as modified by Apple from time
to time.
E. "Policies and Practices Manual" - Apple's then-current policies, programs and
procedures relating to doing business with Apple and the sale of Products which
Wholesaler must follow.
F. "Price List" - Apple's then-current Authorized Apple Wholesaler Confidential
Price List. Apple reserves the right to remove Products from the Price List, to
limit those Products available to Wholesaler and to require Product specific
authorizations.
G. "Product(s)" - hardware, software, support, training, and related products,
including items manufactured, distributed or licensed ("sold") by Apple and
items manufactured, distributed or licensed by others that may be sold by Apple
to Wholesaler for resale to Authorized Resellers and as described in this
Agreement.
1. APPOINTMENT
A. Apple appoints Wholesaler as an Authorized Apple Wholesaler and Wholesaler
accepts such appointment. The appointment is limited, non-exclusive and
effective only so long as Wholesaler complies with all of the terms and
conditions of this Agreement. This appointment allows Wholesaler to perform the
functions described herein and represent to the public that Wholesaler has been
authorized by Apple to do so.
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B. Wholesaler is an independent contractor, has no power or authority to bind
Apple and is contracting for certain goods and services. Nothing in this
Agreement shall be construed as creating any relationship such as
employer-employee, principal-agent or franchisor-franchisee.
C. The appointment is based upon the existing ownership of Wholesaler and is
therefore personal in nature. Consequently, Wholesaler may not assign or
transfer any or all of its rights or obligations under this Agreement without
express written approval from Apple. if a person or entity that currently owns
less than 25% of the shares entitled to vote for the Board of Directors of
Wholesaler obtains ownership of more than 50% of such voting shares, this will
be considered an assignment pursuant to this Section.
2. SCOPE OF AUTHORIZATION
A. Wholesaler shall only resell Products as follows:
(1) as described in this Agreement, Apple's Policies and Practices Manual, and
the terms and conditions of the applicable Apple Reseller Program Attachment(s);
(2) to Authorized Resellers specifically identified by Apple and located within
the United States, for resale to end-user purchasers within the United States;
and
(3) as specifically approved by Apple, in writing.
B. Wholesaler understands and agrees that Wholesaler shall not sell all Product
to all Authorized Resellers. Wholesaler agrees not to sell specific Products
identified by Apple to Authorized Resellers in specific categories as described
in the Price List.
C. Wholesaler shall not sell Product(s) as follows unless specifically
authorized to do so by a written amendment to this Agreement:
(1) for export, either directly or indirectly;
(2) for sale or resale to public or private non-profit educational institutions,
including without limitation, those portions of state contracts concerning
purchases for educational institutions; and
(3) directly to end-user purchasers.
D. Wholesaler shall unilaterally determine its own resale prices. Although Apple
may provide suggested resale prices, those are suggestions only and Wholesaler
may freely choose to charge different prices. Wholesaler understands that
neither Apple or any employee or representative of Apple may give any special
treatment (favorable or unfavorable) to Wholesaler as a result of its selection
of prices. Should anyone attempt to do so, Wholesaler will promptly report the
matter to Apple in writing.
3. WHOLESALER'S OBLIGATIONS
A. PRODUCT PROMOTION AND SALES
Wholesaler shall vigorously promote and sell Products to Authorized Resellers,
maintaining a high level of customer satisfaction. Wholesaler agrees and
represents that it shall accomplish at least the following:
(1) comply with this Agreement, Apple's Policies and Practices Manual, and other
programs and policies made available to Wholesaler from time to time;
(2) accept and fulfill orders from Authorized Resellers on a non-discriminatory,
equitable basis. Wholesaler may refuse orders from Authorized Resellers based on
credit or other legitimate concerns, but shall otherwise accept and fulfill all
orders;
(3) maintain a sufficient level of Products in inventory to provide timely fill
rates for Product orders placed by Authorized Resellers; and
(4) utilize the promotional programs or funds Apple makes available from time to
time in accordance with the terms established by Apple.
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B. SUPPORT
Wholesaler will provide the following minimum support to Authorized Resellers:
(1) provide satisfactory technical information and support for the Products in a
timely manner. Technical support shall include but not be limited to information
and training on Product configurations, compatibility among Products, and
general Product information; and
(2) provide notices, marketing and program information, and other materials
provided by Apple which Apple requires or requests that Wholesaler distribute to
Authorized Resellers.
C. GENERAL
Wholesaler agrees to conduct business in a manner that reflects favorably at all
times on the Products and the good name, goodwill and reputation of Apple, and
to:
(1) not engage in any deceptive, illegal, misleading or unethical activity that
is or might be detrimental to Apple, any Product or support activity described
herein, or the public;
(2) accurately describe all Product specifications, features, and warranties in
conformance with the literature distributed by Apple;
(3) distribute the Products with all packaging, warranties, disclaimers and
license agreements intact as shipped from Apple;
(4) make no changes to or reconfiguration of the Product(s) in any way, without
Apple's prior written permission;
(5) use reasonable efforts to notify Apple if Wholesaler believes that an
Authorized Reseller may not be complying with the Authorized Reseller's U.S.
sales agreement with Apple.
(6) immediately cease selling Product to any reseller which is no longer an
Authorized Reseller. Apple may take action against Wholesaler, which may include
but is not limited to suspension or termination of this Agreement, if Wholesaler
subsequently ships Product to any such reseller;
(7) offer or facilitate reasonable financing terms to any Authorized Reseller.
For purposes of this provision, "reasonable financing terms" includes, but is
not limited to, offering leasing programs through a reputable, third-party
leasing company, and
(8) at all times comply with all applicable laws when conducting business under
or related to this Agreement.
4. LIMITED WARRANTY TO WHOLESALER
A. Apple warrants to Wholesaler that any Product shipped by Apple shall conform
to the general description of that Product on the Price List. This warranty is
nontransferable.
Wholesaler's remedy for any breach by Apple of the foregoing warranty shall be,
at Apple's option, a credit to the Wholesaler's account upon return to Apple of
the non-conforming unit, or replacement of the nonconforming unit with a
conforming unit or a Product which is functionally equivalent to the conforming
unit. Wholesaler shall have SIX (6) MONTHS from the original invoice date to
Wholesaler to notify Apple of a suspected breach of the above warranty and
receive a return authorization or the above warranty shall expire.
B. Wholesaler-owned Products used for Wholesaler's internal use are covered by
Apple's standard Limited Warranty; coverage shall commence on the date
Wholesaler first uses the Product. if Wholesaler does not maintain records
indicating the date of first use, the coverage period will start from
Wholesaler's date of purchase.
C. For Products sold by Apple to Wholesaler, Apple's standard Limited Warranty
shall flow to the end-user purchaser.
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D. APPLE MAKES NO OTHER WARRANTY TO WHOLESALER, EITHER EXPRESS OR IMPLIED, WITH
RESPECT TO ANY PRODUCTS PURCHASED BY WHOLESALER HEREUNDER. APPLE SPECIFICALLY
DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
5. INSPECTIONS, RECORDS, AND REPORTING
A. Wholesaler will provide accurate sales, inventory and other reports to Apple
on a regular basis as provided in the Policies and Practices Manual. The
frequency, content and format of these reports shall be prescribed by Apple.
Failure to submit the reports may result in action being taken by Apple; such
action can include, but will not be limited to, termination of this Agreement.
B. In addition to the reports described in Section 5A, Wholesaler shall provide
Apple with information and/or documentation relating to the activities described
by this Agreement that Apple may reasonably request from time to time.
C. Apple shall have the right to inspect Wholesaler's operations at any time
during regular business hours to verify Wholesaler's compliance with the terms
and conditions of this Agreement and Apple's policies and programs.
D. Wholesaler shall maintain its records, contracts, and accounts relating to
the sale of Products for at least FIVE (5) YEARS. A duplicate copy of all such
records, contracts and accounts shall be stored at an alternate location.
E. Wholesaler shall promptly notify Apple in writing of any suspected Product
defect or safety problem.
F. Wholesaler shall notify Apple in writing no less than TEN (10) DAYS prior to
any material change in the management or control of Wholesaler, any new
affiliation or association, or transfer of any substantial part of Wholesaler's
business. Wholesaler shall also notify Apple in writing no less than TEN (10)
DAYS prior to any acquisition by Wholesaler in whole or in part of a third party
engaged in the sale of Products.
6. ORDERING, SHIPPING, PAYMENT
A. Wholesaler may submit orders for Products. in addition to Products ordered
for resale, Wholesaler may order Products in reasonable quantities for
Wholesaler's internal use. All orders shall be subject to acceptance by Apple.
The price shall be Apple's price on the then-current Price List on the date of
Apple's acceptance. The prices set forth in Apple's then-current Price List
include freight (using an Apple selected carrier), insurance and routing to
Wholesaler. Wholesaler agrees to provide Apple with appropriate resale
certificate numbers and other documentation satisfactory to the applicable
taxing authorities to substantiate any claim of exemption from any taxes, duties
or imposts. Any applicable sales or use taxes, duties and other imposts due on
account of purchase(s) hereunder shall be paid by Wholesaler.
B. Apple shall use reasonable efforts to ship according to Wholesaler's request,
but shall not be liable for any failure to do so or for any failure to meet a
proposed delivery date. Unless Wholesaler clearly advises Apple to the contrary
in writing, Apple may make partial shipments on account of Wholesaler's orders,
to be separately invoiced and paid for when due. Apple reserves the right to
cancel any orders placed by Wholesaler and accepted by Apple, or to refuse or
delay shipment thereof without liability of any kind to Wholesaler or to any
other person or entity. Apple will notify Wholesaler upon cancellation of any
order. Title to all shipped Product shall pass to Wholesaler at Apple's shipping
location. When
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shipping pursuant to Apple's standard practices, Apple will place tracers, file
claims and replace product lost or damaged in transit.
C. If orders for Product exceed Apple's available inventory, Apple will allocate
its available inventory and make deliveries (including partial shipments) on a
basis Apple deems equitable, in its sole discretion and without liability to
Wholesaler.
D. Wholesaler shall be invoiced upon shipment of Product and, provided
Wholesaler is eligible for credit from Apple, shall pay each invoice no later
than THIRTY (30) DAYS from the date of invoice. Unless otherwise agreed to in
writing, Wholesaler shall provide to Apple annual audited financial statements
within ninety (90) days of Wholesaler's fiscal year end. Apple reserves the
right to change credit terms if Wholesaler's financial status or payment record
so warrants.
7. APPLE PROPRIETARY RIGHTS
A. APPLE TRADEMARK RIGHTS
(1) PERMISSION TO USE
During the term of this Agreement Apple grants to Wholesaler a non-exclusive
non-transferable, revocable, personal right to use Apple trademarks that
specifically refer to Authorized Products or Apple technologies contained within
the Authorized Products; provided, however, that Wholesaler may use only the
following logos: the Apple logo (only in reference to Apple, the Authorized
Products, or with the designation "Authorized Apple Wholesaler"), the Mac O/S
logo, the QuickTirne logo and any other Apple logo for which Apple has
promulgated written guidelines and provided separate written authorization
(collectively the "Marks"), solely in connection with Wholesaler's authorized
promotion of Authorized Products. Wholesaler's use of the Marks will be in
strict compliance with this Agreement and the Mark Specifications and Guidelines
provided by Apple, which Wholesaler acknowledges may be changed by Apple from
time to time. in addition, Wholesaler shall be permitted to use other Apple
marks to the extent permitted by fair use under trademark and unfair competition
laws in the jurisdiction where such mark(s) are actually being used, and in
accordance with Apple's specifications and requirements for use of Apple
trademarks by third party licensees, resellers and developers. Apple retains all
rights not expressly conveyed to Wholesaler by this Section 7A. Wholesaler
recognizes the great value of the' goodwill associated with the use of the Apple
marks and acknowledges that such goodwill exclusively inures to the benefit of
and belongs to Apple. Wholesaler has no rights of any kind whatsoever with
respect to any Apple marks except for the limited rights provided herein.
(2) LIMITATIONS ON USE OF MARKS Wholesaler agrees not to use the Marks in any
manner that Apple, in its sole judgment, deems to (a) be in poor taste, (b) be
unlawful, (c) have the purpose, object or intent to encourage unlawful activity
by others, or (d) suggest any association with Apple beyond that of an
Authorized Apple Wholesaler. Wholesaler will not use the Marks or any other
Apple mark or marks that may be confusingly similar to Apple marks on
promotional merchandise, such as without limitation, shirts, hats, key chains,
mugs or mouse pads, except under a separate Apple merchandise license.
Wholesaler agrees not to use any Apple mark as a part of a product name, service
name, company name, electronic address or similar designation. Wholesaler will
not remove any Apple marks from any Products nor shall Wholesaler add any marks
to such products.
B. SOFTWARE RIGHTS
(1) Wholesaler acknowledges that Products often contain not only hardware but
also software. Software may be provided on separate media, such as floppy
diskettes or CD-ROM or may be included within the hardware. Such software is
proprietary, is copyrighted, and may also contain valuable trade secrets and be
protected by patents. Wholesaler shall not separate the software from the
associated
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Product as shipped by Apple, nor shall Wholesaler disassemble, decompile,
reverse engineer, copy, modify, prepare derivative works thereof, or otherwise
change any of the software or its form.
(2) Wholesaler understands that Apple does not sell software. Rather, Wholesaler
is licensed to distribute software that is incorporated in or packaged with
Products only as part of its authorized sale of the associated Products. The end
user of a Product is licensed to use any software contained in such Product,
subject to the terms of the license accompanying the Product, if any, and the
applicable patent, trademark, copyright, and other federal and state
intellectual property laws.
(3) Prior to selling a Product, Wholesaler will make available to purchaser the
applicable end user Software License Agreement. Apple will provide copies of the
applicable Software License Agreements with the Product or upon request.
8. INSURANCE AND INDEMNITIES
A. While this Agreement is in effect, Wholesaler shall keep in force and effect
a sufficient general liability insurance policy, including premises liability,
products, and completed operations, with limits of coverage not less than
$1,000,000 bodily or personal injury and $1,000,000 property damage, or
$1,000,000 combined single limit. Apple shall be named as additional insured for
the scope of this Agreement. Prior to commencement of work under this Agreement,
a certificate of insurance evidencing the above shall be delivered to Apple at
the following address:
Apple Computer, Inc.
Contracts Management
One Infinite Loop, M/S 72-CM
Cupertino, CA 95014.
B. Apple agrees to defend any proceeding or action brought by a third party
against Wholesaler to the extent based on a claim that: (1) the marketing or use
of any Product sold by Apple to Wholesaler infringes any U.S. patent, U.S.
copyright, U.S. trademark or trade secret; or (2) a defective Apple Product
directly caused death or personal injury (provided the Product at issue has not
been altered, modified or otherwise changed). Apple agrees to indemnify
Wholesaler for damages awarded to third parties solely as a result of such
claims. Apple's obligation to so defend and indemnify Wholesaler is contingent
on Wholesaler's compliance with Section 8E below.
C. Wholesaler agrees that, if Apple is obligated to defend any claim arising
under Section 8B(1) above or if Apple requires that Product be returned for any
reason, including but not limited to Product safety reasons, Wholesaler will
promptly stop all promotion and resale of the specific Product and will return
such new, unopened Product in Wholesaler's inventory to Apple upon Apple's
written request. In addition, Wholesaler will take reasonable steps to return to
Apple the specified Product in Authorized Reseller's inventory. At Apple's
option, Apple will either replace Product with the same or functionally
equivalent Product, or Apple will credit Wholesaler's account upon return of the
Product to Apple. Any such credit will be calculated by assuming that the
Product is from Wholesaler's most recent purchase of such item(s) from Apple.
D. Wholesaler agrees to defend any proceeding or action brought by a third party
against Apple to the extent based on a claim arising from the acts or omissions
of Wholesaler, its employees or agents in conduct associated with the offering
for sale or marketing of Products, except acts or omissions expressly required
by Apple's written programs or policies. Wholesaler agrees to indemnify Apple
for any losses, damages, liabilities, costs and reasonable expenses arising from
such acts or omissions. Wholesaler's obligation to so defend and indemnify Apple
is contingent on Apple's compliance with Section 8E below.
6
<PAGE>
E. Each party shall promptly notify the other party of any claim, demand,
proceeding or suit of which the other party becomes aware which may give rise to
a right of defense or indemnification pursuant to this section ("Claim"). Notice
of any Claim must be provided to the indemnifying party as soon as possible, and
no later than THIRTY (30) DAYS after first learning of such Claim. Notice shall
include an offer to tender the defense of the Claim to the indemnifying party.
The indemnifying party, if it accepts such tender, shall be entitled to take
over sole control of the defense of the Claim. That control shall include the
right to take any and all actions necessary to completely and finally resolve
the Claim by settlement or compromise (in which case the indemnifying party
shall be responsible for the cost of settlement/compromise related to the
Claim). Upon acceptance of tender, the indemnified party shall cooperate with
the indemnifying party with respect to such defense and settlement. In the event
a Claim is settled, both parties agree not to publicize the settlement and will
make every effort to ensure the settlement agreement contains nonadmissions and
nondisclosure provisions.
9. CONFIDENTIALITY
Any information disclosed to Wholesaler by Apple relating to Apple's or a third
party's present or future developments or business, including but not limited to
future product information, business activities, the Price List, terms and
conditions of this Agreement (including any documents incorporated by
reference), and all other amendments and addenda between Wholesaler and Apple
(except such information as is previously known to Wholesaler without an
obligation of confidentiality or is publicly disclosed by Apple either prior or
subsequent to Wholesaler's receipt of such information from Apple), shall be
characterized as confidential information ("Confidential Information").
Wholesaler shall hold such Confidential Information in trust and confidence and
shall not use it except in furtherance of the relationship set forth in this
Agreement, nor publish, disclose, or disseminate it for a period of FIVE (5)
YEARS after receipt thereof by Wholesaler, except as may be authorized by Apple
in writing. Wholesaler shall have no right to prepare any derivative works of
such Confidential information.
10. LIMITATION OF LIABILITY
IN NO EVENT SHALL APPLE BE LIABLE TO WHOLESALER FOR INCIDENTAL, CONSEQUENTIAL,
INDIRECT, OR SPECIAL DAMAGES OF ANY NATURE, INCLUDING, WITHOUT LIMITATION, LOST
BUSINESS PROFITS FOR ANY MATTER ARISING FROM, OR RELATED TO THIS AGREEMENT.
DIRECT DAMAGES TO WHOLESALER SHALL BE LIMITED TO AN AMOUNT NOT TO EXCEED
$100,000 PER INCIDENT.
11. LIMITATION OF REMEDIES
THE REMEDIES SET FORTH IN THIS AGREEMENT SHALL BE WHOLESALER'S SOLE AND
EXCLUSIVE REMEDIES FOR ANY BREACH OF THIS AGREEMENT BY APPLE.
12. TERM AND TERMINATION
A. TERM
Unless terminated earlier as provided herein: (1) the initial term of this
Agreement shall be from its effective date until March 31, 1999; and, (2) unless
either party provides written notice thirty (30) days prior to the expiration
date, the term of this Agreement shall be extended for an additional twelve (12)
month period. Any subsequent renewals or extensions of this Agreement will
require written agreement by both parties. Wholesaler and Apple agree that in no
event shall either party be obligated to renew or extend this Agreement.
B. TERMINATION WITH THIRTY (30) DAYS NOTICE
Either party may terminate this Agreement at will, at any the, with or without
cause, by providing written notice to the other party not less than THIRTY (30)
DAYS before the effective date of such notice.
7
<PAGE>
C. IMMEDIATE TERMINATION
To the extent permitted by applicable law, Apple may terminate this Agreement
effective immediately and without notice in the event that:
(1) Wholesaler fads to perform any obligation, duty, or responsibility imposed
under this Agreement and such failure or default remains unremedied FIFTEEN (15)
DAYS after written notice thereof;
(2) Wholesaler commits a felony, engages in an unlawful business practice, or
conducts business in any manner prohibited by Sections 2 or 3 of this Agreement;
(3) there is any material change or transfer in the management or control of
Wholesaler, Wholesaler's business operations, or any new affiliation or transfer
of any substantial part of its business;
(4) any conduct or proposed conduct of Wholesaler exposes or threatens to expose
Apple to any liability or obligation, including any federal, state, or local
law; or
(5) Wholesaler fads to maintain sufficient net worth and working capital to
perform its obligations; has a receiver or similar party appointed for its
property; becomes insolvent or makes an assignment for the benefit of creditors;
or ceases to do business in Products.
Without limiting the foregoing in any way, and in lieu of immediate termination
of this Agreement, Apple may take other action(s) for violation of this
Agreement by Wholesaler, as Apple, in its sole discretion, deems appropriate.
Such actions may include, but are not limited to, eliminating or modifying
specific Apple reseller categories to which Wholesaler can sell Authorized
Products and deauthorizing sales to specific Authorized Reseller(s).
D. EFFECT OF NOTICE OF TERMINATION
In the event that notice of termination of this Agreement is given for any
reason, the due date of all Apple invoices shall be accelerated so that they
become due and payable as of the date of notice of termination, even if longer
terms had been provided previously. Apple shall be entitled, in its sole
discretion, to reject all or part of any orders received from Wholesaler after
the date of such notice or to cancel any orders previously accepted. Apple may
restrict Wholesaler's use of any available promotional allowances. Until the
termination date Wholesaler may continue to represent publicly that it is an
authorized Apple Wholesaler, but shall not enter into any commitments requiring
Products after the termination date.
E. EFFECT OF TERMINATION
Upon expiration or termination of this Agreement:
(1) Wholesaler shall submit to Apple within TEN (10) DAYS after such expiration
or termination a list of all Products in Wholesaler's inventory as of the date
of such termination.
Apple, at its option, may purchase from Wholesaler any or all Authorized
Products that are still in their original, unopened containers, in good
condition, at the respective prices paid by Wholesaler for such items. These
prices shall be determined by assuming that the Products are from Wholesaler's
most recent purchase of such items from Apple.
Apple, at its option, may purchase any or all Authorized Products in opened
containers at prices determined by Apple. If the prices offered by Apple are
unacceptable to Wholesaler, Wholesaler may refuse Apple's offer and thereafter
resell such Authorized Product to an Authorized Reseller or Authorized
Wholesaler.
After receipt of any such Authorized Product from Wholesaler, Apple will issue
an appropriate credit to Wholesaler's account, subject to offset for any amounts
due Apple.
8
<PAGE>
(2) Wholesaler shall immediately cease use of the Apple Marks provided by
Section 7 herein, and otherwise discontinue representing to the public and trade
that it is an Authorized Apple Wholesaler.
(3) All unshipped Product orders will be canceled.
(4) All promotional allowance or other fund accruals shall cease. Wholesaler may
claim against any available balances for any activities approved by Apple and
conducted prior to the date of termination.
(5) Wholesaler shall promptly return to Apple all property of Apple in its
possession, including but not limited to loaned equipment and all documents and
materials of any kind containing Confidential Information.
F. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING
INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES, ON ACCOUNT OF EXPIRATION OR
TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS.
G. To the extent permitted by applicable law, and in consideration of its
entering into this Agreement, Wholesaler hereby waives and relinquishes any
rights or claims under franchise, dealership, or other statutes, or at common
law, that would or might arise out of a termination of this Agreement by Apple
or refusal by Apple to renew or extend this Agreement.
H. Wholesaler's obligations under Sections 5, 7, 8, 9, 10, 11, 12 and 13 and
their subsections shall survive expiration or termination of this Agreement.
Apple's obligations under Sections 4, 8, 10, 11, 12 and 13 and their subsections
shall survive expiration or termination of this Agreement.
13. GENERAL TERMS
A. GOVERNING LAW
This Agreement and the corresponding relationships of the parties shall be
governed by and construed in accordance with the laws of the State of California
without giving effect to its conflict of law provisions.
B. DISPUTES
(1) Any dispute, resolution, or proceeding ("Actions") with respect to this
Agreement shall take place solely in the County of Santa Clara, State of
California, except those Actions that are brought to collect monies due under
this Agreement may also be brought in the jurisdiction in which the Action
arose. Wholesaler expressly agrees that venue within this district is proper and
voluntarily submits to the jurisdiction of the courts within same.
(2) Any action arising from or related to this Agreement must be brought within
ONE (1) YEAR from the date such action could have first been brought. The
parties expressly agree to this provision notwithstanding any longer period
which may be provided by statute and any such period is expressly waived.
C. NOTICE
Notices and demands of any kind that Wholesaler may be required or desire to
serve upon Apple pursuant to this Agreement shall be served by United States
mail (postage prepaid), or overnight courier to Apple, at
Apple Computer, Inc.
Contracts Management
1 Infinite Loop, M/S 72-CM
Cupertino, CA 95014
9
<PAGE>
Notices and demands of any kind that Apple may be required or desire to serve
upon Wholesaler pursuant this Agreement shall be served by personal service,
United States mail (postage prepaid), or overnight courier to Wholesaler, at
Wholesaler's address set forth in this Agreement.
With written notice to the other, Apple and Wholesaler may designate in writing
different addresses. All notices or demands by United States mail shall be
deemed given and complete upon mailing.
D. SEVERABILITY
(1) In the event that any provision of this Agreement shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining portions
of this Agreement shall remain in full force and effect 'and be construed so as
to best effectuate the intention of the parties upon execution.
(2) The paragraph headings contained herein are for reference only and shall not
be considered as substantive parts of this Agreement. Use of the singular or
plural form shall include the other.
E. WAIVER
The waiver of any one default shall not waive subsequent defaults of the same or
different kind.
F. SUCCESSORS IN INTEREST
The provisions of this Agreement shall be binding upon and inure to the benefit
of the parties, and any permitted successors or assigns.
G. PRECEDENCE
if any conflict exists between this Agreement, Apple's Policies and Practices
Manual, or any Apple Reseller Program Attachment(s), the order of precedence
shall be as follows: this Agreement, Apple's Policies and Practices Manual, and
the applicable Apple Reseller Program Attachment(s), in that order.
14. ENTIRE AGREEMENT This Agreement and all documents referred to or
incorporated herein by reference contain all the agreements, warranties,
understandings, conditions, covenants, and representations made between
Wholesaler and Apple. Neither Apple or Wholesaler shall be liable for any
agreements, warranties, understandings, conditions, covenants, or
representations that are not expressly set forth in this Agreement. Any
different or additional terms or conditions in any purchase order, invoice or
other such document are hereby expressly rejected by Apple and shall have no
force or effect.
This Agreement may only be modified in writing by an instrument signed by an
authorized representative of each party. Apple may unilaterally modify the Price
List and the Policies and Practices Manual effective on the date designated by
Apple. Wholesaler shall have a reasonable period of time to implement changes
which require Wholesaler to materially alter its activities, provided such
period does not exceed THIRTY (30) DAYS from the stated effective date.
The duly authorized representatives of the parties execute this Agreement to be
effective as of the Effective Date set forth below.
10
<PAGE>
WHOLESALER APPLE COMPUTER, INC.
SIGNATURE: /s/ Don Lyons SIGNATURE: /s/ Cheryl Collins
---------------------------- ------------------------------
PRINT NAME: Don Lyons PRINT NAME: Cheryl Collins
--------------------------- -----------------------------
TITLE: Group VP - Product Mgmt TITLE: Manager, Bids & Contract
-------------------------------- ----------------------------------
DATE: 3/30/98 DEPT: Contracts Management
--------------------------------- -----------------------------------
EFFECTIVE DATE: 4/2/98
-------------------------
11
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE INDIRECT VALUE ADDED RESELLER
DEFINITIONS
"Authorized Apple Indirect Value Added Reseller" and/or "Indirect VAR" - a value
added reseller that meets Apple's Indirect VAR Criteria and is approved in
writing by Apple.
"Indirect VAR Criteria" - the minimum requirements listed below with which an
Indirect VAR must comply:
+ Develop custom and/or proprietary software and/or hardware for Products; or
provide expertise on Products within a target vertical market;
+ Provide installation, training and on-going support for the value added
solution;
+ Offer end-user purchaser service directly or through an Apple authorized
service organization;
+ Purchase at least the minimum quantity of Apple Product in the appropriate
time period as established by Apple; and
+ Have and comply with the then-current Indirect Value Added Reseller U.S. Sales
Agreement in effect between Apple and Indirect VAR.
WHOLESALER'S OBLIGATIONS
Wholesaler agrees to vigorously and aggressively promote and recruit Indirect
Value Added Resellers ("Indirect VARs") that can or will specialize in providing
Apple based technology solutions and satisfy Apple's Indirect VAR criteria. Such
promotion and recruitment will include, but is not limited to, providing
appropriate Apple information and documentation to the prospective Indirect VAR.
Wholesaler is not authorized to approve or authorize any prospective Indirect
VAR on behalf of Apple.
12
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE DEALER
DEFINITIONS
"Authorized Apple Dealer" and/or "Dealer" - a reseller that meets Apple's Dealer
Criteria and is approved in writing by Apple.
"Dealer Criteria' - the minimum requirements listed below with which a Dealer
must comply:
+ Develop and execute solution-oriented activities that feature Products and
target business customers;
+ Use a consultative sales approach and provide pre-sale and post-sale support
to customers through "face-to-face" contact at customer site or at dealer
location;
+ Customize hardware, software, and networks to meet customer needs;
+ Carry an adequate number of demo units, including monitors and printers, for
each of the product lines Dealer is authorized to carry;
+ Operate a walk-in storefront location or a non-storefront showroom. Maintain
store hours that are convenient for business customers;
+ Be responsible for demand generation and fulfillment in local markets;
+ Perform or facilitate specific product repairs according to the Apple
Authorized Service Provider (AASP) Program; and
+ Have and comply with the then-current Authorized Apple Dealer U.S. Sales
Agreement in effect between Apple and Dealer.
13
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE RETAILER
DEFINITIONS
"Authorized Apple Retailer" and/or "Retailer" - a reseller that meets Apple's
Retailer Criteria and is approved in writing by Apple.
"Retailer Criteria" - the minimum requirements listed below with which a
Retailer must comply:
+ Operate a walk-in storefront location which is open during retail store hours,
including evenings and weekends, for a minimum of six days per week;
+ Offer a broad set of computer products that target home and small-business
customers;
+ Maintain adequate on-hand inventory of retail products to satisfy immediate
delivery or "cash and carry" transactions;
+ Provide customer assistance with pre-sale and post-sale support of Products;
+ Support customers with basic product information regarding Products, and
direct them to the Apple Customer Service Support he or to an Apple Authorized
Service Provider (AASP) when necessary; and
+ Have and comply with the then-current Authorized Apple Retailer Sales
Agreement in effect between Apple and Retailer.
14
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE DIRECT VALUE ADDED RESELLER
DEFINITIONS
"Authorized Apple Direct Value Added Reseller" and/or "Direct VAR" - a value
added reseller that meets Apple's Direct VAR Criteria and is approved in writing
by Apple.
"Direct VAR Criteria" - the minimum requirements listed below with which a
Direct VAR must comply:
+ Develop custom and/or proprietary software and/or hardware for Apple products;
+r provide demonstrated integration expertise on Apple products within a target
vertical market as determined by Apple in its sole discretion;
+ Provide installation, training and on-going support for the value added
solution;
+ Offer end-user service directly as an Apple Authorized Service Provider; and
+ Purchase at least the minimum quantity of Apple Product in the appropriate
time period as established by Apple; and
+ Have and comply with the then-current Direct Value Added Reseller U.S. Sales
Agreement in effect between Apple and Direct VAR.
15
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE CATALOG RESELLER
DEFINITIONS
"Authorized Apple Catalog Reseller" and/or "Catalog Reseller" - a reseller that
meets Apple's Catalog Reseller Criteria and is approved in writing by Apple.
"Catalog Reseller Criteria" - the minimum requirements listed below with which a
Catalog Reseller must comply:
+ Publish and nationally or regionally distribute a catalog at least quarterly;
+ Produce a high quality catalog in which four-color photographs of Apple
Products are prominently displayed and that recreates the experience a customer
might have in a storefront location or face-to-face interaction;
+ Maintain 7 day/24 hour customer sales and support call center;
+ Allow purchasers to order Apple products via a toll-free telephone number,
seven days a week, 24 hours a day;
+ Maintain direct response systems infrastructure to support telesales and
reporting requirements and requests;
+ Sell at least $10 million in Apple Product annually via the catalog channel;
+ Establish service provider capabilities that meet the needs of all customers
and that fulfill the terms of the applicable service provider agreement between
Apple and Catalog Reseller; and
+ Have and comply with the then-current Authorized Apple Catalog Reseller U.S.
Sales Agreement in effect between Apple and Catalog Reseller.
16
<PAGE>
APPLE RESELLER PROGRAM ATTACHMENT
AUTHORIZED APPLE ELECTRONIC RESELLER
DEFINITIONS
"Authorized Apple Electronic Reseller" and/or "Electronic Reseller" - a reseller
that meets Apple's Electronic Reseller Criteria and is approved in writing by
Apple.
"Electronic Reseller Criteria" - the minimum requirements listed below with
which an Electronic Reseller must comply:
+ Operate one or more electronic commerce Web sites (electronic stores) on the
Worldwide Web which recreate the 'in-store' customer experience;
+ Maintain secure, reliable product fulfillment infrastructure;
+ Sell a minimum of $10 million per year in total Apple products through
electronic store(s), paper catalog(s), and/or storefronts/non-storefronts (based
+n purchases from Apple and Apple-authorized wholesalers);
+ Report (for resellers purchasing product directly from Apple) weekly
sell-through and inventory via Electronic Data Interchange {EDI});
+ Offer at a minimum 6-day, 12-hour customer sales support via telephone and/or
Internet phone/chat/e-mail real-time response;
+ Maintain MIS infrastructure to support Web sales and reporting requirements
via a suite of Electronic Commerce applications;
+ Maintain adequate, knowledgeable support infrastructure for end users and
Apple employees;
+ Perform or facilitate specific product repairs in accordance with the terms
and conditions set forth in the Apple Authorized Service Provider (AASP) Program
+n all products the Electronic Resellers are authorized to sell; and
+ Have and comply with the then-current Authorized Apple Electronic Reseller
U.S. Sales Agreement in effect between Apple and Electronic Reseller.
17
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED DISTRIBUTORS
SIGNATURE PAGE
ICN # TBD
LEGAL BUSINESS NAME Pinacor
ADDRESS 3001 South Priest Drive
CITY, STATE, ZIP Tempe, AZ 85282-3492
PHONE, FAX# 800-PINACOR, 602/366-2323
DBA(s) n/a
E-MAIL/INTERNET ADDRESS pinacor.com
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
<TABLE>
<S> <C>
AGREEMENTS: APPLICATIONS:
X HP Reseller Business Terms U.S. Authorized Reseller
- --- ---
X U.S. Distributor Agreement U.S. International VAR Application
- --- ---
X U.S. Reseller Agreement
- --- EXHIBITS:
X EXHIBIT L Approved Locations
ADDENDA: ---
U.S. CAD/Specialty Product Distributor EXHIBIT UD Calculator Distributor Products
- --- ---
X U.S. Personal Computing TopValue Program X EXHIBIT U20D Full Line Volume Products
- --- ---
U.S. GSA Agent EXHIBIT U25D Volume Mass Storage Distributor Products
- --- ---
U.S. Solutions Reseller Certification EXHIBIT U27D Volume Personal Computing Products
- --- ---
U.S. Solutions-UNIX Products X EXHIBIT U40A Volume Accessory Products
- --- ---
U.S. Solutions-MPE Products X EXHIBIT U40C Volume Consumable Products
- --- ---
U.S. Solutions-Openview IT Service Management X EXHIBIT U74D PC TopValue Program Products
- --- and Electronic Business Software ---
EXHIBIT U80D Volume CAD/Specialty Distributor Products
U.S. Solutions Distributor ---
- --- EXHIBITA2Tl2 System Printer Consumables
X U.S. Volume Distributor ---
- --- EXHIBIT A2T20 HP-UX Server Products
U.S. Federal Distributor ---
- --- EXHIBIT A2T21 Unbundled HP-UX Server Products
U.S. Calculator Distributor ---
- --- EXHIBIT A2T22 HP-UX Workstation Products
HP Configuration Tools License ---
- --- EXHIBIT A2T23 Unbundled HP-UX Workstation Products
HP Software License Terms ---
- --- EXHIBIT A2T24 Enterprise Storage Products
U.S. Software License-MPE Products ---
- --- EXHIBIT A2T25 Other Peripheral and HP-UX Related Product
HP System Support Options ---
- --- EXHIBIT A2T26 HP Openview NT Solutions
HP Unbundling Program ---
- --- EXHIBIT A2T27 HP Openview IT Service Management and
U.S. Volume Reseller --- and Electronic Business Software
- ---
EXHIBIT A2T28 MPE Multiuser Products
AMENDMENTS: ---
U.S. International VAR EXHIBIT E81PL HP Unbundling Program Products
- --- ---
ATTACHMENTS:
X HP Operations Policy Manual
---
X HP Product Categories
---
X Distributor Matrix
---
</TABLE>
================================================================================
EXHIBIT ELECTION
HP and Distributor agree that its volume level, at Net Distributor price, for HP
Products on the Exhibit(s)/Program(s) noted for the term of this Agreement is:
<TABLE>
<S> <C>
Full Line Volume Distributor / U20D Volume PC and Networking Distributor/ U27D
X $200,000,000 - and up $10,000,000 - and up
--- ---
Volume Mass Storage Products Distributor/U25D Federal Distributor
$10,000,000 - and up $15,000,000 - and up
--- ---
Solutions Distributor Volume CAD/Speciality Distributor / U80D
$50,000,000 - and up $50,000,000 - and up
--- ---
Calculator Distributor / UD
$1,000,000 - and up
---
</TABLE>
================================================================================
<PAGE>
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED DISTRIBUTORS
SIGNATURE PAGE
ICN # 829
LEGAL BUSINESS NAME MICROAGE COMPUTER CENTERS INC
ADDRESS 2400 SOUTH MICROAGE WAY
CITY, STATE, ZIP Tempe, AZ 85282-1896
PHONE, FAX# (602) 804-2000
DBA(s)
E-MAIL/INTERNET ADDRESS
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
<TABLE>
<S> <C>
AGREEMENTS: EXHIBITS:
X HP Reseller Business Terms X EXHIBIT L Approved Locations
- --- ---
X U.S. Distributor Agreement X EXHIBIT UD Calculator Distributor Products
- --- ---
X U.S. Reseller Agreement X EXHIBIT U20D Full Line Volume Products
- --- ---
EXHIBIT U25D Volume Mass Storage Distributor Products
ADDENDA: ---
U.S. CAD/Specialty Product Distributor EXHIBIT U27D Volume Personal Computing Products
- --- ---
U.S. Personal Computing TopValue Program X EXHIBIT U40A Volume Accessory Products
- --- ---
X U.S. GSA Agent X EXHIBIT U40C Volume Consumable Products
- --- ---
U.S. Solutions Reseller Certification EXHIBIT U74D PC TopValue Program Products
- --- ---
U.S. Solutions-UNIX Products EXHIBIT U80D Volume CAD/Specialty Distributor Products
- --- ---
U.S. Solutions-MPE Products EXHIBITA2Tl2 System Printer Consumables
- --- ---
U.S. Solutions-Openview IT Service Management EXHIBIT A2T20 HP-UX Server Products
- --- and Electronic Business Software ---
EXHIBIT A2T21 Unbundled HP-UX Server Products
U.S. Solutions Distributor ---
- --- EXHIBIT A2T22 HP-UX Workstation Products
X U.S. Volume Distributor ---
- --- EXHIBIT A2T23 Unbundled HP-UX Workstation Products
X U.S. Federal Distributor ---
- --- EXHIBIT A2T24 Enterprise Storage Products
X U.S. Calculator Distributor ---
- --- EXHIBIT A2T25 Other Peripheral and HP-UX Related Product
HP Configuration Tools License ---
- --- EXHIBIT A2T26 HP Openview NT Solutions
HP Software License Terms ---
- --- EXHIBIT A2T27 HP Openview IT Service Management and
U.S. Software License-MPE Products --- and Electronic Business Software
- ---
HP System Support Options EXHIBIT A2T28 MPE Multiuser Products
- --- ---
HP Unbundling Program EXHIBIT E81PL HP Unbundling Program Products
- --- ---
U.S. Volume Reseller
- --- ATTACHMENTS:
X HP Operations Policy Manual
AMENDMENTS: ---
X U.S. International VAR X HP Product Categories
- --- ---
X Distributor Matrix
APPLICATIONS: ---
U.S. Authorized Reseller
- ---
U.S. International VAR Application
- ---
</TABLE>
================================================================================
EXHIBIT ELECTION
HP and Distributor agree that its volume level, at Net Distributor price, for HP
Products on the Exhibit(s)/Program(s) noted for the term of this Agreement is:
<TABLE>
<S> <C>
Full Line Volume Distributor / U20D Volume PC and Networking Distributor/ U27D
$200,000,000 - and up $10,000,000 - and up
--- ---
Volume Mass Storage Products Distributor/U25D Federal Distributor
$10,000,000 - and up $15,000,000 - and up
--- ---
Solutions Distributor Volume CAD/Speciality Distributor / U80D
$50,000,000 - and up $50,000,000 - and up
--- ---
Calculator Distributor / UD
$1,000,000 - and up
---
</TABLE>
================================================================================
<PAGE>
STATEMENT OF OWNERSHIP:
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
For a Corporation, specify whether: Publicly Held: X Privately Held: State
of Incorporation/Organization: DELAWARE
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
<TABLE>
<S> <C> <C>
o Sole Proprietor: Identify all owners, officers and ownership percentages held
o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust
o Partnership: Identify all General Partners, Limited Partners, Officers and
ownership percentages held
Specify dollar investment of limited partners
o Privately Held Corporation: Identify all shareholders with class and percentage ownership,
Officers and Board of Director Members
o Publicly Held Corporation Identify owners of 20% or more of each class of shares with
class and percentage ownership, Officers and Board of
Director Members
</TABLE>
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership (Dollar Type of Ownership Interest
Investment in Limited (Assets, Common or
Partners) Preferred Shares)
<S> <C> <C> <C>
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:
- --------------------------------------------------------------------------------
Parent/Owner, including DBA(s)
- --------------------------------------------------------------------------------
Address
( )
- --------------------------------------------------------------------------------
City State Zip Telephone
( )
- --------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
/s/ Don Lyons /s/ Susan Weatherman
- --------------------------------- ------------------------------------
Authorized Signature Susan Weatherman
Reseller Contracts & Negotiation Manager
DON LYONS
- ---------------------------------
Typed Name
GROUP VP - PRODUCT MGMT 4-1-98 March 31, 1999
- --------------------------------- -------------- ---------------
Title Effective Date Expiration Date
<PAGE>
[MICROAGE LETTERHEAD]
March 24, 1998
Sue Weatherman
Reseller Contracts & Negotiation Manager
Hewlett-Packard Company
5301 Stevens Creek Boulevard
Santa Clara, CA 95052-8059
Dear Sue:
The purpose of this letter is to modify the Hewlett-Packard Reseller Business
Terms, and the Hewlett-Packard US Distributor Agreement between Hewlett-Packard
and MicroAge Computer Centers, Inc. By agreeing to the changes below and signing
and returning this document, the Agreement will be modified accordingly.
RESELLER BUSINESS TERMS
Section 3A3 STATUS CHANGE
Reword to state "Reseller will notify HP in writing, prior to the
intended date of change, unless otherwise restricted by law."
Section 4B RELATIONSHIP
Add to the end of last sentence "unless expressly permitted by an HP
authorized representative in writing in advance."
Section 6G ORDERS AND DELIVERY
Reword to read "Neither party will be responsible for failure or delay
in performance due to circumstances beyond its reasonable control, such
as labor disputes, natural disaster, shortage of or inability to obtain
labor, energy, and materials, war, riot, embargo, fire, or any other
act or condition beyond the reasonable control of the non-performing
party. Notwithstanding, nothing stated in this section shall relieve
Reseller from paying HP."
Section 15A Limitation of Liability and Remedies
Delete last sentence.
US DISTRIBUTOR AGREEMENT
Section 8D PAYMENT
Delete.
<PAGE>
I hereby agree to the changes to the Hewlett-Packard Reseller Business Terms,
and the Hewlett-Packard US Distributor Agreement between Hewlett-Packard and
MicroAge Computer Centers, Inc.
HEWLETT-PACKARD COMPANY MICROAGE COMPUTER CENTERS, INC.
Signature: /s/ Susan Weatherman Signature: /s/ Don Lyons
Printed Name: SUSAN WEATHERMAN Printed Name: DON LYONS
Title: Reseller Contract Mgr. Title: Group VP - Product Mgmt.
Date: 4-1-98 Date: 3/24/98
<PAGE>
HP RESELLER BUSINESS TERMS
TABLE OF CONTENTS
1. DEFINITIONS
2. APPOINTMENT
3. STATUS CHANGE
4. RELATIONSHIP
5. PRICES
6. ORDERS AND DELIVERY
7. PAYMENT
8. WARRANTY
9. PRODUCT MODIFICATION
10. SUPPORT
11. SOFTWARE
12. TRADEMARKS
13. INTELLECTUAL PROPERTY PROTECTION
14. CONFIDENTIALITY
15. LIMITATION OF LIABILITY AND REMEDIES
16. RECORD-KEEPING AND AUDIT
17. CHANGES AND AMENDMENTS
18. TERM AND TERMINATION
19. POLICIES AND PROGRAMS
20. GENERAL
<PAGE>
HP RESELLER BUSINESS TERMS
HEWLETT-PACKARD COMPANY ("HP") and (COMPANY NAME) ("Reseller") agree as follows:
1. DEFINITIONS
A. "Agreement" means the Signature Page containing the signatures of HP
and Reseller, these HP Reseller Business Terms, any attached
Agreement, Product Exhibits, Addenda, Product Categories, and the
applicable OPM.
B. "Delivery" means standard HP shipping to and arrival at the receiving
area at the "Ship To" address in the country where Resellees order is
placed, unless otherwise indicated on the quotation.
C. "Exhibits" are documents attached to, incorporated by reference in,
or added to this Agreement at a later date which describe the
Reseller relationship, Products, Support, marketing programs or other
business terms. "Product Exhibits" and "Product Categories" refer to
the Products available for purchase under this Agreement. "Addenda"
refer to particular Reseller relationships, Support offerings and
marketing programs.
D. "Operations Policy Manual" (OPM) is a document which further
describes the specific relationship and obligations between HP and
Reseller under this Agreement.
E. "Net Reseller Price" for Products purchased under this Agreement
means the HP List Price in effect at the time an order from Reseller
is received by HP, less the applicable discounts based on Resellers
volume, other commitments or elections specified in Exhibits and this
Agreement.
F. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that HP authorizes Reseller to purchase
or license under this Agreement and that are determined by HP to be
available from HP upon receipt of Resellees order. "Custom Products"
means Products modified, designed or manufactured to meet Reseller or
end-user customer requirements.
G. "Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software
is either a separate Product, included with another Product ("Bundled
Software), or fixed in a Device and not removable in normal operation
("Firmware").
H. "Specifications" means specific technical information about HP
Products which is published in HP Product manuals and technical data
sheets in effect on the date HP ships Resellers order.
I. "Support" means hardware maintenance and repair; Software updates and
maintenance; training; and other standard Support services provided
by HP. "Custom Support" means any agreed non-standard Support,
including consulting and custom project services.
2. APPOINTMENT
A. HP appoints Reseller as an authorized, non-exclusive Reseller for the
purchase and resale or sublicense of Products subject to the terms
and conditions of this Agreement.
B. The nature and scope of Resellers authorization, including any
geographic, vertical market or other restrictions, are mainly
detailed in the attached Agreement, and Addenda. The Products covered
by Resellees authorization, including any discounts and commitment
levels, are detailed in the attached
<PAGE>
Product Exhibits and Product Categories. Other policies, procedures,
terms and conditions applicable to this Agreement are contained in
the OPM.
C. Reseller accepts appointment on these terms and conditions.
3. STATUS CHANGE
A. If Reseller wishes to:
1. Change its name;
2. Add, close or change an HP-approved shipment, delivery or other
HP-authorized location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls 25% or
more of Resellers capital stock or assets after such
transaction, or assumes management of Reseller operations; then
Reseller will notify HP in writing at least ten (10) working
days prior to the intended date of change and provide HP all
information and documents requested by HP for the purpose of
evaluating such status change.
B. HP will promptly notify Reseller of its consent to the continuation
of Resellees authorization following such a change in status,
provided that HP may terminate this Agreement immediately upon notice
in the event HP does not consent to such change Pending HP's
notification, HP will have no obligation to perform under this
Agreement.
4. RELATIONSHIP
A. Reseller and HP are independent contractors for purposes of this
Agreement. This Agreement does not establish a franchise, joint
venture or partnership, or create any relationship of employer and
employee, master and servant, or principal and agent between the
parties.
B. Neither party will have, nor represent that it has, any power, right,
or authority to bind the other party, or to assume or create any
obligation or responsibility, express or implied, on behalf of the
other party without such other party's express written consent
Reseller acknowledges that any commitment made by Reseller to its
customers with respect to price, quantities, delivery,
specifications, warranties, modifications, interfacing capability or
suitability will be Resellees sole responsibility, and Reseller will
indemnify HP from liability for any such commitment by Reseller.
C. This Agreement applies only to the Products listed on the Product
Exhibits, and the relationship between the parties is non-exclusive.
Reseller acknowledges that HP may market other products, including
products in competition with those listed on the Product Exhibits,
without making them available to Reseller. HP acknowledges that
Reseller may market other products, including those in competition
with those listed on the Product Exhibits. Each party reserves the
right to advertise, promote and sell any product, including Products
listed on the Product Exhibits, in competition with the other party.
D. HP will not be deemed a party to any agreement between Reseller and
any subsequent purchaser or licensee.
<PAGE>
5. PRICES
A. Net Reseller Price includes shipment arranged by HP according to HP
standard commercial practice. HP reserves the right to charge
Reseller for any special routing, packing, handling or insurance
requested by Reseller and agreed to by HP. Orders shipped under
special routing instructions must be separately agreed upon and may
be subject to additional charges.
B. Prices are exclusive of, and Reseller will pay, applicable sales,
use, service, value added or like taxes, unless Reseller has provided
HP with an appropriate exemption certificate for the Delivery
jurisdiction, or HP agrees the transaction is otherwise exempt.
C. HP reserves the right to change prices and discounts upon reasonable
notice or as specified in Exhibits or the OPM. If Reseller is unsure
of the List Price to use in calculating Net Reseller Price for any
Product, Reseller should contact its HP sales representative or
relationship manager.
D. List prices are suggested prices for resale to end-user customers and
a basis for calculating Net Reseller Price. Reseller has the right to
determine its own resale prices, and no HP representative will
require that any particular resale price be charged by Reseller or
grant or withhold any benefits to Reseller based on Resellees resale
pricing policies. Reseller agrees that it will promptly report any
effort by HP personnel to interfere with its pricing policies
directly to an HP officer or senior sales manager.
E. Upon request from Reseller, HP may at its discretion grant special
pricing for particular end-user customer transactions. In good faith
HP may retract the special pricing at any time before acceptance by
the end-user customer. HP may extend the pricing on an exclusive or
non-exclusive basis and may condition the pricing on a pass-through
of all or part of the non-standard offering extended by HP.
F. HP may, from time to time, offer Reseller certain Products on special
promotional terms and conditions. All such offerings may be subject
to pricing or discounts different from those provided for in this
Agreement. Such offerings may not, in some cases, apply towards
Resellees volume or other commitments, and may not be eligible for
other standard benefits, including but not limited to promotional
allowance funds, price protection or stock adjustments.
6. ORDERS AND DELIVERY
A. HP will honor written orders from Reseller unless other methods are
agreed upon in writing. Resellees orders must reference this
Agreement and comply with the minimum order, release, destination
("Shipment" address) and other requirements specified in Addenda,
Exhibits and/or the OPM. Orders must also specify Delivery dates
within periods specified in the OPM.
B. Reseller will issue orders from approved locations within its
organization and will specify HP authorized "Ship To" addresses
within the country where the order is placed, unless otherwise
agreed. Reseller is responsible for ensuring that only authorized
employees place, change or delete orders and that the orders conform
to all requirements of this Agreement.
C. All orders are subject to acceptance by HP.
D. Delivery is subject to Product availability at the time Resellees
order is received. HP will make every reasonable effort to meet
delivery dates quoted or acknowledged. If Products are in short
supply, HP will allocate them at HP's discretion.
E. Title to hardware Products and risk of loss and damage for any
Product will pass to Reseller at destination, provided that if
Products are shipped under Reseller's shipping instructions, title
and risk of loss and damage will pass to Reseller at HP's shipping
dock.
<PAGE>
F. Transactions may be conducted through Electronic Data Interchange
("EDI") or other electronic methods, as agreed.
G. HP will not be liable for performance delays or for non-performance,
due to causes beyond its reasonable control.
7. PAYMENT
A. Reseller will pay invoices within thirty (30) days from the date of
HP's invoice. HP reserves the right to specify payment in advance or
other payment terms for credit reasons, or when Resellees financial
condition or relationship with HP so warrants, with respect to any
new or unshipped orders.
B. If Reseller fails to pay any sum when due or fails to perform under
this or any other agreement with HP after ten (10) days written
notice, HP may discontinue performance under this or any other
agreement between HP and Reseller.
C. Any Reseller claim for adjustment of an invoice is deemed to be
waived if Reseller fails to present such claim within ninety ( 90)
days from the date of the invoice. No claims, credits, or offsets may
be deducted from any invoice.
8. WARRANTY
Product warranty terms, conditions, exceptions, exclusions and disclaimers
are contained in the OPM, Exhibits and where applicable with Products.
9. PRODUCT MODIFICATION
A. HP reserves the right to make changes in the design or Specifications
of Products.
B. Reseller is responsible for any modification it makes to Products or
for any commitment made with respect to special interfacing,
compatibility or suitability of Products for specific applications.
C. If HP believes Resellees modifications may have an adverse effect on
Product support, marketing and technical specifications, HP reserves
the right to modify this Agreement.
10. SUPPORT
Reseller may be eligible to participate in HP Support programs. Support
terms and conditions are contained in the OPM and/or Exhibits, and Program
guides which may be supplied separate from this agreement.
11. SOFTWARE
Software distribution rights and license terms are contained in the OPM
and/or Exhibits, and where applicable with Products.
12. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks, logo types, trade names and insignia ("HP
Marks"). Reseller may display HP Marks solely to promote Products.
Any display of HP Marks must be in good taste, in a manner that
preserves their value as HP Marks, and in accordance with standards
provided by HP for their display. Reseller will not use any name or
symbol in a way which may imply that Reseller is an agency or branch
of HP; Reseller will discontinue any such use of a name or mark as
requested by HP. Any rights or purported rights in any HP trademarks
acquired through Resellees use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty free right to display
Resellees trademarks in advertising and promotional material solely
for directing prospective purchasers of Products to Resellers selling
locations. Any display of the trademarks must be in good tame, in a
manner that preserves their value as Resellers trademarks, and in
accordance with standards provided by Reseller for their display. Any
rights or purported
<PAGE>
rights in any Reseller trademarks acquired through HP's use belong
solely to Reseller.
13. INTELLECTUAL PROPERTY PROTECTION
A. HP will defend or settle any claim against Reseller, (or enduser
customer, or third parties to whom Reseller is authorized by HP to
resell or sublicense), that Products or Support (excluding Custom
Products and Custom Support), delivered under this Agreement infringe
a patent, utility model, industrial design, copyright, trade secret,
mask work or trademark in the country where. Products are used, sold
or receive Support, provided Reseller.
1. promptly notifies HP in writing; and
2. cooperates with HP in, and grants HP sole control of the
defense or settlement.
B. HP will pay infringement claim defense costs, settlement amounts and
court-awarded damages. If such a claim appears likely, HP may modify
the Product, procure any necessary license, or replace it. If HP
determines that none of these alternatives is reasonably available,
HP will refund Resellees purchase price upon return of the Product if
within (1) one year of Delivery, or the Products net book value
thereafter.
C. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with Resellers designs, specifications or
instructions;
2. HP's use of technical information or technology provided by
Reseller
3. Product modifications by Reseller or a third party;
4. Product use prohibited by Specifications or related application
notes; or
5. Use of the Product with products not supplied by HP.
D. These terms state HP's entire liability to Reseller and its customers
for claims of intellectual property infringement.
14. CONFIDENTIALITY
A. In the event that confidential information is exchanged, each party
will protect the confidential information of the other in the same
manner in which it protects its own like proprietary, confidential,
and trade secret information. If the party claiming the benefit of
the provision furnishes such information in writing and marks such
information as "Confidential" or if such information is provided
orally, then the transmitting party ("Discloser") will confirm in
writing to the receiving party ("Recipient") that it is confidential
within thirty (30) days of its communication. Such information will
remain confidential for three (3) years after the date of disclosure.
B. This Section imposes no obligation upon a Recipient with respect to
confidential information which (a) was in the Recipient's possession
before the Disclosure; (b) is or becomes a matter of public knowledge
through no fault of the Recipient; (c) is rightfully received by the
Recipient from a third party without a duty of confidentiality; (d)
is disclosed by the Discloser to a third party without a duty of
confidentiality on the third party; (e) is independently developed by
the Recipient; (o is disclosed under operation of law, or (g) is
disclosed by the Recipient with the Discloser's prior written
approval.
15. LIMITATION OF LIABILITY AND REMEDIES
A. Products are not specifically designed, manufactured or intended for
sale as parts, components or assemblies for the planning,
construction, maintenance, or direct operation of a nuclear facility.
Reseller is solely liable if Products or Support
<PAGE>
purchased by Reseller are used for these applications. Reseller will
indemnify and hold HP harmless from all loss, damage, expense or
liability in connection with such use.
B. To the extent HP is held legally liable to Reseller , HP's liability
is limited to:
1. Payments arising from warranty claims and as described in
Section 13 above;
2. Damages for bodily injury;
3. Direct damages to tangible property up to a limit of U.S.
$1,000,000; and
4. Other direct damages for any claim based on a material breach
of Support services, up to a maximum of twelve (12) months of
the related Support charges paid by Reseller during the period
of material breach.
C. Notwithstanding Section 15 B above, in no event will HP or its
subsidiaries, affiliates, subcontractors or suppliers be liable for
any of the following:
1. Actual loss or direct damage that is not listed in Section 15 B
above;
2. Damages for loss of data, or software restoration;
3. Damages relating to Resellers procurement of substitute
products or services (i.e., "cost of cover"); or
4. Incidental, special or consequential damages (including
downtime costs or lost profits).
D. THE REMEDIES IN THIS AGREEMENT ARE RESELLER'S SOLE AND EXCLUSIVE
REMEDIES.
16. RECORD-KEEPING AND AUDIT
A. For purposes such as Product safety notification, operational problem
correction and contract compliance, Reseller will maintain records of
second-tier reseller and/or customer purchases, which at a minimum
must include such purchasees name, address, phone number, date of
sale, Product numbers, quantities, serial numbers, and shipment
address.
B. HP may, from time to time, give notice to Reseller of its intention
to verify and audit Resellers compliance with this Agreement or with
related marketing program terms and conditions. The auditor will be
given prompt access, either on-site or through other means, to
Resellees customer, inventory or other records.
C. Further record-keeping and audit requirements may be contained in
Agreement, Addenda and/or the OPM.
17. CHANGES AND AMENDMENTS
A. From time to time, HP may add Products to or delete them from Product
Exhibits; obsolete Products; change List Prices or discounts;
implement or change HP policies or programs; or otherwise amend this
Agreement at HP's discretion, after reasonable notice to Reseller in
writing.
B. Any amendment will automatically become a part of this Agreement on
the effective date specified in the notice, unless Reseller provides
HP with written notice of its objection to such amendment within
fifteen (15) days of Resellers receipt of the notice. If agreement to
the Amendment is not reached by both HP and Reseller within thirty
(30) days after HP's receipt of Resellers objection, either party may
terminate this Agreement.
C. Each party agrees that the other has made no commitments regarding
the duration or renewal of this Agreement beyond those expressly
stated in this Agreement.
<PAGE>
18. TERM AND TERMINATION
A. Subject to applicable law, either party may terminate this Agreement
without cause at any time upon sixty (60) days' written notice or
with cause at any time upon thirty (30) days' written notice to the
other party. Unless earlier terminated as provided herein, this
Agreement will expire on March 31, 1999, but will continue to apply
to orders previously accepted by HP.
B. If either party becomes insolvent, is unable to pay its debts when
due, files for bankruptcy, is the subject of involuntary bankruptcy,
has a receiver appointed, or has its assets assigned, the other party
may terminate this Agreement without notice and may cancel any
unfulfilled obligations.
C. If either party gives the other notice of termination or advises the
other of its intent not to renew this Agreement, HP may require that
Reseller pay cash in advance for additional shipments until the
remaining term, regardless of Resellers previous credit status, and
may withhold all such shipments until Reseller pays its outstanding
balance.
D. Upon termination or expiration, Reseller will immediately cease to be
an authorized HP Reseller and will refrain from representing itself
as such and from using any HP trademark or name. Authorization of
Reseller and its Authorized Resellers to use any HP Mark will cease
upon such termination or expiration.
E. Upon any termination or expiration, HP may require that Reseller
return, against outstanding balance or for repurchase, any HP
Products purchased under this Agreement on HP's then current Product
Exhibits, which are in their unopened, original packaging and
marketable as new merchandise.
The repurchase price shall be the lower of either the Net Reseller
Price on the date of termination or expiration or Resellees original
purchase price, in each case less any promotional or other discounts
or price protection or other credits extended by HP to Reseller for
the HP Product. Reseller should contact its HP sales representative
for information about the items eligible for repurchase and
instructions for their return at HP's expense.
F. Upon termination or expiration, all rights to any accrued HP
promotional allowance funds and HP promotional services will
automatically lapse.
G. All obligations concerning outstanding transactions, warranties,
Support, software, intellectual property protection, limitations of
liability and remedies, confidentiality, and the general terms and
conditions will survive termination or expiration, except that the
provisions for confidentiality and Support will survive only through
the periods set forth in this Agreement
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and promotional or
other marketing programs, including but not limited to programs involving
promotional allowances, product demonstration and development unit
purchases, and Support. Participation in such programs will be subject to
the then current terms and conditions of those programs.
20. GENERAL
A. Neither party may assign or transfer any rights or obligations
hereunder without prior written consent of the other party provided
that HP may assign or transfer all such rights and obligations to
other HP entities, and the right to receive payments to third
parties, without consent.
B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.
<PAGE>
C. Reseller will conduct all its activities relating to its business
with HP in accordance with the highest standards of ethics and
fairness as well as compliance with applicable law. HP may suspend
performance of this Agreement if Reseller fails to do so.
D. Reseller who is expressly authorized by HP in writing to export,
re-export or import Products, technology or technical data purchased
hereunder, assumes responsibility for complying with applicable laws
and regulations and for obtaining required export and import
authorizations. HP may suspend performance if Reseller is in
violation of any applicable laws or regulations.
E. This Agreement will be governed by the laws of the State of
California.
F. To the extent that any provision of this Agreement is determined to
be illegal or unenforceable in a particular country, the remainder of
the Agreement will remain in full force and effect. The offending
provision will be deemed amended by the parties so as to make it
enforceable and to the extent possible, have consequences which are
substantially the same as what was intended by the parties.
G. The United Nations Convention on Contracts for the International Sale
of Goods will not apply to this Agreement or to transactions
processed under this Agreement.
H. All notices that are required under this Agreement and OPM will be in
writing and will be considered given as of twenty-four (24) hours
after sending by electronic means, facsimile transmission, overnight
courier, or hand delivery, or as of five (5) days of certified
mailing and appropriately addressed to 5301 Stevens Creek Boulevard,
Santa Clara, CA 95052-8059, M/S 54UHC.
I. This Agreement constitutes the entire understanding between HP and
Reseller, and supersedes any previous communications, representations
or agreements between the parties, whether oral or written, regarding
transactions hereunder. Resellees additional or different terms and
conditions will not apply. Except as provided in Section 17 above, no
modification of this Agreement will be binding on either party unless
made in writing and signed by both parties.
J. In the event of a conflict, the following order of precedence will
apply: Agreement, OPM Agreement and Addenda, Product Exhibits , HP
Reseller Business Terms.
<PAGE>
U.S. DISTRIBUTOR AGREEMENT
TABLE OF CONTENTS
1. APPOINTMENT
2. INTENTIONALLY OMITTED
3. DISTRIBUTOR RESPONSIBILITIES
4. MULTIPLE AGREEMENT DISCOUNTS
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. PRICES
8. PAYMENT
9. ORDERS AND DELIVERY
10. INTENTIONALLY OMITTED
11. INTENTIONALLY OMITTED
12. INTENTIONALLY OMITTED
13. INTENTIONALLY OMITTED
14. INTENTIONALLY OMITTED
15. RECORD-KEEPING AND AUDIT
16. INTENTIONALLY OMITTED
17. INTENTIONALLY OMITTED
18. INTENTIONALLY OMITTED
19. INTENTIONALLY OMITTED
20. INTENTIONALLY OMITTED
21. U.S. GOVERNMENT
22. INTENTIONALLY OMITTED
23. INTENTIONALLY OMITTED
24. INTENTIONALLY OMITTED
25. INTENTIONALLY OMITTED
26. INTERNATIONAL SALES
<PAGE>
U.S. DISTRIBUTORSHIP AGREEMENT
1. APPOINTMENT
In addition to the terms set forth in Section 2 of the HP Reseller
Business Terms, the following will apply:
A. HP appoints Reseller as an authorized, non-exclusive distributor
("Distributor") for marketing the Products listed on the Product
Exhibits and Product Categories.
B. Distributor is in the business of distributing Products to and
supporting selling locations owned and operated by resellers. These
resellers may be, depending upon their HP authorization, (i)
distributor authorized, solutions focused value-added resellers
("DARs"), or (ii) second-tier resellers (collectively, "Authorized
Resellers").
C. With respect to specific "Type One" Volume Products as defined in the
OPM, which HP may identify in the Product Exhibits or Product
Categories, HP may authorize Distributor to resell such Products to
(i) resellers which are not HP-authorized or (ii) or end-user
customers who are not purchasing for the purpose of resale
(collectively, "Customers"), as described more particularly in other
Exhibits.
D. Distributor desires to acquire Products as permitted by this
Agreement.
3. DISTRIBUTOR RESPONSIBILITIES
A. Distributor may sell Products only to those of its Authorized
Resellers and/or Customers who have been appointed by HP or as
permitted under this Agreement.
B. Distributor shall ensure that Authorized Resellers meet HP's
qualifications and comply with HPs terms and conditions for those
Authorized Resellers, and with Distributor's standard agreements and
business policies. Distributor also agrees to report violations of
HP's terms and conditions by Authorized Resellers to HP in a timely
manner, and to make its Authorized Reseller agreements available to
HP for review upon request.
C. Shipments of Products to non-Authorized Resellers, or to Authorized
Resellers who sell such Products in violation of HP's "Selling and
Sourcing Restrictions," eligibility criteria, qualifications, added
value requirements, or other limitations on Reseller activity as set
forth in this Agreement constitute a breach of this Agreement, and
may result in termination of this Agreement Distributor agrees to pay
to HP an amount equivalent to the discount received from HP for such
shipments.
D. HP may withdraw its permission for sales to a particular Authorized
Reseller(s), or to all Authorized Resellers, with or without cause,
at any time, by notifying Distributor and Distributors Authorized
Reseller(s) in writing. Upon receipt of such notice, Distributor will
immediately discontinue shipments of Products to the affected
Authorized Reseller(s).
E. Distributor agrees to:
1. Focus its activities on the marketing and sales of Products
identified in this Agreement by strictly conforming its
Authorized Reseller recruitment, marketing, and sales to a
mutually agreed marketing development plan signed by HP and
Distributor.
<PAGE>
2. Represent Products fairly to all Authorized Resellers and
Customers.
3. Forward promptly to Authorized Resellers and to Customers all
technical sales and promotional materials, suggested price
lists and other information provided by HP for the purpose of
reshipment to such Authorized Resellers and Customers.
4. Provide Authorized Resellers and Customers with any HP
ergonomics information, including, where applicable, HP Working
in Comfort materials (in paper and electronic form), any
warning or advisory tags, labels, or other information relating
to the use of Products containing keyboards.
5. Ensure that ongoing pre-sales support and post-sales technical
support for Products is provided to all Authorized Resellers
and Customers. Distributor agrees to maintain or make available
such qualified personnel as necessary to provide timely and
knowledgeable support services.
6. Provide or arrange for technical support relating to Products
to Authorized Resellers and Distributors own sales staff.
7. Ensure that no sale, advertising, promotion, display or
disclosure of any features, availability or pricing of any new
Product takes place before HP's public announcement of that
Product
8. Respond promptly to all end-user Customer inquiries or requests
related to HP Products.
9. Authorize HP's representatives to call on Authorized Resellers
and/or Customers for Product training and other objectives.
10. Report promptly to HP all suspected defects in HP Products.
11. Ensure that its employees complete any required training
courses designated by HP.
12. Confer periodically with HP at HP's request on matters relating
to market conditions, sales forecasting, and Product planning.
13. Provide Authorized Resellers with access to HP designated
service programs or to other HP approved service plans.
14. Comply with the HP Product Categories.
F. Distributor may advertise on a United States-wide basis on behalf of
itself and its Authorized Resellers.
G. Before the tenth day of each month, and through a process defined by
HP and Distributor, Distributor will send to HP a summary of any
changes in any Authorized Resellees address, phone number or
ownership.
<PAGE>
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of Products under
this Agreement and purchases under any other Addenda, or HP Agreement are
exclusive of each other for the purpose of calculating volume commitment
and discount levels.
7. PRICES
In addition to the terms set forth in Section 5 of the HP Reseller
Business Terms, the following will apply:
A. Nothing contained in this Agreement shall prevent an Authorized
Reseller or Customer from purchasing individually, on its own credit
and account, directly from HP should it elect to do so, but nothing
shall obligate HP to sell directly to any Customer.
8. PAYMENT
In addition to the terms set forth in Section 7 of the HP Reseller
Business Terms, the following will apply:
A. Distributor will furnish HP with copies of its financial reports,
including but not limited to Distributor's latest balance sheet,
profit and loss statement, and other pertinent financial information
as HP deems necessary to determine Distributors credit worthiness.
B. Upon request, HP will provide Distributor with invoice copies
accounting for sales of Products and services by HP to Distributor.
(Distributor shall have ninety (90) days from date of HP's invoice to
raise any questions or objections to this statement of account.)
C. In the event that Distributor and HP are unable to resolve any
questions or objections to the statement of Distributor's account or
invoice, Distributor may file suit against HP at any time up to one
(1) year after the date of invoice in question.
D. Distributor grants and HP reserves a purchase money security interest
in each Product purchased under this Agreement and in any proceeds
thereof for the amount of the purchase price from HP. Upon request by
HP, Distributor will sign any document required to perfect such
security interest. Payment in full of the purchase price of a Product
purchased will release the security interest in that Product.
9. ORDERS AND DELIVERY
In addition to the terms set forth in Section 6 of the HP Reseller
Business Terms, the following will apply:
A. HP will honor electronic, fax and telephone orders from Distributors
approved locations.
B. HP reserves the right to schedule and reschedule any order, at HP's
discretion, and to decline any order for credit reasons or because
the order specifies an unreasonably large quantity or makes an
unreasonable shipment request.
C. Distributor agrees to accept all deliveries of Products as scheduled.
If Distributor fails to accept a scheduled delivery, or takes any
action which delays or hinders HP's ability to meet any delivery
schedule, HP reserves the right to charge Distributor for any costs
resulting from such action, including return freight fees and
stocking charges. In addition, HP reserves the right to cancel any
order, the shipment of which Distributor refuses to accept or delays,
and to reallocate such order.
D. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date. When Products are in short supply,
<PAGE>
HP reserves the right to allocate Products equitably, at HP's
discretion.
E. HP may require Distributor and/or its Authorized Resellers to
separately need additional requirements to be eligible to sell
certain Products, as specified in this Agreement. HP will notify
Distributor of those Authorized Resellers eligible to resell the
Products. Distributor may not ship these Products to Authorized
Resellers who have not met the HP-defined criteria.
15. RECORDKEEPING AND AUDIT
In addition to the terms set forth in Section 16 of the HP Reseller
Business Terms, the following will apply:
A. HP may require Distributor to provide HP or HP's designate with
Product inventory, sales and order reports. These reports may require
information such as total units of selected Products sold and held in
all inventory, by month for each approved location in a format
specified by HP. HP may require monthly reports incorporating the
previous month's data for each approved location.
B. In addition, Distributor must comply with any reporting requirements
for HP marketing and promotional programs.
C. At HP's discretion and upon reasonable notice to Distributor, HP or
HP's designate will be given prompt access during normal business
hours, either on site, or through other means specified by HP, to
Distributor's customer records, inventory records and other books and
records of account specifically related to Products as HP believes
are reasonably necessary to verify and audit Distributor's compliance
with this Agreement.
D. Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement with thirty (30) day's notice without further cause.
E. HP may recover all reasonable actual costs associated with compliance
verification procedures from any promotional funds, rebate funds or
any other HP accrued funds due Distributor or, in the case of an
Authorized Reseller, from the reseller(s)' accrued promotional
marketing funds, rebate funds or any other HP accrued funds for the
reseller(s).
F. HP may debit Distributor for all wrongfully claimed discounts,
rebates, promotional allowances or other amounts determined as a
result of HP's audit.
G. HP may from time to time, send to Distributor a list of serial
numbers of designated Products for which HP tracks unauthorized
sales. Distributor agrees to identify to which Authorized Reseller or
Customer each serial number was shipped and to forward this
information to its HP representative within a period of not more than
twenty-one (21) days from the date of HP's notice.
H. HP may, from time to time, find it necessary to audit an Authorized
Reseller for the purpose of determining its compliance with the terms
and conditions of its HP authorization. HP will identify to
Distributor.
1. The Authorized Reseller (s) to be audited;
2. A list, by HP Product Number, of "designated products" of
concern;
3. The period of time the audit will cover; and
4. A deadline by which HP must receive associated sell-through
data from Distributor.
Distributor agrees to assist HP by providing HP within ten (10) days
from the date of HP's notice, a list of the quantities and
<PAGE>
serial numbers of "Designated Products" that have been shipped to
Authorized Reseller (s) during the audit period.
21. U.S. GOVERNMENT
A. Unless Distributor has obtained HP's prior written consent,
Distributor is prohibited from issuing any 'Letter of Supply', from
guaranteeing to supply, or from selling, supplying, or providing any
person with HP Product for resale under any GSA contract. Unless
Distributor has first received a Letter of Supply or other written
authorization from HP, Distributor is prohibited from listing, and
shall not list, Products on any GSA schedule or contract, or on any
procurement, schedule, or contract.
B. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically
accepted in writing and signed by both parties.
26. INTERNATIONAL SALES
Notwithstanding Section 20.D of the HP Reseller Business Terms, without
HPs prior written consent Distributor will not export Products outside the
U.S. nor will Distributor sell Products to any Authorized Reseller or
Customer for export outside the U.S. Upon written consent from HP,
Distributor may export Products, either directly or indirectly, provided
that Distributor first obtains a license from the United States Department
of Commerce or any other agency or department of the United States
government or the regulatory agency of any other Government, as required,
and provided that Distributor complies with all other obligations set
forth in Section 20.D of the HP Reseller Business Terms.
<PAGE>
U.S. RESELLER AGREEMENT
TABLE OF CONTENTS
1. APPOINTMENT
2. STATUS CHANGE
3. RESELLER RESPONSIBILITIES
4. MULTIPLE AGREEMENT DISCOUNTS
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. PRICES
8. INTENTIONALLY OMITTED
9. ORDERS AND DELIVERY
10. SOFTWARE
11. TRADEMARKS
12. INTENTIONALLY OMITTED
13. LIMITATION OF LIABILITY AND REMEDIES
14. INTELLECTUAL PROPERTY PROTECTION
15. RECORD-KEEPING AND AUDIT
16. CHANGES AND AMENDMENTS
17. TERM AND TERMINATION
18. RELATIONSHIP
19. POLICIES AND PROGRAMS
20. GENERAL
21. NUCLEAR APPLICATIONS
22. U.S. GOVERNMENT
23. CONFIDENTIALITY
24. NOTICES
25. RESELLER REPORTING
26. INTERNATIONAL SALES
<PAGE>
U.S. RESELLER AGREEMENT
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing the HP Products listed on the
Product Exhibits and sold by and purchased from an HP Authorized
Distributor.
B. Reseller's appointment is subject to the terms and conditions set
forth in this Agreement, Addenda, Product Exhibits and HP Product
Categories (collectively, the "Agreement") for the period from the
effective date through the expiration date of this Agreement.
Reseller accepts appointment on these terms.
C. This Agreement is intended as an addition and amendment to any other
terms and conditions of sale to which Reseller and Distributor may
have mutually agreed with regard to Distributor sale and Reseller
purchase of Products supplied by HP. If HP approved Distributor's
sale of these Products to Reseller, HP will be regarded as a
third-party beneficiary of the agreements and commitments made
herein.
2. STATUS CHANGE
A. Reseller's approved company names, including DBA(s) and selling
locations, are listed on the HP Exhibit L and are the only names and
selling locations under which Reseller may represent and sell HP
Products. If Reseller wishes to:
1. Change its name;
2. Add, close or change an approved shipment, delivery or other
HP-authorized location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls 25% or
more of Reseller's capital stock or assets after such
transaction; or
4. Undergo a significant change in control or management of
Reseller operations;
then Reseller shall notify HP in writing prior to the intended date
of change. In no event may such notice be provided more than ten (10)
days after the change has occurred.
B. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
information and documents reasonably requested by HP.
C. HP must approve proposed Reseller changes prior to any obligation of
HP to perform under this Agreement with Reseller as changed.
3. RESELLER RESPONSIBILITIES
A. Reseller agrees to:
1. Advertise, promote, demonstrate and sell HP Products only
within the geographies defined in this Agreement and, when
defined by the HP Product Categories, on a face-to-face basis.
2. Represent HP Products fairly to all Customers.
<PAGE>
3. Forward promptly to Customers all technical sales and
promotional materials, suggested price lists and other
information provided by HP for the purpose of reshipment to
Customers.
4. Provide Customers with any HP ergonomics information,
including, where applicable, HP WORKING IN COMFORT materials
(in paper and electronic form) and any warning or advisory
tags, labels, or other information relating to the use of HP
Products containing keyboards.
5. Ensure that ongoing pre-sales support and post-sales technical
support of HP Products and Reseller's value-added solutions is
provided to all Customers. Reseller agrees to maintain or make
available such qualified personnel as necessary to provide
timely and knowledgeable support services sufficient to ensure
a high level of Customer satisfaction.
6. Ensure that no sale, advertising, promotion, display, or
disclosure of any features, availability or price of any new HP
Product takes place before HP's public announcement of that
Product.
7. Respond promptly to all Customer inquiries or requests related
to HP Products.
8. Report promptly to HP all suspected defects in HP Products.
9. Ensure that its employees complete any required training
courses and certification designated by HP.
10. Confer periodically with HP at HP's request on matters relating
to market conditions, sales forecasting, and Product planning.
11. Use catalogs and telemarketing sales techniques only in
conformity with current HP policies and only as a complement to
face-to-face sales activity.
12. Identify and keep current a primary and secondary support
contact for both marketing communications and post-sales
technical support at each approved Selling Location.
13. Provide Customers with a written invoice stating the Customers
name and address, the date of purchase, and serial numbers, if
any, of HP Products. Reseller will retain such records, or
their equivalent, to enable Reseller to notify Customers of
Product safety information, corrections for operational
problems, and the like.
B. Reseller may advertise only those HP Products which it is authorized
to sell. Reseller's advertising may in no way mention Reseller as an
authorized reseller for any other HP Product.
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products
under any HP Product Exhibit in this Agreement and purchases under any
other HP Product Exhibits in this or any other HP Agreement are exclusive
of each other for the purpose of calculating volume commitment and
discount levels.
7. PRICES
Upon request from Reseller, at its discretion, HP may grant special
pricing for particular end-user Customer transactions. In good faith, HP
may retract the special pricing any time before acceptance by
<PAGE>
the end-user Customer. HP may extend the pricing on an exclusive or
non-exclusive basis and may condition the pricing on a pass-through to the
end-user of all or part of the non-standard offering extended by HP.
9. ORDERS AND DELIVERY
HP may, from time to time, offer Reseller certain HP Products on special
promotional terms. Such purchases may not, in some cases, be eligible for
promotional allowance funds, price protection or stock adjustments. With
these exceptions, Reseller's purchases in response to these special
promotional offers are subject to the terms set forth in Reseller's
Agreement.
10. SOFTWARE
Reseller is granted the right to distribute software materials supplied by
HP only in accordance with the license terms supplied with these
materials. Reseller may alternatively acquire the software materials from
HP for its own demonstration purposes in accordance with the terms for use
in those license terms.
11. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks, logo types, trade names, and insignia ("HP
Marks"). Reseller may display the HP Marks solely to promote HP
Products. Any display of the HP Marks must be in good taste, in a
manner that preserves their value as HP Marks, and in accordance with
standards provided by HP for their display. Reseller will not use any
name or symbol in a way which may imply that Reseller is an agency or
branch of HP; Reseller will discontinue any such use of a name or
mark as requested by HP. Any rights or purported rights in any HP
trademarks acquired through Reseller's use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty-free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Reseller's
Selling Locations. Any display of the trademarks must be in good
taste, in a manner that preserves their value as Reseller's
trademarks, and in accordance with standards provided by Reseller for
their display. Any rights or purported rights in any Reseller
trademarks acquired through HP's use belong solely to Reseller.
13. LIMITATION OF LIABILITY AND REMEDIES
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP. IN NO EVENT WILL HP BE LIABLE FOR LOSS
OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER BASED ON
CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
B. Notwithstanding the foregoing, HP will be liable for damage to
tangible property, bodily injury or death to the extent a court of
competent jurisdiction determines that an HP Product sold under this
Agreement is defective and has directly caused such property damage,
bodily injury or death, provided that HP's liability for damage to
tangible property will be limited to $1,000,000 per incident or the
purchase price of the specific HP Products that caused such damage.
14. INTELLECTUAL PROPERTY PROTECTION
A. HP will defend or settle any claim against Reseller that any HP
Product furnished under this Agreement infringes a patent, utility
model, industrial design, copyright, trade secret, mask work or
trademark in the country where Reseller acquires or sells the Product
from HP, provided that Reseller:
<PAGE>
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants HP sole authority to control
the defense and any related settlement.
HP will pay the cost of such defense or settlement and any costs and
damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's authorized Customers under
this Agreement provided they comply with the obligations above.
C. HP may procure for Reseller, its Customers and end-users the right to
continued sale or use, as appropriate, of the Product or HP may
modify or replace the Product. If a court enjoins the sale or use of
the Product and HP determines that none of the above alternatives is
reasonably available, or in the case of a settlement agreement which
binds HP, HP will have the option to replace the Product with a
non-infringing Product, modify the Product so it becomes
non-infringing at HP's expense, or repurchase the HP Product from
Distributor or Authorized Reseller at Net Distributor price less
depreciation.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or
instructions of Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability for intellectual property
infringement by HP Products furnished under this Agreement.
15. RECORD-KEEPING AND AUDIT
A. At HP's discretion and upon reasonable notice to Reseller, HP or HP's
designate will be given prompt access during normal business hours,
either on site, or through other means specified by HP, to Reseller's
Customer records, inventory records, other books and records of
account specifically related to Products as which HP believes are
reasonably necessary to verify and audit Reseller's compliance with
the terms of this Agreement.
B. Failure to comply with HP's request will be considered a repudiation
of this Agreement justifying HP's termination of this Agreement on
fifteen (15) days notice without further cause.
C. HP may recover all reasonable actual costs associated with compliance
verification procedures from Reseller's HP promotional accrual
program funds accrued by Distributor(s), or by HP, on behalf of
Reseller, or by Reseller.
16. CHANGES AND AMENDMENTS
A. From time to time, HP may add Products to or delete them from the
Product Exhibits, or implement or change HP policies or programs, at
HP's discretion, after reasonable notice to Reseller. Additionally,
HP may give Reseller thirty (30) days, advance notice of any other
Amendment to this Agreement.
B. Any Amendment will automatically become a part of this Agreement on
the effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding
the duration or renewal of this Agreement beyond those expressly
stated in this Agreement.
17. TERM AND TERMINATION
<PAGE>
A. Either party may terminate this Agreement without cause at any time
upon thirty (30) days' written notice or with cause at any time upon
fifteen (15) days' written notice.
B. Upon termination of this Agreement for any reason, Reseller will
immediately cease to be an authorized HP Reseller and will refrain
from representing itself as such and from using any HP trademark or
trade name. Authorization of Reseller to use any HP trademarks will
cease as of the effective date of any expiration or termination under
this Agreement.
C. Upon termination of this Agreement or expiration without renewal of
this Agreement, all rights to any accrued HP promotional allowance
funds will automatically lapse.
D. All obligations concerning indemnities, warranties, and limitations
of liability provided in this Agreement will survive termination or
expiration of this Agreement, except that the provisions for
confidentiality and support will survive only through the periods set
forth herein.
18. RELATIONSHIP
A. Reseller's relationship to HP will be that of an independent
contractor purchasing HP Products from Authorized Distributor(s) for
resale to Reseller's Customers. Neither party will have, nor
represent that it has, any power, right, or authority to bind the
other party, or to assume or create any obligation or responsibility,
express or implied, on behalf of the other party's name except as
expressly permitted by this Agreement or in a writing signed by HP.
B. Nothing stated in this Agreement shall be construed as making
Reseller and HP a franchise, joint venture or partnership, or as
creating the relationship of employer and employee, master and
servant, or principal and agent between the parties. Reseller will
not represent itself in any way that implies Reseller is an agent or
branch of HP. Reseller will immediately change or discontinue any
representation or business practice found to be misleading or
deceptive by Distributor or HP.
C. HP shall not be deemed a party to any agreement between Reseller and
Distributor or Customer.
D. Unless expressly authorized by HP in writing in advance, any
representation, warranty, or other commitment made by Reseller or
Distributor to its Customer with respect to price, quantities,
delivery, specifications, warranties, modifications, interfacing
capability or suitability will be Reseller's sole responsibility.
Reseller has no authority to modify any warranty provided with any HP
Product, or to make any other commitment on HP's behalf. Reseller
will indemnify HP from any liability arising from any such commitment
by Reseller.
E. List prices are suggested prices for resale to end-user Customers.
Reseller has the right to determine its own resale prices, and no HP
representative will require that any particular resale price be
charged by Reseller or grant or withhold any treatment to Reseller
based on Reseller's resale pricing policies. Reseller agrees that it
will promptly report any effort by HP personnel to interfere with its
pricing policies directly to an HP officer or manager.
F. Nothing contained in this Agreement shall prevent a Reseller from
purchasing individually, on its own credit and account directly from
HP should it elect to do so, but nothing shall obligate HP to sell
directly to Reseller.
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and programs, such
as but not limited to the HP promotional fund accrual program(s), Product
demonstration and development unit programs, Premier Support program and
other programs and policies, participation in which will be on the current
terms and conditions of those policies and programs.
<PAGE>
20. GENERAL
A. Neither party may assign or transfer any rights or obligation in this
Agreement without the prior written consent of the other party. Any
attempted assignment or transfer will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.
C. This Agreement constitutes the entire and only understanding between
the parties relating to its subject matter and supersedes all prior
representations, discussions, negotiations and agreement, whether
written or oral. HP hereby gives notice of objection to any
additional or inconsistent terms set forth in any purchase order or
other document issued by Distributor or Reseller. Except as provided
in paragraphs 16A and 16B of this Agreement, no modification of this
Agreement will be binding on either party unless made in writing and
signed by both parties.
D. In the event that any portion of this Agreement should conflict, the
terms and conditions defined in this U.S. Reseller Agreement take
precedence.
E. This Agreement will be governed by the laws of the State of
California.
F. If any clause of this Agreement is held to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the
remainder of the Agreement will continue unaffected.
G. Neither party will be responsible for failure or delay in performance
due to circumstances beyond its reasonable control, such as labor
disputes, natural disaster, shortage of or inability to obtain labor,
energy, and materials, war, riot, embargo, fire, or any other act or
condition beyond the reasonable control of the non-performing party.
21. NUCLEAR APPLICATIONS
HP Products are not specifically designed, manufactured, or intended for
sale as parts, components, or assemblies for the planning, construction,
maintenance, operation or use in any nuclear facility. Reseller, on behalf
of itself and any direct or indirect end-user using HP Products for these
applications, agrees that HP is not liable in whole or in part for any
claim(s) or damage(s) arising from such use. If Reseller or any direct or
indirect end-users use HP Product for these applications, Reseller agrees
to indemnify and hold HP harmless from any claims for loss, cost, damage,
expense, or liability arising out of or in connection with the use and
performance of HP's Products or services in such nuclear applications.
22. U.S. GOVERNMENT
A. No U.S. Government procurement regulations will be deemed included
hereunder or binding an either party unless specifically accepted in
writing and signed by both parties.
B. Unless Reseller has obtained HP's prior written consent, Reseller is
prohibited from issuing any Letter of Supply, from guaranteeing to
supply, or from selling, supplying, or providing any person with HP
Product for resale under any GSA contract. Unless Reseller has first
received a Letter of Supply or other written authorization from HP,
Reseller is prohibited from listing, and shall not list, HP Products
on any GSA Schedule or contract.
23. CONFIDENTIALITY
In the event that confidential information is exchanged between HP and
Reseller, each party will protect the confidential information of the
other in the same manner in which it protects its own like proprietary,
confidential, and trade secret information, but, in any
<PAGE>
event, not less than a reasonable degree of care. If the party claiming
the benefit of the provision furnishes such information in writing and
marks such information as "Confidential" or if such information is
provided orally, then the transmitting party ("Discloser") will confirm in
writing to the receiving party ("Recipient") that it is confidential
within thirty (30) days of its communication. Such information will remain
confidential for three (3) years after the date of disclosure.
This Section imposes no obligation upon a Recipient with respect to
confidential information which (a) was in the Recipient's possession
before the Discloser; (b) is or becomes a matter of public knowledge
through no fault of the Recipient; (c) is rightfully received by the
Recipient from a third party without a duty of confidentiality; (d) is
disclosed by the Discloser to a third party without a duty of
confidentiality on the third party; (e) is independently developed by the
Recipient; (f) is disclosed under operation of law; or (g) is disclosed by
the Recipient with the Discloser's prior written approval.
24. NOTICES
All notices and demands issued under the terms of this Agreement shall be
in writing, delivered by fax, personal service, first class mail, postage
prepaid or by registered mail to a location set forth in this Agreement or
to HP at 5301 Stevens Creek Boulevard, PO Box 58059, Santa Clara,
California 95052-8059, or at such different address as may be designated
by such party by written notice to the other party.
25. RESELLER REPORTING
Upon HP's request Reseller is required to provide HP with accurate HP
Product sell-to and inventory data in a format and frequency defined by
HP, using the HP-provided software utility or existing EDI standards.
Participation in HP programs will be reliant on Reseller's ability to
comply with program reporting requirements.
26. INTERNATIONAL SALES
Reseller will sell HP Products only to end-user Customers in the U.S., for
use in the U.S., and abide by any other geographic restrictions defined in
this Agreement unless otherwise authorized by HP in writing. Without HP's
prior written consent, Reseller will not export HP Products outside the
U.S. nor will Reseller sell HP Products for export outside the U.S.
<PAGE>
U.S. GSA AGENT ADDENDUM
TABLE OF CONTENTS
1. APPOINTMENT
2. INTENTIONALLY OMITTED
3. INTENTIONALLY OMITTED
4. INTENTIONALLY OMITTED
5. VOLUME COMMITMENT LEVELS
6. INTENTIONALLY OMITTED
7. INTENTIONALLY OMITTED
8. INTENTIONALLY OMITTED
9. INTENTIONALLY OMITTED
10. INTENTIONALLY OMITTED
11. INTENTIONALLY OMITTED
12. INTENTIONALLY OMITTED
13. INTENTIONALLY OMITTED
14. INTENTIONALLY OMITTED
15. INTENTIONALLY OMITTED
16. INTENTIONALLY OMITTED
17. TERM AND TERMINATION
18. INTENTIONALLY OMITTED
19. INTENTIONALLY OMITTED
20. INTENTIONALLY OMITTED
21. INTENTIONALLY OMITTED
22. U.S. GOVERNMENT
23. INTENTIONALLY OMITTED
24. INTENTIONALLY OMITTED
25. INTENTIONALLY OMITTED
26. INTERNATIONAL SALES
<PAGE>
U.S. GSA AGENT ADDENDUM
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing certain HP Products sold by and
purchased from an HP authorized Distributor holding a valid General
Services Administration ("GSA") Federal Supply Service Information
Technology Schedule ("FSS IT") Contract and HP Federal Distributor
Addendum.
B. Reseller's appointment is subject to the terms of the U.S. Reseller
Agreement, the associated Volume Product Exhibits, this Addendum, and
HP Product Categories (collectively, the "Agreement") for the period
from the effective date through the expiration date of the Agreement.
Reseller accepts appointment on these terms.
C. Reseller ("GSA Agent") may market and sell under GSA Schedule only
those HP products which it is authorized to sell pursuant to its U.S.
Reseller Agreement.
5. VOLUME COMMITMENT LEVELS
GSA Agent minimum resale shipments for twelve (12) months under this
Addendum are $250,000 of HP Products, measured by Net Distributor Price
from HP to the Distributor.
If the term of this Agreement or any Addendum or new Product Exhibit is
less than twelve (12) months, an applicable twelve (12)-month volume
commitment level will be calculated for GSA Agent by projection over a
full twelve (12)-month term.
17. TERM AND TERMINATION
Either party may terminate this Addendum without cause at any time upon
thirty (30) days' written notice or with cause at any time upon fifteen
(15) days' written notice. Such termination will not necessarily impact
the remainder of Reseller's Agreement with HP.
22. U.S. GOVERNMENT
Unless GSA Agent has obtained HP's prior written consent, GSA Agent is
prohibited from issuing any Letter of Supply, from guaranteeing to supply,
or from selling, supplying, or providing any person with HP Product for
resale under any GSA contract. Unless GSA Agent has first received a
Letter of Supply or other written authorization from HP, GSA Agent is
prohibited from listing, and shall not list HP Products on any GSA
Schedule or contract.
26. INTERNATIONAL SALES
Without HP's prior written consent, GSA Agent will not export HP Products
to any customer outside the U.S., nor will GSA Agent sell HP Products for
export outside the U.S., with the following exception:
GSA Agent may sell HP Product for use outside of the U.S. if the end-user
Customer is a United States Government Agency or Department or has valid
purchasing authority from GSA list of authorized end-user agencies
("Purchaser"). Purchaser must be purchasing for use in connection with the
Government Agency or Department and must buy HP Products for resale or
transfer only to a U.S. Government Agency or Department. Any such foreign
sale shall be conducted in strict compliance with the statutes, rules and
regulations governing such sales, as promulgated by the U.S. Department of
Commerce and any other U.S. Government Agency.
<PAGE>
HP 220V Products that are equivalent to Products on the GSA Product List
may be purchased by Distributor for these foreign sales at Net Distributor
Price based on U.S. List Prices. All associated warranties require return
of Products to HP in the U.S.
The HP 220V Product purchases are dependent on the currently available
inventory and do not apply toward order or sell-through milestones or
volume commitment levels, and are not eligible for the HP Advantage
program, rebates or other promotional programs. Shipments will be made
only to U.S. Shipment Locations approved by HP.
<PAGE>
HEWLETT-PACKARD COMPANY
U.S. FEDERAL DISTRIBUTOR ADDENDUM
SIGNATURE PAGE
ICN # 829
LEGAL BUSINESS NAME MICROAGE COMPUTER CENTERS INC
ADDRESS 2400 SOUTH MICROAGE WAY
CITY, STATE, ZIP TEMPE AZ 85282-1896
PHONE, FAX # (602)804-2000
E-MAIL/INTERNET ADDRESS ______________________________
DBA(s) ______________________________
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE
AND RESALE OF HP PRODUCTS.
ADDENDA:
X U.S. Federal Distributor
- ---
================================================================================
EXHIBIT ELECTION
HP AND DISTRIBUTOR AGREE THAT ITS VOLUME LEVEL, AT NET DISTRIBUTOR PRICE, FOR HP
PRODUCTS UNDER THE U.S. FEDERAL DISTRIBUTOR ADDENDUM A ABOVE FOR THE TERM OF
THIS DISTRIBUTOR'S AGREEMENT IS:
U.S. FEDERAL DISTRIBUTOR
___ LEVEL 1 $15,000,000 - and up
================================================================================
<PAGE>
STATEMENT OF OWNERSHIP:
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor):_________________________
For a Corporation, specify whether: Publicly Held:_____ Privately Held:______
State of Incorporation/Organization: ________
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
<TABLE>
<S> <C>
o Sole Proprietor Identify all owners, officers and ownership percentages held
o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust
o Partnership: Identify all General Partners, Limited Partners, Officers and
ownership percentages held
Specify dollar investment of limited partners
o Privately Held Corporation: Identify all shareholders with class and percentage ownership,
Officers and Board of Director Members
o Publicly Held Corporation: Identify owners of 20% or more of each class of shares with
class and percentage ownership, Officers and Board of
Director Members
</TABLE>
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
Percentage Ownership (Dollar Type of Ownership Interest
Investment in Limited (Assets, Common or
Partners) Preferred Shares)
<S> <C> <C> <C>
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
- ----------------- ------------------ ---------------------------- --------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:
- --------------------------------------------------------------------------------
Parent/Owner, including DBA(s)
- --------------------------------------------------------------------------------
Address
( )
- --------------------------------------------------------------------------------
City State Zip Telephone
( )
- --------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
MICROAGE AUTHORIZED SIGNATURES MA FEDERAL INC. AUTHORIZED SIGNATURES
/s/ Robert Ward /s/ Patrick A. Neven
- --------------------------------- ------------------------------------
Authorized Signature Authorized Signature
ROBERT WARD PATRICK A. NEVEN
- --------------------------------- ------------------------------------
Typed Name Typed Name
VP OPERATIONS PRESIDENT
- --------------------------------- ------------------------------------
Title Title
HEWLETT-PACKARD COMPANY
/s/ Susan Weatherman March 31, 1999
- --------------------------------- -------------- ---------------
Susan Weatherman Effective Date Expiration Date
HP Indirect Computer Reseller HEWLETT
Application Signature Page for PACKARD
HP NetServer/PC/Peripheral Resellers
1. DISTRIBUTOR INFORMATION
- --------------------------------------------------------------------------------
Distributor Name: Distributor Account No.:
Business Address: Phone: Fax:
City: State: Zip:
Distributor Contact Name: Title:
E-mail Address: Phone:
Distributor Sales Rep: Phone:
E-mail Address:
2. RESELLER INFORMATION
- --------------------------------------------------------------------------------
Reseller Name (name used on business license, permits, and State and Federal Tax
ID numbers: MicroAge Integration Co.
Date business established using this name: 1998
DBA (other names under which reseller does business): MicroAge
Address: 2400 South MicroAge Way Phone:
City: Tempe State: AZ Zip: 85282-1896
Executive Contact: Mike Tatum Corporate Web Address: MicroAge.com
Internet Address:
3. STATEMENT OF OWNERSHIP
- --------------------------------------------------------------------------------
Form of Organization (i.e., Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
For a Corporation, specify whether:
[X] Publicly Held [ ] Privately Held [ ] State of Incorporation/Organization
<PAGE>
Identify company ownership and management structure as follows (attach
additional pages if necessary):
+ Sole Proprietor: Identify all owners, officers, and ownership
percentages held
+ Trust: Identify Trustee(s), Administrators, and
Beneficiaries of Trust
+ Partnership: Identify all General Partners, Limited Partners,
Officers, and ownership percentages held
(specify dollar investment of limited partners)
+ Privately Held Corporation: Identify all shareholders with class and
percentage ownership, Officers, and Board of
Director Members
+ Publicly Held Corporation: Identify owners of 20% or more of each class of
shares with class and percentage ownership,
Officers, and Board of Director Members
OWNERSHIP INTEREST TYPE OF OWNERSHIP
Percentage Ownership INTEREST
(Dollar Investment in (Assets, Common or
NAMES TITLES Limited Partners) Preferred Shares)
- ----------- ----------- --------------------- -------------------
- ----------- ----------- --------------------- -------------------
- ----------- ----------- --------------------- -------------------
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure on the previous page and
identity of the parent corporation below:
Parent/Owner, including DBA(s):
-----------------------------------------------
Address:
----------------------------------------------------------------------
City: State: Zip:
------------------------------------- ---------- --------
Phone:( ) Fax: ( )
----------------------------------------------- ----------------------
State of Parent/Owner's Incorporation:
4. AUTHORIZED SIGNATURES
- --------------------------------------------------------------------------------
In the event that this application is approved, Distributor and Reseller agree
that their contract, whether its other terms are oral or written, will include
the written terms attached as the U.S. Reseller Agreement and U.S. Volume
Reseller Addendum for authorization to resell HP NetServers/PCS/Peripherals.
2
<PAGE>
- --------------------------------------------------------------------------------
RESELLER
By Reseller's signature below, Reseller agrees the statements provided in the
attached application are true and complete. Reseller agrees to the term of the
certifications and authorizations, of which all terms are included in this
agreement by this reference. If any changes occur, I will notify the Distributor
and HP in writing.
Authorized Signature: /s/ Michael A. Tatum Date: 10-16-98
Print Name: Michael A. Tatum Title: Group Vice President
Supplier Alliances
- --------------------------------------------------------------------------------
DISTRIBUTOR
To best of Distributor's knowledge, the statements provided in this application
and the accompanying documentation are true and accurate.
Company Name:
-------------------------------------------------------------------
Authorized Signature: Date:
-------------------------------- ----------------------
Print Name: Title:
-------------------------------- ---------------------
- --------------------------------------------------------------------------------
HEWLETT-PACKARD COMPANY
/s/ Susan Weatherman
- ------------
- --------------------------------------------------------------------
Susan Weatherman
Reseller Contracts and Negotiation Manager
10-23-98 May 31, 1999
- ------------------------------ ---------------------------
Effective Date Expiration Date
3
<PAGE>
U.S. RESELLER AGREEMENT
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing the HP Products listed on the
Product Exhibits and sold by and purchased from an HP Authorized
Distributor.
B. Reseller's appointment is subject to the terms and conditions set
forth in this Agreement, Addenda, Product Exhibits and HP Product
Categories (collectively, the "Agreement") for the period from the
effective date through the expiration date of this Agreement.
Reseller accepts appointment on these terms.
2. STATUS CHANGE
A. Reseller's approved company names, including DBA(s) and selling
locations, are listed on the HP Exhibit L and are the only names
and selling locations under which Reseller may represent and sell
HP Products. If Reseller wishes to:
1. Change its name;
2. Add, close or change an approved shipment, delivery or
other HP-authorized location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls 25%
or more of Reseller's capital stock or assets after such
transaction; or
4. Undergo a significant change in control or management of
Reseller operations; then Reseller shall notify HP in
writing prior to the intended date of change. In no event
may such notice be provided more than ten (10) days after
the change has occurred.
B. HP agrees to promptly notify Reseller of its approval or
disapproval of any proposed change, provided that Reseller has
given HP all information and documents reasonably requested by HP.
C. HP must approve proposed Reseller changes prior to any obligation
of HP to perform under this Agreement with Reseller as changed.
4
<PAGE>
3. RESELLER RESPONSIBILITIES
A. Reseller agrees to:
1. Advertise, promote, demonstrate and sell HP Products only
within the geographies defined in this Agreement and, when
defined by the HP Product Categories, on a face-to-face
basis.
2. Represent HP Products fairly to all Customers.
3. Forward promptly to Customers all technical sales and
promotional materials, suggested price lists and other
information provided by HP for the purpose of reshipment to
Customers.
4. Provide Customers with any HP ergonomics information,
including, where applicable, HP WORKING IN COMFORT
materials (in paper and electronic form) and any warning or
advisory tags, labels, or other information relating to the
use of HP Products containing keyboards.
5. Ensure that ongoing pre-sales support and post-sales
technical support of HP Products and Reseller's value-added
solutions is provided to all Customers. Reseller agrees to
maintain or make available such qualified personnel as
necessary to provide timely and knowledgeable support
services sufficient to ensure a high level of Customer
satisfaction.
6. Ensure that no sale, advertising, promotion, display, or
disclosure of any features, availability or price of any
new HP Product takes place before HP's public announcement
of that Product.
7. Respond promptly to all Customer inquiries or requests
related to HP Products.
8. Report promptly to HP all suspected defects in HP Products.
9. Ensure that its employees complete any required training
courses and certification designated by HP.
10. Confer periodically with HP at HP's request on matters
relating to market conditions, sales forecasting, and
Product planning.
11. Use catalogs and telemarketing sales techniques only in
conformity with current HP policies and only as a
complement to face-to-face sales activity.
5
<PAGE>
12. Identify and keep current a primary and secondary support
contact for both marketing communications and post-sales
support at each approved Selling Location.
13. Provide Customers with a written invoice stating the
Customer's name and address, the date of purchase, and
serial numbers, if any, of HP Products. Reseller will
retain such records, or their equivalent, to enable
Reseller to notify Customers of Product safety information,
corrections for operational problems, and the like.
B. Reseller may advertise only those HP Products which it is
authorized to sell. Reseller's advertising may in no way mention
Reseller as an authorized reseller for any other HP Product.
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products
under any HP Product Exhibit in this Agreement and purchases under any
other HP Product Exhibits in this or any other HP Agreement are exclusive
of each other for the purpose of calculating volume commitment and
discount levels.
7. PRICES
Upon request from Reseller, at its discretion, HP may grant special
pricing for particular end-user Customer transactions. In good faith, HP
may retract the special pricing any time before acceptance by the
end-user Customer. HP may extend the pricing on an exclusive or
nonexclusive basis and may condition the pricing on a pass-through to the
end-user of all or part of the non-standard offering extended by HP.
9. ORDERS AND DELIVERY
HP may, from time to time, offer Reseller certain HP Products on special
promotional terms. Such purchases may not, in some cases, be eligible for
promotional allowance funds, price protection or stock adjustments. With
these exceptions, Reseller's purchases in response to these special
promotional offers are subject to the terms set forth in Reseller's
Agreement.
10. SOFTWARE
Reseller is granted the right to distribute software materials suppled by
HP only in accordance with the license terms supplied with these
materials. Reseller may alternatively acquire the software materials from
HP for its own demonstration purposes in accordance with the terms for
use in those license terms.
6
<PAGE>
11. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or
redesignated HP trademarks, logo types, trade names, and insignia
("HP Marks"). Reseller may display the HP Marks solely to promote
HP Products. Any display of the HP Marks must be in good taste, in
a manner that preserves their value as HP Marks, and in accordance
with standards provided by HP for their display. Reseller will not
use any name or symbol in a way which may imply that Reseller is
an agency or branch of HP; Reseller will discontinue any such use
of a name or mark as requested by HP. Any rights or purported
rights in any HP trademarks acquired through Reseller's use belong
solely to HP.
B. Reseller grants HP the non-exclusive, royalty-free right to
display Reseller's trademarks in advertising and promotional
material solely for directing prospective purchasers of HP
Products to Reseller's Selling Locations. Any display of the
trademarks must be in good taste, in a manner that preserves their
value as Reseller's trademarks, and in accordance with standards
provided by Reseller for their display. Any rights or purported
rights in any Reseller trademarks acquired through HP's use belong
solely to Reseller.
13. LIMITATION OF LIABILITY AND REMEDIES
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP. IN NO EVENT WILL HP BE LIABLE FOR
LOSS OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER
BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
B. Notwithstanding the foregoing, HP will be liable for damage to
tangible property, bodily injury or death to the extent a court of
competent jurisdiction determines that an HP Product sold under
this Agreement is defective and has directly caused such property
damage, bodily injury or death, provided that HP's liability for
damage to tangible property will be limited to $1,000,000 per
incident or the purchase price of the specific HP Products that
caused such damage.
14. INTELLECTUAL PROPERTY PROTECTION
A. HP will defend or settle any claim against Reseller that any HP
Product furnished under this Agreement infringes a patent, utility
model, industrial design, copyright, trade secret, mask work or
trademark in the country where Reseller acquires or sells the
Product from HP, provided that Reseller:
1. Promptly notifies HP in writing of the claim;
7
<PAGE>
2. Cooperates with HP in and grants HP sole authority to
control the defense and any related settlement, and
3. sold said Products or Support in complete compliance with
this Agreement.
HP will pay the cost of such defense or settlement and any costs
and damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's authorized Customers
under this Agreement provided they comply with the obligations
above.
C. HP may procure for Reseller, its Customers and end-users the right
to continued sale or use, as appropriate, of the Product or HP may
modify or replace the Product. If a court enjoins the sale or use
of the Product and HP determines that none of the above
alternatives is reasonably available, or in the case of a
settlement agreement which binds HP, HP will have the option to
replace the Product with a non-infringing Product, modify the
Product so it becomes non-infringing at HP's expense, or
repurchase the HP Product from Distributor or Authorized Reseller
at Net Distributor price less depreciation.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or
instructions of Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability for intellectual
property infringement by HP Products furnished under this
Agreement.
15. RECORD-KEEPING AND AUDIT
A. At HP's discretion and upon reasonable notice to Reseller, HP or
HP's designate will be given prompt access during normal business
hours, either on site, or through other means specified by HP, to
Reseller's Customer records, inventory records, other books and
records of account specifically related to Products as which HP
believes are reasonably necessary to verify and audit Reseller's
compliance with the terms of this Agreement.
8
<PAGE>
B. Failure to comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on fifteen (15) days notice without further cause.
C. HP may recover all reasonable actual costs associated with
compliance verification procedures from Reseller's HP promotional
accrual program funds accrued by Distributor(s), or by HP, on
behalf of Reseller, or by Reseller.
D. HP may debit Reseller's HP promotional accrual program funds for
all wrongfully claimed discounts, promotional allowances, or other
amounts determined as a result of HP's audit of Reseller.
16. CHANGES AND AMENDMENTS
A. From time to time, HP may add Products to or delete them from the
Product Exhibits, or implement or change HP policies or programs,
at HP's discretion, after reasonable notice to Reseller.
Additionally, HP may give Reseller thirty (30) days' advance
notice of any other Amendment to this Agreement.
B. Any Amendment will automatically become a part of this Agreement
on the effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding
the duration or renewal of this Agreement beyond those expressly
stated in this Agreement.
17. TERM AND TERMINATION
A. Either party may terminate this Agreement or any Certification or
Addendum to this Agreement, without cause at any time upon thirty
(30) days' written notice or with cause at any time upon fifteen
(15) days' written notice.
B. Upon termination of this Agreement, or any Certification or
Addendum to this Agreement, for any reason, Reseller will
immediately cease to be an authorized HP Reseller and will refrain
from representing itself as such and from using any HP trademark
or trade name. Authorization of Reseller to use any HP trademarks
will cease as of the effective date of any expiration or
termination under this Agreement.
C. Upon termination of this Agreement, or any Addendum or
Certification to this Agreement, or expiration without renewal of
this Agreement or any Addendum or Certification to this Agreement,
all rights to any accrued HP promotional allowance funds will
automatically lapse.
9
<PAGE>
D. Al obligations concerning indemnities, warranties, and limitations
of liability provided in this Agreement or any Addendum or
Certification to this Agreement will survive termination or
expiration of this Agreement, except that the provisions for
confidentiality and support will survive only through the periods
set forth herein.
18. RELATIONSHIP
A. Reseller's relationship to HP will be that of an independent
contractor purchasing HP Products from Authorized Distributor(s)
for resale to Reseller's Customers. Neither party will have, nor
represent that it has, any power, right, or authority to bind the
other party, or to assume or create any obligation or
responsibility, express or implied, on behalf of the other party's
name except as expressly permitted by this Agreement or in a
writing signed by HP.
B. Nothing stated in this Agreement shall be construed as making
Reseller and HP a franchise, joint venture or partnership, or as
creating the relationship of employer and employee, master and
servant, or principal and agent between the parties. Reseller will
not represent itself in any way that implies Reseller is an agent
or branch of HP. Reseller will immediately change or discontinue
any representation or business practice found to be misleading or
deceptive by Distributor or HP.
C. HP shall not be deemed a party to any agreement between Reseller
and Distributor or Customer.
D. Unless expressly authorized by HP in writing in advance, any
representation, warranty, or other commitment made by Reseller or
Distributor to its Customer with respect to price, quantities,
delivery, specifications, warranties, modifications, interfacing
capability or suitability will be Reseller's sole responsibility.
Reseller has no authority to modify any warranty provided with any
HP Product, or to make any other commitment on HP's behalf.
Reseller will indemnify HP from any liability arising from any
such commitment by Reseller
E. List prices are suggested prices for resale to end-user Customers.
Reseller has the right to determine its own resale prices, and no
HP representative will require that any particular resale price be
charged by Reseller or grant or withhold any treatment to Reseller
based on Reseller's resale pricing policies. Reseller agrees that
it will promptly report any effort by HP personnel to interfere
with its pricing policies directly to an HP officer or manager.
F. Nothing contained in this Agreement shall prevent a Reseller from
purchasing individually, on its own credit and account directly
from HP should it elect to do so, but nothing shall obligate HP to
sell directly to Reseller.
10
<PAGE>
19. POLICIES AND PROGRAMS
From time to time, HP may offer or change HP policies and programs, such
as but not limited to the HP promotional fund accrual program(s), Product
demonstration and development unit programs, Premier Support program and
other programs and policies, participation in which will be on the
current terms and conditions of those policies and programs.
20. GENERAL
A. Neither party may assign or transfer any rights or obligation in
this Agreement without the prior written consent of the other
party. Any attempted assignment or transfer will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to
enforce it in the future.
C. This Agreement constitutes the entire and only understanding
between the parties relating to its subject matter and supersedes
all prior representations, discussions, negotiations and
agreement, whether written or oral. HP hereby gives notice of
objection to any additional or inconsistent terms set forth in any
purchase order or other document issued by Distributor or
Reseller. Except as provided in subsections 16.A and 16.B of this
Agreement, no modification of this Agreement will be binding on
either party unless made in writing and signed by both parties.
D. In the event that any portion of this Agreement should conflict
the terms and conditions defined in this U.S. Reseller Agreement
take precedence.
E. This Agreement will be governed by the laws of the State of
California.
F. If any clause of this Agreement is held to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the
remainder of the Agreement will continue unaffected.
G. Neither party will be responsible for failure or delay in
performance due to circumstances beyond its reasonable control,
such as labor disputes, natural disaster, shortage of or inability
to obtain labor, energy, and materials, war, riot, embargo, fire,
or any other act or condition beyond the reasonable control of the
party.
21. NUCLEAR APPLICATIONS
Reseller acknowledges that HP Products are not specifically designed,
manufactured, or intended for sale as parts, components, or assemblies
for the planning, construction, maintenance, or use in any nuclear
11
<PAGE>
facility. Reseller will use all reasonable efforts to prevent the sale of
HP Products to any end user that intends to use those products in
planning, constructing, or maintaining any nuclear facility. If Reseller
sells HP Products to any end user that Reseller knows or has reason to
know will use those products in planning, constructing, or maintaining
any nuclear facility, Reseller will indemnify HP and hold HP harmless
from any claims for loss, cost, damage, expense, or liability arising out
of or in connection with the use and performance of HP Products in such
nuclear facility.
22. U.S. GOVERNMENT
A. No U.S. Government procurement regulations will be deemed included
hereunder or binding on either party unless specifically accepted
in writing and signed by both parties.
B. Unless Reseller has obtained HP's prior written consent, Reseller
is prohibited from issuing any Letter of Supply, from guaranteeing
to supply, or from selling, supplying, or providing any person
with HP Product for resale under any General Services
Administration (GSA) contract. Unless Reseller has first received
a Letter of Supply or other written authorization from HP,
Reseller is prohibited from listing, and shall not list, HP
Products on any GSA Schedule or contract.
23. CONFIDENTIALITY
In the event that confidential information is exchanged between HP and
Reseller, each party will protect the confidential information of the
other in the same manner in which it protects its own like proprietary,
confidential, and trade secret information, but in any event, not less
than a reasonable degree of care. If the party claiming the benefit of
the provision furnishes such information in writing and marks such
information as "Confidential" or it such information is provided orally,
then the transmitting party ("Discloser") will confirm in writing to the
receiving party ("Recipient") that it is confidential within thirty (30)
days of its communication. Such information will remain confidential for
three (3) years after the date of disclosure.
This Section imposes no obligation upon a Recipient with respect to
confidential information which (a) was in the Recipient's possession
before the Discloser; (b) is or becomes a matter of public knowledge
through no fault of the Recipient; (c) is rightfully received by the
Recipient from a third party without a duty of confidentiality; (d) is
disclosed by the Discloser to a third party without a duty of
confidentiality on the third party; (e) is independently developed by the
Recipient; (f) is disclosed under operation of law; or (g) is disclosed
by the Recipient with the Discloser's prior written approval.
12
<PAGE>
24. NOTICES
All notices and demands issued under the terms of this Agreement shall be
in writing, delivered by fax, personal service, first class mail, postage
prepaid or by registered mail to a location set forth in this Agreement
or to HP at 5301 Stevens Creek Boulevard MIS 54U HC, PO Box 58059, Santa
Clara, California 95052-8059, or to the assigned HP sales representative
or at such different address as may be designated by such party by
written notice to the other party.
25. RESELLER REPORTING
Upon HP's request, Reseller is required to provide HP with accurate HP
Product sell-to and inventory data in a format and frequency defined by
HP, using the HP-provided software utility or existing EDI standards.
Participation in HP programs will be reliant an Reseller's ability to
comply with program reporting requirements.
26. INTERNATIONAL SALES
Reseller will sell HP Products only to end-user Customers in the U.S.,
for use in the U.S., and abide by any other geographic restrictions
defined in this Agreement unless otherwise authorized by HP in writing.
Without HP's prior written consent, Reseller will not export HP Products
outside the U.S. nor will Reseller sell HP Products for export outside
the U.S.
13
STANDARD COMMERCIAL LEASE AGREEMENT 1228 Forest Parkway
Suite 100
Approximately: 131,787 square feet Paulsboro, NJ 08066
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between Riggs &
Company, a division of Riggs Bank N.A., as trustee of the Multi-Employer
Property Trust hereinafter referred to as "Landlord", and Pinacor, Inc.
hereinafter referred to as "Tenant";
W I T N E S S E T H
1. PREMISES AND TERM. In consideration of the obligation of Tenant to
pay rent as herein provided, and in consideration of the other terms, provisions
and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord certain premises situated within the County of
Gloucester, State of New Jersey, more particularly described on EXHIBIT "A" and
EXHIBIT "B" attached hereto and incorporated herein by reference, together with
all rights, privileges, easements, appurtenances, and immunities belonging to or
in any way pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
building and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the same for a term commencing on the "commencement
date", as hereinafter defined, and ending thirty-six (36) months thereafter,
provided, however, that, in the event the "commencement date", is a date other
than the first day of a calendar month, said term shall extend for said number
of months in addition to the remainder of the calendar month following the
"commencement date". The "commencement date" shall be September 28, 1998, and
thus the scheduled expiration date of this Lease is September 30,2001. Tenant
shall, upon demand, execute and deliver to Landlord a Letter of Acceptance of
delivery of the premises.
2. BASE RENT, ADJUSTMENT THEREOF AND SECURITY DEPOSIT.
a) Tenant agrees to pay to Landlord rent for the premises, in
advance, without demand, deduction or set off, for the entire
term hereof at the rate of
PERIOD MONTHLY BASE RENT ANNUAL BASE RENT
Months 1 - 36 $46,125.45 $ 553,505.40
<PAGE>
One such monthly installment shall be due and payable on the date hereof and a
like monthly installment shall be due and payable on or before the first day of
each calendar month succeeding the commencement date recited above during the
hereby demised term, except that the rental payment for any fractional calendar
month at the commencement or end of the lease period shall be prorated.
b) In addition, Tenant agrees to deposit with Landlord on the date
hereof the sum of Forty Six Thousand One Hundred Twenty Five Dollars
($46,125.00), which sum shall be held by Landlord, without obligation for
interest, as security for the performance of Tenant's covenants and obligations
under this lease, it being expressly understood and agreed that such deposit is
not an advance rental deposit or a measure of Landlord's damages in case of
Tenant's default. Upon the occurrence of any event of default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy provided
herein or provided by law, use such fund to the extent necessary to make good
any arrears of rent or other payments due Landlord hereunder, and any other
damage, injury, expense or liability caused by such event of default; and Tenant
shall pay to Landlord on demand the amount so applied in order to restore the
security deposit to its original amount. Although the security deposit shall be
deemed the property of Landlord, any remaining balance of such deposit shall be
returned by Landlord to Tenant at such time after termination of this lease that
all of Tenant's obligations under this lease have been fulfilled.
3. USE. The premises shall be used only for the purpose of receiving,
storing, shipping and selling (other than retail) products, materials and
merchandise made and/or distributed by Tenant and for such other lawful purposes
as may be incidental thereto. Outside storage, including without limitation,
trucks and other vehicles and the washing thereof at any time, is prohibited
without Landlord's prior written consent. Tenant shall at its own cost and
expense obtain any and all licenses and permits necessary for any such use.
Tenant shall comply with all governmental laws, ordinances and regulations
applicable to the use of the premises, and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of nuisances in or upon, or connected with, Tenant's use of the premises, all at
Tenant's sole expense. Tenant shall not permit any objectionable or unpleasant
odors, smoke, dust, gas, noise or vibrations to emanate from the premises, not
take any other action which would constitute a nuisance or would disturb or
endanger any other tenants of the building in which the premises are situated or
unreasonably interfere with their use of their respective premises. Without
Landlord's prior written consent, Tenant shall not receive, store or otherwise
handle any product, material or merchandise which is explosive or highly
inflammable. Tenant will not permit the premises to be used for any purpose or
in any manner (including without limitation any method of storage) which would
render the insurance thereon void or the insurance risk more hazardous or cause
the State Board of Insurance or other insurance authority to disallow any
sprinkler credits. If any increase in the fire and extended coverage insurance
premiums paid by Landlord for the building in which Tenant occupies space is
caused by Tenant's use and occupancy of the premises, or if Tenant vacates the
premises and causes an increase in such premiums, then Tenant shall pay as
additional rental the amount of such increase to Landlord.
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4. OPERATING EXPENSES.
a. Tenant agrees to pay to Landlord as additional rental, in accordance
with Paragraph 24, Tenant's proportionate share of the operating expenses. In
the year in which this lease terminates, Landlord, in lieu of waiting until the
close of the calendar year in order to determine any operating expenses, has the
option to charge Tenant for Tenant's proportionate share of the operating
expenses based upon the previous year's operating expenses.
b. The term 'operating expenses' as used above includes all expenses
incurred by Landlord with respect to the ownership, maintenance and operation of
the building and/or project of which the premises are a part, including, but not
limited to, maintenance and repair costs, water, sewer, security, trash and snow
removal, landscaping, wages and fringe benefits payable to employees or
authorized agents of Landlord whose duties are connected with the operations and
maintenance of the building and/or project in an amount equal to 4% of the gross
annual rental to be received hereunder, amounts paid to contractors and
subcontractors for work or services performed in connection with the operation
and maintenance of the building and/or project, all services, supplies, repairs,
replacements or other expenses for maintaining and operating the building and/or
project including common area and parking area. The term 'operating expenses'
also includes all real property taxes, assessments (whether general or special)
and governmental charges of any kind and nature whatsoever including assessments
due to deed restrictions and/or owners' associations, which accrue against the
building and/or project of which the premises are a part during the term of this
lease as well as all insurance premiums Landlord is required to pay or deems
necessary to pay, including without limitation public liability insurance and
fire and extended coverage insurance with respect to the building and/or
project. The term 'operating expenses' does not include any capital costs for
roof or parking lot replacement, nor shall it include repairs, restoration or
other work occasioned by fire, windstorm or other casualty to the extent of net
insurance proceeds received by Landlord with respect thereto, income and
franchise taxes of Landlord, expenses incurred in leasing to or procuring of
tenants, leasing commissions, advertising expenses, expenses for the innovating
of space for new tenants, interest or principal payments on any mortgage or
other indebtedness of Landlord, nor depreciation allowance or expense, any costs
or expenses for which Landlord is reimbursed or indemnified (whether by an
insurer, condemnor, tenant or otherwise); depreciation or amortization of the
building or its contents or components; the cost of any item or service which
Tenant separately reimburses Landlord or pays to third parties, or that Landlord
provides selectively to one or more tenant of the project, other than Tenant,
whether or not Landlord is reimbursed by such other tenant(s); all bad debt
loss, rent loss, or reserve for bad debt or rent loss. Any operating expenses
incurred by Landlord with respect to the project as a whole or with respect to
more than one building in the project shall be pro-rated among such buildings
based on the rentable square foot areas in such buildings, and only the portion
of such operating expenses allocable to the building of which the premises are a
part shall be included in 'Operating Expenses' for purposes of this Paragraph 4.
c. Tenant's 'proportionate share', as used in this lease, shall mean a
fraction, the numerator of which is the space contained in the premises and the
denominator of which is the entire space contained in the building. Thus
Tenant's proportionate share is 100%.
d. If at any time during the term of this lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges
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levied, assessed or imposed on real estate and the improvements thereon, there
shall be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rents for
the present or any future building or buildings on the premises, then all such
taxes, assessments, levies or charges, or the part thereof so measured or based,
shall be deemed to be included within the term "taxes" for the purposes hereof
e. Tenant may audit Landlord's books relevant to the additional rentals
due under this paragraph; however, Tenant agrees to pay all costs associated
with or resulting from such audit, including reimbursement to Landlord for any
additional costs incurred by Landlord.
f. Any payment to be made pursuant to this Paragraph 4 with respect to
the calendar year in which this lease commences or terminates shall be prorated.
5. LANDLORD'S REPAIRS.
a. Landlord shall at its expense maintain only the roof, foundation and
the structural soundness of the exterior walls of the building in good repair,
reasonable wear and tear excepted. Tenant shall repair and pay for any damage
caused by Tenant, or Tenant's employees, agents or invitees, or caused by
Tenant's default hereunder. The term "walls" as used herein shall not include
windows, glass or plate glass, doors, special store fronts or office entries.
Tenant shall immediately give Landlord written notice of defect or need for
repairs, after which Landlord shall have reasonable opportunity to repair same
or cure such defect. Landlord's liability with respect to any defects, repairs
or maintenance for which Landlord is responsible under any of the provisions of
this lease shall be limited to the cost of such repairs or maintenance or the
curing of such defect.
b. Notwithstanding Tenant's obligation pursuant to Paragraph 6(a) to
make repairs and replacements to the premises, Landlord shall replace, promptly
after notice from Tenant of the need for such replacement (i.e., that the system
or component in question is no longer capable of repair at an economically
reasonable cost), any of the building's plumbing, electrical or HVAC systems or
a component thereof that requires replacement, provided that (i) such system or
component thereof was installed in the premises prior to the commencement date
and (ii) the cost of such replacement is in excess of $5,000.00. Replacements of
building systems or components thereof installed by Tenant after the
commencement date or costing $5,000.00 or less shall be made by Tenant as
provided in Paragraph 6(a). The cost incurred by Landlord in making any such
replacement, together with interest thereon at 10% per annum, shall be amortized
over the useful life of the replaced system or component in equal monthly
installments. Such equal monthly installments shall be payable by Tenant to
Landlord as additional rent commencing upon the first day of the first calendar
month following the replacement in question and continuing until the earlier of
the expiration of the term hereof (as it may be renewed or extended from time to
time) or the expiration of the amortization period.
6. TENANT'S REPAIRS AND OTHER COVENANTS OF CARE AND TREATMENT OF
PREMISES.
a. Tenant shall at its own cost and expense keep and maintain all parts
of the premises (except those for which Landlord is expressly responsible under
the terms of this lease) in good
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condition, promptly making all necessary repairs and replacements, including but
not limited to, windows, glass and plate glass, doors, any special office entry,
interior walls and finish work, doors and floor covering, downspouts, gutters,
heating and air conditioning systems, dock boards, truck doors, dock bumpers,
paving, plumbing work and fixtures, termite and pest extermination, regular
removal of trash and debris, regular mowing of any grass, trimming, weed removal
and general landscape maintenance, including rail spur areas, keeping the
parking areas, driveways, alleys and the whole of the premises in a clean and
sanitary condition, and maintaining any spur track servicing the premises
(Tenant agrees to sign a joint maintenance agreement with the railroad company
servicing the premises, if requested by the railroad company). Tenant shall not
be obligated to repair any damage caused by fire, tornado or other casualty
covered by the insurance to be maintained by Landlord pursuant to subparagraph
12(A) below, except that Tenant shall be obligated to repair all wind damage to
glass except with respect to tornado or hurricane damage.
b. Tenant shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall, at its sole cost and
expense, promptly repair any damage or injury to any demising wall caused by
Tenant or its employees, agents, customers, invitees, and/or licensees.
c. In the event the premises ever constitutes a portion of a multiple
occupancy building, Tenant and its employees, agents, customers, invitees,
and/or licensees shall have the exclusive right to use the parking areas, if
any, as may be designated by Landlord in writing (allocated based on the square
footage of the building), subject to such reasonable rules and regulations as
Landlord may from time to time prescribe and subject to rights of ingress and
egress of other tenants. Landlord shall not be responsible for enforcing
Tenant's exclusive parking rights against any third parties. Whether or not the
premises constitutes a portion of a multiple occupancy building, Landlord
reserves the right to perform the paving and landscape maintenance, exterior
painting and common sewage line plumbing which are otherwise Tenant's
obligations under subparagraph (a) above, and Tenant shall, in lieu of the
obligations set forth under subparagraph (a) above with respect to such items,
be liable for its proportionate share (as defined in subparagraph 4(c) above) of
the cost and expense of the care for the grounds around the building, including
but not limited to, the mowing of grass, care of shrubs, general landscaping,
maintenance of parking areas, driveways and alleys, exterior repainting and
common sewage line plumbing; provided that if Tenant or any other particular
tenant of the building can be clearly identified as being responsible for
obstructions or stoppage of the common sanitary sewage line, then Tenant, if
Tenant is responsible, or such other tenant, shall pay the entire cost thereof,
upon demand, as additional rent. Tenant shall pay when due its share, determined
as aforesaid, of such costs and expenses along with the other tenants of the
building to Landlord upon demand, as additional rent, for the amount of its
share as aforesaid of such costs and expenses in the event Landlord elects to
perform or cause to be performed such work.
d. Intentionally Omitted.
e. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all hot water, heating and air conditioning systems and equipment
within the premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services suggested
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by the equipment manufacturer within the operation/maintenance manual and must
become effective (and a copy thereof delivered to Landlord) within thirty (30)
days of the date Tenant takes possession of the premises.
f. Tenant agrees that no washing of any type (other than reasonable
restroom or kitchen washing) will take place in the premises including the truck
apron and parking areas.
7. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord. Tenant may, without
the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner erect such shelves, bins, machinery and trade fixtures as it
may deem advisable, without altering the basic character of the building or
improvements and without overloading or damaging such building or improvements,
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions, improvements and
partitions erected by Tenant shall be and remain the property of Tenant during
the term of this lease and Tenant shall, unless Landlord otherwise elects as
hereinafter provided, remove all alterations, additions, improvements and
partitions erected by Tenant and restore the premises to their original
condition by the date of termination of this lease or upon earlier vacating of
the premises; such alterations, additions, improvements and partitions shall
become the property of Landlord as of the date of termination of this lease or
upon earlier vacating of the premises and shall be delivered up to the Landlord
with the premises unless removed as provided above. All shelves, bins machinery
and trade fixtures installed by Tenant may be removed by Tenant prior to the
termination of this lease if Tenant so elects, and shall be removed by the date
of termination of this lease or upon earlier vacating of the premises if
required by Landlord; upon any such removal Tenant shall restore the premises to
their original condition. All such removals and restoration shall be
accomplished in a good workmanlike manner so as not to damage the primary
structure or structural qualities of the buildings and other improvements
situated on the premises.
8. SIGNS. Tenant shall have the right to install signs upon the
premises only when first approved in writing by Landlord and subject to any
applicable governmental laws, ordinances, regulations and other requirements.
Tenant shall remove all such signs by the termination of this lease. Such
installations and removals shall be made in such manner as to avoid injury or
defacement of the building and other improvements, and Tenant shall repair any
injury or defacement, including without limitation, discoloration caused by such
installation and/or removal.
9. INSPECTION. Landlord and Landlords agents and representatives shall
have the right to enter and inspect the premises at any reasonable time during
business hours, for the purpose of ascertaining the condition of the premises or
in order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this lease. During the period that is six (6) months
prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises and shall
have the right to erect on the premises a suitable sign indicating the premises
are available. Tenant shall give written notice to Landlord at least thirty (30)
days prior to vacating the premises and shall arrange to meet with Landlord for
a joint inspection of the premises prior to vacating
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<PAGE>
10. UTILITIES. Landlord agrees to provide at its cost water,
electricity and telephone service connections into the premises, but Tenant
shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler
charges and other utilities and services used on or from the premises, together
with any taxes, penalties, surcharges or the like pertaining thereto and any
maintenance charges for utilities and shall furnish all electric light bulbs and
tubes. If any such services are not separately metered to Tenant, Tenant shall
pay a reasonable proportion as determined by Landlord of all charges jointly
metered with other premises. Landlord shall in no event be liable for any
interruption or failure of utility services on the premises.
In the event water is not separately metered to Tenant, Tenant agrees
that it will not use water for uses other than normal restroom usage; and,
Tenant does further agree to reimburse Landlord for the entire amount of common
water costs as additional rental if, in fact, Tenant uses water for uses other
than normal restroom uses without first obtaining Landlord's written permission.
Tenant agrees it will not use sewer capacity for any use other than
normal, domestic restroom use. Tenant further agrees to notify Landlord of any
other sewer use ("excess sewer use") and also agrees to reimburse Landlord for
the costs and expenses related to Tenant's excess sewer use, which shall
include, but is expressly herein not limited to the cost of acquiring additional
sewer capacity to service Tenants lease.
11. ASSIGNMENT AND SUBLETTING. Tenant shall not have the right to
assign, sublet, transfer or encumber this lease, or any interest therein,
without the prior written consent of Landlord. Any attempted assignment,
subletting, transfer or encumbrance by Tenant in violation of the terms and
covenants of this Paragraph shall be void. All cash or other proceeds of any
assignment, such proceeds as exceed the rentals called for hereunder in the case
of a subletting and all cash or other proceeds of any other transfer of Tenant's
interest in this lease (after deduction therefrom of all of Tenant's costs and
expenses incurred in connection with such assignment and subletting) shall be
paid to Landlord, whether such assignment, subletting or other transfer is
consented to by Landlord or not, unless Landlord agrees to the contrary in
writing, and Tenant hereby assigns all rights it might have or ever acquire in
any such proceeds to Landlord. These covenants shall run with the land and shall
bind Tenant and Tenant's heirs, executors, administrators, personal
representatives, representatives in any bankruptcy proceeding, successors and
assigns. Any assignee, sublessee or transferee of Tenant's interest in this
lease (all such assignees, sublessees and transferees being hereinafter referred
to as "successors"), by assuming Tenant's obligations hereunder shall assume
liability to Landlord for all amounts paid to persons other than Landlord by
such successors in contravention of the Paragraph. No assignment, subletting or
other transfer, whether consented to by Landlord or not, shall relieve Tenant of
its liability hereunder. Upon the occurrence of an "event of default" as
hereinafter defined, if the premises or any part thereof are then assigned or
sublet, Landlord, in addition to any other remedies herein provided, or provided
by law, may at its option collect directly from such assignee or subtenant all
rents becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collection shall be construed to constitute a novation or a release of Tenant
from the further performance of Tenant's obligations hereunder. Notwithstanding
any provision in this Lease to the contrary, Tenant shall have the right to
assign this Lease or sublet all or a portion
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of the Premises without Landlord's consent to any corporation or business entity
which controls, is controlled by or is under common control with Tenant, or a
corporation or other business entity resulting from a merger or consolidation
with Tenant, or to any person or entity which acquires substantially all of the
assets of Tenant's businesses as a going concern, provided that the assignee or
sublessee assumes in full the obligations of the Tenant under this Lease and
that the use of the Premises remains unchanged.
12. FIRE AND CASUALTY DAMAGE.
a. Landlord agrees to maintain standard fire and extended coverage
insurance covering the building of which the premises are a part in an amount
not less than 80% (or such greater percentage as may be necessary to comply with
provisions of any co-insurance clauses of the policy) of the "replacement cost"
thereof as such term is defined in the Replacement Cost Endorsement to be
attached thereto, insuring against the perils of Fire, Lightning and Extended
Coverage, such coverages and endorsements to be as defined, provided and limited
in the standard bureau forms prescribed by the insurance regulatory authority
for the State in which there premises are situated for use by insurance
companies admitted in such state for the writing of such insurance on risks
located within such state. Subject to the provisions of subparagraphs 12(C),
12(D), and 12(E) below, such insurance shall be for the sole benefit of Landlord
and under its sole control.
b. If the buildings situated upon the premises should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord.
c. If the buildings situated upon the premises should be totally
destroyed by fire, tornado or other casualty, or if they should be so damaged
thereby that the rebuilding or repairs cannot in Landlord's estimation be
completed within two hundred (200) days after the date of the casualty, this
lease shall terminate and the rent shall be abated during the unexpired portion
of this lease, effective upon the date of the occurrence of such damage.
d. If the buildings situated upon the premises should be damaged by any
peril covered by the insurance to be provided by Landlord under subparagraph
12(a) above, but only to such extent that rebuilding or repairs can in
Landlord's estimation be completed within two hundred (200) days after the date
upon which Landlord is notified by Tenant of such damage, this lease shall not
terminate, and Landlord shall at it sole cost and expense thereupon proceed with
reasonable diligence to rebuild and repair such buildings to substantially the
condition in which they existed prior to such damage, except that Landlord shall
not be required to rebuild, repair or replace any part of the partitions,
fixtures, additions and other improvements which may have been placed in, on, or
about the premises by Tenant. If the premises are untenantable in whole or in
part following such damage, the rent payable hereunder during the period in
which they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances. In the event that Landlord should
fail to substantially complete such repairs and rebuilding within two hundred
(200) days after the date of the casualty, Tenant may at its option terminate
this lease by delivering written notice of termination to Landlord as Tenant's
exclusive remedy, whereupon all rights and obligations hereunder shall cease and
terminate.
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e. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises requires that the insurance proceeds by applied to such indebtedness,
then Landlord shall have the right to terminate this lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate.
f. Anything in this lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the premises,
improvements to the building of which the premises are a part, or personal
property (building contents) within the building, by reason of fire or the
elements regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, officers and employees, but only to the extent of the
insurance proceeds payable under the policies of insurance covering the
property. Because this subparagraph will preclude the assignment of any claim
mentioned in it by way of subrogation (or otherwise) to an insurance company (or
any other person), each party to this lease agrees immediately to give to each
insurance company which has issued to it policies of fire and extended coverage
insurance, written notice of the terms of the mutual waivers contained in this
subparagraph, and to have the insurance policies properly endorsed, if
necessary, to prevent the invalidation of the insurance coverages by reason of
the mutual waivers contained in this subparagraph.
13. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, servants or employees, or of any other person entering upon the
premises, or caused by the buildings and improvements located on the premises
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the premises, or due to any cause whatsoever, except
for the gross negligence or willful misconduct of Landlord and Tenant hereby
covenants and agrees that it will at all times indemnify and hold safe and
harmless the property, the Landlord (including without limitation the trustee
and beneficiaries if Landlord is a trust), Landlord's agents and employees from
any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, arising out of
any such damage or injury; except injury to persons or damage to property to the
extent caused by the negligence of Landlord or the failure to Landlord to repair
any part of the premises which Landlord is obligated to repair and maintain
hereunder within a reasonable time after the receipt of written notice from
Tenant of needed repairs. Tenant shall procure and maintain throughout the term
of this lease a policy or policies of insurance, at its sole cost and expense,
insuring both Landlord and Tenant against all claims, demands or actions arising
out of or in connection with: (i) the premises; (ii) the condition of the
premises; (iii) Tenant's operations in and maintenance and use of the premises;
and (iv) Tenant's liability assumed under this lease, the limits of such policy
or policies to be in the amount of not less than $2,000,000 per occurrence in
respect of injury to persons (including death), and in the amount of not less
than $1,000,000 per occurrence in respect of property damage or destruction,
including loss of use thereof. All such policies shall be procured by Tenant
from responsible insurance companies satisfactory to Landlord. Certified copies
of such policies, together with receipt evidencing payment of premiums therefor,
shall be delivered to
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Landlord prior to the commencement date of this lease. Not less than fifteen
(15) days prior to the expiration date of any such policies, certified copies of
the renewals thereof, bearing notations evidencing the payment of renewal
premiums shall be delivered to Landlord. Such policies shall further provide
that not less than thirty (30) days written notice shall be given to Landlord
before such policy may be canceled or changed to reduce insurance provided
thereby.
14. CONDEMNATION.
a. If the whole or any substantial part as determined by Landlord of
the premises should be taken for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof and the taking would prevent or materially
interfere with the use of the premises for the purpose for which they are being
used, this lease shall terminate and the rent shall be abated during the
unexpired portion of this lease, effective when the physical taking of said
premises shall occur.
b. If part of the premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, or by private purchase in lieu thereof, and this lease
is not terminated as provided in the subparagraph above, this lease shall not
terminate but the rent payable hereunder during the unexpired portion of this
lease shall be reduced to such extent as may be fair and reasonable under all of
the circumstances.
c. In the event of any such taking or private purchase in lieu thereof,
Landlord and Tenant shall each be entitled to receive and retain such separate
awards as may be allocated to their respective interests in any condemnation
proceedings.
15. HOLDING OVER. Tenant will, at the termination of this lease by
lapse of time or otherwise, yield up immediate possession to Landlord. If
Landlord agrees in writing that Tenant may hold over after the expiration or
termination of this lease, unless the parties hereto otherwise agree in writing
on the terms of such holding over, the hold over tenancy shall be subject to
termination by Landlord or by Tenant at any time upon not less than thirty (30)
days advance written notice, and all of the other terms and provisions of this
lease shall be applicable during that period, except that Tenant shall pay
Landlord from time to time upon demand, as rental for the period of any hold
over, an amount equal to 150% of the rent in effect on the termination date,
computed on a daily basis for each day of the hold over period. No holding over
by Tenant, whether with or without consent of Landlord, shall operate to extend
this lease except as otherwise expressly provided. The preceding provisions of
this paragraph 15 shall not be construed consent for Tenant to hold over.
16. QUIET ENJOYMENT. Landlord covenants that it now has, or will
acquire before Tenant takes possession of the premises, good title to the
premises, free and clear of all liens and encumbrances, excepting only the lien
for current taxes not yet due, such mortgage or mortgages as are permitted by
the terms of this lease, zoning ordinances and other building and fire
ordinances and governmental regulations relating to the use of such property,
and easements, restrictions and other conditions of record. Landlord represents
and warrants that it has full right and authority to enter into this lease and
that Tenant, upon paying the rental herein set forth and performing its other
covenants and agreements herein set forth, shall peaceably and quietly have,
hold and enjoy the
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premises for the term hereof without hindrance or molestation from Landlord,
subject to the terms and provisions of this lease.
17. EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this lease:
a. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any payment with respect to operating expenses hereunder when due,
or any other payment or reimbursement to Landlord required herein when due, and
such failure shall continue for a period of five (5) days from the date Landlord
gives Tenant written notice that such sum is due, provided that Landlord shall
not be obligated to give such notice, and Tenant shall not be entitled to such
period of grace, more than two (2) times in any twelve (12) month period.
b. Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
c. Tenant shall file a petition under any section or chapter of the
National Bankruptcy Code, as amended, or under any similar law or statute of the
United States or and State thereof; or an order for relief shall be entered
against Tenant in any proceedings filed against Tenant thereunder.
d. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.
e. Tenant shall generally not pay its debts as such debts become due.
f. Intentionally Omitted.
g. Tenant shall fail to discharge any lien placed upon the premises in
violation of Paragraph 21 hereof within twenty (20) days after any such lien or
encumbrance is filed against the premises.
h. Tenant shall fail to comply with any term, provision or covenant of
this lease (other than the foregoing in this Paragraph 17), and shall not cure
such failure within twenty (20) days after written notice thereof to Tenant.
18. REMEDIES.
a. Upon the occurrence of any of such events of default described in
Paragraph 17 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
(i) Terminate this lease, in which event Tenant shall
immediately surrender the premises to Landlord, and if Tenant fails so
to do, Landlord may, without prejudice to any other remedy which it may
have for possession or arrearage in rent, enter upon and take
possession of the premises and expel or remove Tenant and any other
person who may be
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occupying such premises or any part thereof, by force if necessary,
without being liable for prosecution or any claim of damages therefor.
(ii) Enter upon and take possession of the premises and expel
or remove Tenant and any other person who may be occupying such
premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and relet the
premises and receive the rent therefor.
(iii) Enter upon the premises by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this lease; and
Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in thus effecting compliance with Tenant's
obligations under this lease, and Tenant further agrees that Landlord
shall not be liable for an damages resulting to the Tenant from such
action, whether caused by the negligence of Landlord or otherwise.
(iv) Alter all locks and other security devices at the
premises without terminating the lease.
In the event Tenant fails to pay any installment of rent hereunder as
and when such installment is due, and such failure CONTINUES FOR five (5) or
more days past the due date, then to help defray the additional cost to Landlord
for processing such late payments, Tenant shall pay to Landlord, on demand, a
late charge in an amount equal to five percent (5%) of such installment; and the
failure to pay such amount within ten (10) days after demand therefor shall be
an event of default hereunder, provided, however, that Landlord shall give
Tenant notice of non-payment and five (5) days from receipt of such notice to
cure such NON-PAYMENT TWICE in any twelve month period before assessing such
late fee. The provision for such late charge shall be in addition to all of
Landlords other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner.
b. Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. No such alteration of locks or other security devices and
no removal or other exercise of dominion by Landlord over the property of Tenant
or others at the premises shall be deemed unauthorized or constitute a
conversion, Tenant hereby consenting, after any event of default, to the
aforesaid repossession and/or alteration of locks or other security devices are
hereby waived, as are all claims for damages by reason of any distress warrant,
forcible detainer proceedings, sequestration proceedings or other legal process.
Tenant agrees that any re-entry by Landlord may be pursuant to judgment obtained
in forcible detainer proceedings or other legal proceedings or without the
necessity for any legal proceedings, as Landlord may elect, and Landlord shall
not be liable in trespass or otherwise.
c. In the event Landlord elects to terminate the lease by reason of an
event of default, then notwithstanding such TERMINATION, TENANT shall be liable
for and shall pay to Landlord, at the
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address specified for notice to Landlord herein, the sum of all rental and other
indebtedness accrued to date of such termination, plus, as damages, an amount
equal to the difference between (i) the total rental hereunder for the remaining
portion of the lease term (had such term not been terminated by Landlord prior
to the date of expiration stated in Paragraph 1) and (ii) the then present value
of the then fair rental values of the premises for such period.
d. In the event that Landlord elects to repossess the premises without
terminating the lease, then Tenant shall be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the lease term
until the date of expiration of the term as stated in Paragraph I as and when
due, diminished by any net sums thereafter received by Landlord through
reletting the premises during said period (after deducting expenses incurred by
Landlord as provided in subparagraph 17(e) below). In no event shall Tenant be
entitled to any excess of any rental obtained by reletting over and above the
rental herein reserved. Actions to collect amounts due by Tenant to Landlord
under this subparagraph may be brought from time to time, on one or more
occasions, without the necessity of Landlord's waiting until expiration of the
lease term.
e. In case of any event of default or breach by Tenant, or threatened
or anticipatory breach or default, Tenant shall also be liable for and shall pay
to Landlord, at the address specified for notice to Landlord herein, in addition
to any stun provided to be paid above, reasonable brokers' fees incurred by
Landlord in connection with reletting the whole or any part of the premises; the
reasonable costs of removing and storing Tenant's or other occupant's property;
the reasonable costs of repairing, altering, remodeling or otherwise putting the
premises into condition acceptable to a new tenant or tenants; and all
reasonable expenses incurred by Landlord in enforcing or defending Landlord's
rights and/or remedies including reasonable attorney's fees which shall be not
less than fifteen percent (15%) of all sums then owing by Tenant to Landlord
whether suit is actually filed or not.
f. In the event of termination or repossession of the premises for an
event of default, Landlord shall use commercially reasonable efforts to relet
the premises and to collect rental after reletting; and in the event of
reletting, Landlord may relet the whole or any portion of the premises for any
period to any tenant and for any use and purpose. Landlord shall be under no
obligation to attempt to relet the premises until Tenant has delivered
possession thereof to Landlord, to relet the premises prior to the lease of
other available space in the project or to subdivide the premises to lease only
a portion thereof.
g. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the premises for such purpose), and thereupon Tenant shall be obligated to, and
hereby agrees, to pay Landlord, upon demand, all costs, expenses and
disbursements (including reasonable attorney's fees) incurred by Landlord in
taking such remedial action.
h. If the Landlord shall fail to pay any amount or perform any act on
its part to be paid or performed under this Lease and such failure (i) continues
for thirty (30) days after notice thereof
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by Tenant (except such lesser time as is reasonable in the event of an
emergency) and (ii) has a material adverse effect on tenant's ability to use the
Premises for the permitted use, then Tenant may, without obligation to do so,
AND WITHOUT WAIVING or releasing the Landlord from any obligations of the
Landlord, make any such payment or perform any such other act on Landlord's part
to be made or performed under this Lease. Landlord shall reimburse Tenant for
all reasonable and necessary costs and expenses incurred by Tenant promptly upon
receipt from Tenant of written demand accompanied by copies of receipts or
invoices for such costs and expenses. Otherwise, in the event of any default by
Landlord, tenant's exclusive remedy shall be an action for damages (Tenant
hereby waiving the benefit of any laws granting it a lien upon the property of
Landlord and/or upon rent due Landlord), but prior to any such action Tenant
will give Landlord written notice specifying such default with particularity,
and Landlord shall thereupon have thirty days in which to cure any such default.
Unless and until Landlord fails to so cure any default after such notice, Tenant
shall not have any remedy or cause of action by reason thereof All obligations
of Landlord hereunder will be construed as covenants, not conditions; and all
such obligations will be binding upon Landlord only during the period of its
possession of the premises and not thereafter. The term "Landlord" shall mean
only the owner, for the time being of the premises, and in the event of the
transfer by such owner of its interest in the premises, such owner shall
thereupon be released and discharged from all covenants and obligations of the
Landlord thereafter accruing, but such covenants and obligations shall be
binding during the lease term upon each new owner for the duration of such
owner's ownership. Notwithstanding any other provision hereof, Landlord shall
not have any personal liability hereunder. In the event of any breach or default
by Landlord in any term or provision of this lease, Tenant agrees to look solely
to the equity or interest then owned by Landlord in the premises; however, in no
event, shall any deficiency judgment or any money judgment of any kind be sought
or obtained against any party Landlord.
i. In the event that Landlord shall have taken possession of the
premises pursuant to the authority herein granted then Landlord shall have the
right to keep in place and use all of the furniture, fixtures and equipment at
the premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
lessor thereof or third party having a lien thereon. Landlord shall also have
the right to remove from the premises (without the necessity of obtaining a
distress warrant, writ of sequestration or other legal process) all or any
portion of such furniture, fixtures, equipment and other property located
thereon and to place same in storage at any premises within the County in which
the premises is located; and in such event, Tenant shall be liable to Landlord
for costs incurred by Landlord in connection with such removal storage. Landlord
shall also have the right to relinquish possession of all or any portion of such
furniture, fixtures, equipment and other property to any person ("Claimant")
claiming to be entitled to possession thereof who presents to Landlord a copy of
any instrument represented to Landlord by Claimant to have been executed by
Tenant (or any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other
property, without the necessity on the part of Landlord to inquire into the
authenticity of said instrument's copy of Tenant's or Tenant's predecessor's
signature thereon and without the necessity of Landlord making any nature of
investigation or inquiry as to the validity of the factual or legal basis upon
which Claimant purports to act; and Tenant agrees to indemnify and hold Landlord
harmless from all cost, expense, loss, damage and liability incident to
Landlord's relinquishment of possession of all or any portion of such furniture,
fixtures, equipment or other property to Claimant. The rights of Landlord herein
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stated shall be in addition to any and all other rights which Landlord has or
may hereafter have at law or in equity; and Tenant stipulates and agrees that
the rights herein granted Landlord are commercially reasonable.
19. LANDLORD'S LIEN. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest (subordinate, however, to any purchase money
security interest granted by Tenant to a third party) for all rentals and other
sums of money becoming due hereunder from Tenant, upon all goods, wares,
equipment, fixtures, furniture, inventory, accounts, contract rights, chattel
paper and other personal property of Tenant situated on the premises, and such
property shall not be removed therefrom without the consent of Landlord until
all arrearages in rent as well as any and all other sums of money then due to
Landlord hereunder shall first have been paid and discharged. In the event of a
default under this lease, Landlord shall have, in addition to any other remedies
provided herein or by law, all rights and remedies under the Uniform Commercial
Code, including without limitation the right to sell the property described in
this Paragraph 19 at public or private sale upon five (5) days notice to Tenant.
Tenant hereby agrees to execute such financing statements and other instruments
necessary or desirable in Landlord's discretion to perfect the security interest
hereby created. Any statutory lien for rent is not hereby waived, the express
contractual lien herein granted being in addition and supplementary thereto.
20. MORTGAGES. Tenant accepts this lease subject and subordinate to
any mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the premises or the improvements situated
thereon, provided, however, that if the mortgagee, trustee, or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this lease
superior to any such instrument in whole or in part, then by notice to Tenant,
from such mortgagee, trustee or holder, this lease shall be deemed superior to
such lien, whether this lease was executed before or after said mortgage or deed
of trust, and provided further that in the event of foreclosure the holder of
any such mortgage or deed of trust shall not disturb Tenant's use and possession
of the premises so long as Tenant is not in default hereunder. Tenant shall at
any time hereafter on demand execute any instruments, releases or other
documents which may be required by any mortgagee for the purpose of subjecting
and subordinating this lease or making this lease superior to the lien of any
such mortgage, provided that the same contains reasonable non-disturbance
provisions.
21. MECHANIC'S LIENS AND TENANT'S PERSONAL PROPERTY TAXES.
a. Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind, the interest of Landlord or Tenant in the premises or to charge
the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
premises on which any lien is or can be validly and legally asserted against its
leasehold interest in the premises or the improvements thereon and that it will
save and hold Landlord harmless from any and all loss, cost or expense based on
or arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of the
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Landlord in the premises or under the terms of this lease. Tenant agrees to give
Landlord immediate written notice of the placing of any lien or encumbrance
against the premises.
b. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and if Landlord elects to pay the same or if the
assessed value of Landlord's property is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the premises, and Landlord
elects to pay the taxes based on such increase, Tenant shall pay to Landlord
upon demand that part of such taxes.
22. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
a. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address for Landlord
hereinbelow set forth or at such other address as Landlord may specify from time
to time by written notice delivered in accordance herewith. Tenants obligation
to pay rent and any other amounts to Landlord under the terms of this lease
shall not be deemed satisfied until such rent and other amounts have been
actually received by Landlord.
b. All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at such
other address within the continental United States as Tenant may specify from
time to time by written notice delivered in accordance herewith.
c. With the exception of Paragraph 11(a) above, any notice or document
required or permitted to be delivered hereunder shall be deemed to be delivered
whether actually received or not when deposited in the United States Mail,
postage prepaid, Certified or Registered Mail, addressed to the parties hereto
at the respective addresses set out below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith:
LANDLORD: TENANT:
Riggs & Company, a division of Riggs Bank N.A., Pinacor, Inc.
as trustee of the Multi-Employer Property Trust 2400 South MicroAge Way
808 17th Street, NW, Washington, D.C. 20006 Tempe, AZ 85282
Attn: Vice President,
Administration
With copy to: With copy to:
TC Northeast Metro, Inc. 2400 South MicroAge Way
18 10 Chapel Avenue West, Suite 220 Tempe, AZ 85282
Cherry Hill, NJ 08002 Attn: Legal Department
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If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant", as used
in this instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address within the
continental United States for the receipt of notices and payments to Tenant. All
parties included within the terms "Landlord" and "Tenant", respectfully, shall
be bound by notices given in accordance with the provisions of this paragraph to
the same effect as if each had received such notice.
23. MISCELLANEOUS.
a. Words of any gender used in this lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
b. The terms, provisions and covenants and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provided. Landlord shall
have the right to transfer and assign, in whole or in part, its rights and
obligations in the building and property that are the subject of this lease.
Each party agrees to furnish to the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of such party to enter into this
lease.
c. The captions inserted in this lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
d. Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this lease and such other
matters PERTAINING TO this lease as may be requested by Landlord. It is
understood and agreed that TENANT'S OBLIGATION to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this lease.
e. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
f. All obligations of Tenant hereunder not fully performed as of tile
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and
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insurance and all obligations concerning the condition of the premises. Upon the
expiration or earlier termination of the term hereof, and prior to Tenant
vacating the premises, Tenant shall pay to Landlord any amount reasonably
estimated by Landlord as necessary to put the premises, including without
limitation all heating and air conditioning systems and equipment therein, in
good condition and repair, reasonable wear and tear excepted. Tenant shall also,
prior to vacating the premises, pay to Landlord the amount, as estimated by
Landlord, of Tenant's obligation hereunder for real estate taxes and insurance
premiums for the year in which the lease expires or terminates (for the portion
of the year within the Lease term). All such amounts shall be used and held by
Landlord for payment of such obligations of Tenant hereunder, with Tenant being
liable for any additional costs therefor upon demand by Landlord, or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied, as the case may be. Any security deposit held by Landlord shall
be credited against the. amount payable by Tenant under this Paragraph 23(F).
g. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
h. Because the premises are on the open market and are presently being
shown, this lease shall be treated as an offer with the premises being subject
to prior lease and such offer subject to withdrawal or non-acceptance by
Landlord or to other use of the premises without notice, and this lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
i. All references in this lease to "the date hereof' or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
j. Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction or that no broker,
agent or other person brought about this transaction, other than TC Northeast
Metro, Inc. and CB Richard Ellis, and Tenant agrees to indemnify and hold
Landlord harmless from and against any claims by any other broker, agent or
other person claiming a commission or other form of compensation by virtue of
having dealt with Tenant with regard to this leasing transaction.
24. OPERATING EXPENSE ADJUSTMENT. Tenant agrees to pay Landlord
monthly, as an additional rental, one twelfth (1/12) of Tenant's proportionate
share of the estimated "Operating Expenses".
The most recent projection of "Operating Expenses" for the building is
$1.41 per square foot per year. Tenant's proportionate share of this projection
of "Operating Expenses" amounts to a monthly charge of Fifteen Thousand Four
Hundred Eighty Five Dollars ($15,485.00), for which the Tenant will be
separately billed.
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At the end of each calendar year, or from time to time as Landlord may
elect, Landlord agrees to refund to Tenant the amount that Tenant's payments
exceed the actual "Operating Expenses". Conversely, Tenant agrees to pay
Landlord, as additional rental-upon-demand, the amount that the actual
"Operating Expenses" exceed Tenant's payments. Landlord, upon notice to Tenant,
may elect to lower or raise the projected cost paid monthly by Tenant so that
Tenant's payments are equal to the adjusted projection of "Operating Expenses".
Notwithstanding anything to the contrary in Paragraph 4b, to the extent
that employees or agents of Landlord perform tasks associated with the operation
and maintenance of the building premises, which would have otherwise been
performed by outside contractors, 100% of such reasonable costs for these
services may be charged as operating expenses. These costs will be treated as if
the services were performed by outside contractors and shall not be subject to
the cap of 4% of gross annual rental which shall apply to management tasks
performed by employees of agents of Landlord. The term "Operating Expenses"
shall specifically exclude capital improvement which under generally accepted
accounting principles and practices would be classified as capital expenditures
to the building or the project of which the Premises is a part.
25. ENVIRONMENTAL MATTERS.
a) Tenant shall not engage in operations at the Premises which involve
the generation, manufacture, refining, transportation, treatment, storage,
handling or disposal of "hazardous substances" or "hazardous waste" as such
terms are defined under the Industrial Site Recovery Act, N.J.S.A. 13: 1k-6 et
seq ("ISRA"). Tenant further covenants that it will not cause or permit to exist
as result of an intentional or unintentional action or omission on its part, the
releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping
from, on or about the Premises of any hazardous substance (as such term is
defined under N.J.S.A. 58:10-23.11 (b)(k) and N.J.A.C. 7: 1
b) If Tenant's operations on the Premises now or hereafter constitute
an "Industrial Establishment" subject to the requirements of ISRA, then prior to
the expiration or sooner termination of this Lease or to any assignment of this
Lease or any subletting of any portion of the Premises, Tenant shall, at its
expense, comply with all requirements of ISRA pertaining to the transfer or
closure of an Industrial Establishment. Without limitation of the foregoing,
Tenant's obligations shall include (i) the proper filing of an initial notice to
the New Jersey Department of Environmental Protection ("DEP") (ii) the
performance of any soil, ground water and surface water sampling and tests
required by the DEP and (iii) either the filing of a "negative declaration" with
the DEP or the performance of a proper and approved clean up plan to the
satisfaction of the DER
c) In the event of Tenant's failure to comply in full with this
Article, Landlord may, at its option, perform any and all of Tenant's
obligations as aforesaid and all costs and expenses incurred by Landlord in the
exercise of this right shall be deemed to be Additional Rent payable on demand.
d) Landlord shall indemnify, defend, and hold Tenant harmless from and
against any liability or expense suffered or incurred by Tenant as a result of
any presence on or release from the
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Premises of any hazardous substance or hazardous waste that occurred prior to
Tenant's occupancy of the Premises. In the event that any contamination of the
Premises is discovered during the term of this Lease that was caused by a
release occurring prior to Tenant's occupancy of the Premises, Landlord shall,
in addition to the indemnity set forth above, promptly take steps to remediate
such contamination as required by law, which remediation shall be at Landlord's
sole cost and expense and shall not be charged, directly or indirectly, to
Tenant.
e) Nothing herein shall be deemed to prohibit Tenant's use of customary
office supplies and cleaners in customary quantities for office use, provided
that such use is in compliance with applicable law.
f) This Article shall survive the expiration or sooner termination of
the Lease.
26. ESTOPPEL CERTIFICATE. Tenant shall at any time upon not less than
twenty (20) days written notice execute and deliver to Landlord, lender or
assignee or subtenant of Tenant, an estoppel certificate as reasonably requested
by Landlord in the form attached as Exhibit "C" with any modifications thereto
required by the then applicable state of facts.
27. ACCESS LAWS.
a) As used in this paragraph, the term "Access Laws" shall mean the
Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of
1988, all state and local laws or ordinances related to handicapped access, or
any statute, rule, regulation, ordinance, order of governmental bodies or
regulatory agencies, or order or decree of any court adopted or enacted with
respect to any of the foregoing. The term Access Laws shall include all Access
Laws now in existence or hereafter enacted, adopted or applicable.
b) Landlord makes no representations regarding the compliance of the
Premises, Building or the Project with Access Laws; provided that, if any
improvements or alterations constructed by Landlord do not comply with Access
Laws, Landlord shall be responsible for correcting such defects if and to the
extent required by law.
c) Tenant agrees to notify Landlord immediately if Tenant becomes aware
of (i) any condition or situation in or on the Premises occurring or arising
after the commencement date of this Lease which would constitute a violation of
any Access Laws, or (ii) any threatened or actual lien, action or notice of the
Premises not being in compliance with any Access Laws. Tenant shall inform
Landlord of the nature of any such condition, situation, lien, action or notice
and of the action Tenant proposes to take in response thereto.
d) Tenant shall be solely responsible for all costs and expenses
relating to or incurred in connection with bringing the Premises, the Building
and the common areas into compliance with the Access Laws if and to the extent
such costs and expenses arise out of or relate to Tenant's use of the Premises
or Tenant's modifications, improvements or alterations to the Premises after the
date of this Lease.
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e) Tenant agrees to indemnify, defend and hold Landlord harmless from
and against any and all claims, demands, damages, losses, liens, liabilities,
penalties, fines, lawsuits, and other proceedings and costs and expenses
(including attorneys fees), arising directly or indirectly from or out of, or in
any way connected with, any activity on or use of the Premises, the Building or
the Project by Tenant, its agents, employees, contractors, invitees, or any
subtenant or concessionaire put into possession of all or any part of the
Premises by Tenant, which activity or use results in the Premises violating any
applicable Access Laws.
f) The provisions in this paragraph 27 shall supersede any other
provisions in this Lease regarding Access Laws to the extent inconsistent with
the provisions of this paragraph. The provisions in this paragraph 27 shall
survive the expiration of the term or the termination of this Lease for any
other reason whatsoever.
28. ERISA REPRESENTATIONS. Tenant represents to Landlord that with the
exception of this Lease, neither the Tenant nor any affiliate of the Tenant is a
tenant under a lease or any other tenancy arrangement (1) with (a) Riggs &
Company, a division of Riggs Bank, N.A., as trustee of the Multi-Employer
Property Trust; (b) the Multi-Employer Property Trust; (c) the National Bank of
Washington Multi-Employer Property Trust, the previous name of the
Multi-Employer Property Trust; (d) The Riggs National Bank of Washington, D.C.,
as trustee of the Multi-Employer Property Trust; (e) Alameda Industrial
Properties Joint Venture; (f) Harman International Business Campus Joint
Venture; (g) the Beaverton-Redmond Tech Properties; (h) Corporate Drive
Corporation as trustee of the Corporate Drive Nominee Realty Trust; (i) Goldbelt
Place Joint Venture; j) BOCA 1515, a joint venture; (k) Arboretum Lakes-I,
L.L.C., a Delaware limited liability company; (1) Village Green of Rochester
Hills Associates L.L.C.; (in) Pine Street Development, L.L.C.; or (n) MEPT
Realty LLC; or (2) involving any property in which any one or more of the
entities named in clauses (1) (a) through (d) are known by the Tenant to have an
ownership interest.
29. LIMITATION OF LANDLORD'S LIABILITY. Notwithstanding any provision
to the contrary contained in this Lease, Tenant shall look solely to the estate
and interest of Landlord in and to the Land and the building, and Landlord shall
have no personal liability, in the even of any claim against Landlord arising
out of or in connection with this Lease, the relationship of Landlord and
Tenant, or Tenant's use of the Leased Premises, and Tenant agrees that the
liability of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant, or Tenant's use of the Leased Premises
shall be limited solely to such estate or interest of Landlord in and to the
Land and the Building and that Landlord shall have no personal liability as
provided above in this sentence. No properties or assets of Landlord other than
the estate and interest of Landlord in and to the Land and the Building, and no
property owned by any partners, officer, member, director or trustee in or of
Landlord, shall be subject to levy, execution or other reenforcement procedures
for the satisfaction of any judgment (or other judicial process) or for the
satisfaction of any other remedy of Tenant arising out of or in connection with
this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Leased Premises. Further, in no event whatsoever shall any partner, officer,
member, director or trustee in or of Landlord have any liability or
responsibility whatsoever arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Leased Premises.
-21-
<PAGE>
30. OPTION TO RENEW. Landlord hereby grants Tenant two successive
options to renew the Lease term, upon the following terms and conditions:
(a) Each renewal term shall be for three (3) years, commencing on the
next day following the expiration date of the Lease term (i.e., with respect to
the first renewal option, the last day of the initial three (3) year Lease term
and, with respect to the second renewal option (assuming that the first renewal
option was exercised), the last day of the Lease term as extended by the first
renewal option) and expiring at midnight on the day preceding the third (3rd)
anniversary of the commencement date of such renewal term;
(b) Tenant must exercise a renewal option, if at all, upon at least
twelve (12) months' written notice to Landlord prior to the expiration date of
the then current Lease term, it being understood that Tenant shall have no right
to exercise the second renewal option if Tenant has not exercised the first
renewal option;
(c) At the time Tenant delivers its notice exercising a renewal option
this Lease must be in full force and effect, Tenant must not have assigned this
Lease or sublet more than ten percent (10%) of the area of the Premises to an
entity other than a transferee contemplated by the last sentence of Paragraph
11, and no Event of Default shall have occurred and be continuing hereunder;
(d) The renewal term shall be upon the same terms, covenants and
conditions contained in this Lease, provided that (i) the annual base rent for
the renewal term shall be the Fair Market Rent of the Premises as of the
commencement of the applicable renewal term, but in no event less than the
annual base rent in effect immediately prior to commencement of such renewal
term, and (ii) Tenant's renewal options shall be limited to the two renewal
options specifically granted in this paragraph; and
(e) If Tenant exercises a renewal option, Tenant shall execute such
instrument as Landlord may require to confirm such exercise, the extension of
the Lease term as provided herein and the annual base rent payable during the
applicable renewal term.
(f) As used in this Paragraph, "FAIR MARKET RENT" shall mean the amount
of annual base rent, expressed in dollars and cents per rentable square foot,
equal to the market rental than being negotiated for comparable space in Class A
warehouse/distribution buildings in the Gloucester County sub-market. In the
event that Landlord and Tenant are unable to agree on the Fair Market Rent for a
renewal term within thirty (30) days after Tenant's exercise of its renewal
option, either party may require determination of the Fair Market Rent for such
renewal term by giving written notice to that effect to the other party, which
notice shall designate a real estate broker selected by the initiating party
experienced in the warehouse/distribution leasing business in the Gloucester
County sub-market. If within sixty (60) days after Tenant's exercise of a
renewal option (i) the parties have not agreed in writing on the Fair Market
Rent, and (ii) neither party has given notice pursuant to the preceding sentence
requiring determination of the Fair Market Rent, Tenant's exercise of such
renewal option shall be deemed rescinded and this option to renew terminated.
-22-
<PAGE>
If written notice requiring determination of the Fair Market Rent is
timely given, then within fifteen (15) days after receipt of such NOTICE, THE
other party to this Lease shall select a real estate broker meeting the same
requirements and give written notice of such selection to the initiating party.
Within fifteen (15) days after selection of the second broker, the two (2) real
estate brokers so selected shall select a third real estate broker experienced
in the warehouse/distribution leasing business in the Gloucester County
sub-market who (and whose firm) is not then employed as an exclusive leasing
broker or management agent by either party or any of their respective affiliates
within the southern New Jersey area. Each of the three (3) brokers shall
determine the Fair Market Rent rate for the Premises as of the commencement of
the renewal term for a term equal to the renewal term within fifteen (15) days
after the appointment of the third broker. The Fair Market Rent shall be equal
to the arithmetic average of such three determinations; provided, however, that
if any such broker's determination deviates more than five percent (5%) from the
median of such determinations the Fair Market Rent shall be an amount equal to
the average of the two (2) closest determinations. Landlord shall pay the costs
and fees of Landlord's broker in connection with any determination hereunder,
and Tenant shall pay the costs and fees of Tenant's broker in connection with
such determination. The cost and fees of the third broker shall be paid one-half
by Landlord and one-half by Tenant. If a party fails to designate a real estate
broker within the time period required by this paragraph, the "third" real
estate broker shall be selected by the broker designated by the initiating
party, and those two brokers shall determine the Fair Market Rental by averaging
their determinations.
31. INITIAL IMPROVEMENTS.
a. Landlord agrees that on the commencement date the HVAC, electrical,
plumbing and other building systems, shall be in good working order and repair.
On or before the commencement date representatives of Landlord and Tenant shall
inspect the premises and prepare a written punchlist of any repairs required to
place such building systems in good working order and repair. Except as may be
set forth in such punchlist, the taking of possession of the premises by Tenant
shall constitute Tenant's acceptance of such systems as being in good working
order and repair. Except as provided in this Paragraph Landlord is delivering
the premises to Tenant, and Tenant accepts the premises from Landlord, in their
"as is" condition.
b. Subject to reimbursement by Landlord as provided below, Tenant shall
be responsible for such refurbishment of the premises, at its expense, as may be
required by Tenant for its use and occupancy of the premises, including
replacement of ceiling tiles, recarpeting and repainting of the office areas
within the premises. Landlord agrees to reimburse Tenant for such refurbishment
costs, up to a maximum of $59,100.00, within thirty (30) days after receipt from
Tenant of a statement in reasonable detail of the refurbishment costs incurred,
accompanied by invoices or receipts supporting the amount to be reimbursed.
c. Attached hereto as Exhibit "D" is a punchlist prepared by Landlord
listing items in the premises which Landlord requires be removed or repaired by
the prior tenant of the premises (the "Tech Data punchlist" and "Tech Data",
respectively). Tenant has advised Landlord that Tenant has separately agreed to
acquire from Tech Data certain of the items noted on the Tech Data Punchlist in
return for assuming Tech Data's obligations under the Tech Data Punchlist Tenant
-23-
<PAGE>
shall cause to be repaired or removed from the premises all items listed on the
Tech Data Punchlist on or before the expiration or sooner termination of this
Lease, and repair any damage resulting from such removal, all at Tenant's
expense.
d. All work to be performed by Tenant pursuant to this Paragraph shall
be performed in a good and workmanlike manner, in compliance with all laws and
lien-free.
EXECUTED BY A DULY AUTHORIZED OFFICER OF LANDLORD, this 28th day of September,
1998.
Riggs & Company, a division of
Riggs Bank N.A. as trustee of the
Multi-Employer Property Trust
Attest/Witness
/s/ [Illegible] By: /s/ [Illegible]
- ---------------------------------- -------------------------------------
Title: Director Title: Managing Director
---------------------------- ----------------------------------
EXECUTED BY A DULY AUTHORIZED OFFICER of TENANT, this 28th day of September,
1998.
Pinacor,Inc.
Attest/Witness
/s/ [Illegible] By: /s/ [Illegible]
- ---------------------------------- -------------------------------------
Title: Mgr. Admin. Title: V.P., Administration
---------------------------- ----------------------------------
-24-
<PAGE>
EXHIBIT "A"
DESCRIPTION OF PROPERTY
DESCRIPTION OF LAND
TO BE KNOWN AS
BLOCK 346K LOT 4
FOREST PARKWAY
WEST DEPTFORD, GLOUCESTER COUNTY, NEW JERSEY
ALL THAT CERTAIN tract or parcel of land situate in the Township of
West Deptford, County of Gloucester and State of New Jersey being more
particularly described as follows:
(see attached legal description)
-25-
<PAGE>
EXHIBIT "A"
DESCRIPTION OF LAND
TO BE KNOWN AS
BLOCK 346K, LOT 4
FOREST PARKWAY
WEST DEPTFORD, GLOUCESTER COUNTY, NEW JERSEY
ALL THAT CERTAIN parcel or tract of land situate in the Township of West
Deptford, County of Gloucester, and State of New Jersey as shown on a plan
entitled "Amended Subdivision Plan, Phase 3, Forest Park Corporate Center",
prepared by NTH/Russell Associates, Consulting Engineers dated October 8, 1987
and last revised April 20, 1988, prepared for Trammell Crow Company bounded and
BEGINNING at a point in the northerly right of way line of Forest Parkway (60
feet wide), said point being the most easterly corner point of Block 346K, Lots
2;
THENCE (1) leaving said right of way line of Forest Parkway, along the
common property line between said Lot 2, and the herein
described parcel; North 26 degrees 40 minutes 08 seconds West,
a distance of 680.03 feet to .a point; said point being
in, the southeasterly right of way line of U.S. Route 130
(250 feet wide, A.K.A. Interstate Route 295)
THENCE (2) along said right of way line of U.S. Route 130, North 63
degrees 19 minutes 52 seconds East, a. distance of 460.00 feet
to a point;
THENCE (3) leaving said right of way line of U.S. Route 130, South 29
degrees 48 minutes 42 seconds East, a distance of 735.69 feet
to a point;
THENCE (4) South 00 degrees 11 minutes 18 seconds West, a distance of
205.56 feet to a point;
THENCE (5) South38 degrees 21 minutes 56 seconds West, a distance of
24.98 feet to a point, said point being in the curved
northerly right of way line of said Forest Parkway;
THENCE (6) along said right of way line of Forest Parkway, along a curve
to the left, having a radius of 430.00 feet for an arc
distance of 483.08 feet to the first mentioned point and place
of BEGINNING.
CONTAINING 8.5357 Acres of Land.
SUBJECT to all easements and restrictions of record, and
subject to the rights of ingress and egress through and on
said lands by the owners or users of said Lot 2 as noted on a
plan entitled "Site Grading and Utility Plan," Sheet SP-2,
prepared by NTH/Russell Associates, Consulting Engineers dated
October 8, 1987 and last revised May 19, 1988, prepared for
the Trammell Crow Company.
<PAGE>
[MAP]
<PAGE>
EXHIBIT "C"
TENANT ESTOPPEL CERTIFICATE
TO: RIGGS & COMPANY, A DIVISION OF RIGGS BANK N.A., AS TRUSTEE OF
THE MULTI-EMPLOYER PROPERTY TRUST ("FUND") and/or whom else it
may concern:
THIS IS TO CERTIFY:
1. That the undersigned is the Tenant under that certain lease dated
______________ 19____, (the "Lease") by and between ______________
_________________________________________ a ___________________________
_________________ (as "Landlord)
and
_______________________________________________________________________
______ (as "Tenant") covering those certain premises commonly known and
designated as _________________________________________________________
(the "Premises"), and located on real property with the legal
description shown on the attached Exhibit I
2. That said Lease is in full force and effect and has not been modified,
changed, altered or amended in any respect (except as indicated
following this sentence and as so modified is in full force and effect)
and is the only Lease or agreement between Tenant and Landlord
affecting the Premises:
3. To the best of Tenant's knowledge, the information regarding the Lease
set forth below is true and correct:
(a) Square Footage:_____________________________________________
(b) Annual rent as of the commencement of Lease:
____________________________________________________________
(c) Current annual rent (if different than at commencement):
-27-
<PAGE>
_______________________________________________________
(d) Lease term commenced:__________________________________
(e) Lease termination date:________________________________
(f) Rent is paid to and including:_________________________
(g) Additional rent being paid is for and in the amount of:
__________________________________________________
(h) Security Deposit:_________________________________
__________________________________________________
(i) Prepaid rental for and in amount of.___________________
_______________________________________________________
4. Tenant has accepted and now occupies the Premises, accepts the Premises
in their current condition and is not aware of any defect in the
Premises. No rent has been collected in the current month other than as
provided for in the Lease, and no free rent or other concessions or
inducements other than as specified in the Lease have been granted to
Tenant or undertaken by Landlord.
5. Tenant has not been granted any renewal, expansion, or purchase options
and has not been granted any rights of first refusal except as
disclosed in writing in the Lease.
6. The Lease is not in default nor has there occurred any event which, by
lapse of time or otherwise, will result in default under the Lease. As
of the date of this Certificate Tenant is entitled to no credit, offset
or deduction in rent.
7. There are not actions, whether voluntary or otherwise, pending against
Tenant under the bankruptcy laws or other law or laws for the relief of
debtors of the United States or any state of the United States.
8. Tenant represents to Landlord that with the exception of this Lease,
neither the Tenant nor any affiliate of the Tenant is a tenant under a
lease or any other tenancy arrangement (1)
-28-
<PAGE>
with (a) Riggs & Company, a division of Riggs Bank, N.A., as trustee of
the Multi-Employer Property Trust; (b) the Multi-Employer Property
Trust; (c) the National Bank of Washington Multi-Employer Property
Trust, the previous name of the Multi-Employer Property Trust; (d) The
Riggs National Bank of Washington, D.C., as trustee of the
Multi-Employer Property Trust; (e) Alameda Industrial Properties Joint
Venture; (f) Harman International Business Campus Joint Venture; (g)
Beaverton-Redmond Tech Properties; (h) Corporate Drive Corporation as
trustee of the Corporate Drive Nominee Realty Trust; (i) Goldbelt Place
Joint Venture;. 6) BOCA 1515, a joint venture; (k) Arboretum Lakes-I,
L.L.C., a Delaware limited liability company; (1) Village Green of
Rochester Hills Associates L.L.C.; (m) Pine Street Development, L.L.C.;
or (n) MEPT Realty LLC; or (2) involving any property in which any one
or more of the entities named in clauses (1) (a) through (d) are known
by the Tenant to have an ownership interest.
9. Except as expressly and specifically permitted by the Lease, Tenant has
not engaged in operations at the Premises which involve the generation,
manufacture, refining, transportation, treatment, storage, handling or
disposal of "hazardous substances" or "hazardous waste" as such terms
are defined under the Industrial Site Recovery Act, N.J.S.A. 13: 1 K-6
et seq., and the regulation promulgated thereunder. Tenant has not
caused or permitted to exist as a result of an intentional or
unintentional action or omission on its part, the releasing, spilling,
leaking, pumping, pouring, omitting, emptying or dumping from, on or
about the Premises of any hazardous substance (as such term is defined
under N.J.S.A. 58:10-23.11 (b)(k) and N.J.A.C. 7:1-3.3).
DATED THIS ______________ day of ______________________________, 19___.
TENANT:
____________________________________
____________________________________
-29-
<PAGE>
[EXHIBIT D]
[TECH DATA PUNCHLIST]
RE: Punchlist for 1228 Forest Parkway
- --------------------------------------------------------------------------------
The following items were noted as needing to be repaired during an inspection on
September 25, 1998.
GENERAL COMMENTS
>> Remove all security systems, cameras, and associated wiring
>> General cleaning throughout
>> Emergency lighting, exit lighting, and fire extinguishers to be
compliant with Township ordinances
>> Repaint all office areas
GENERAL WAREHOUSE
>> The existing mezzanine including all sprinklers, electrical wiring,
control wiring, and any compressed air piping to be removed. All bolts
in floor to be cut down and floor repaired as needed.
>> Warehouse lighting above mezzanine to be reinstalled to meet standard
building finishes.
>> Remove remaining cables in the ceiling including data, security,
telephone.
>> Shelving and racks from second floor mezzanine to be removed (currently
staged in center of warehouse area).
>> All security gates around personnel doors and overhead doors to be
removed.
>> All overhead doors, dock plates, to be in good order and working
repair, and weather stripped properly.
>> All drywall to be repaired as necessary.
>> Remove bolts from floor outside Shipping and Receiving Office
>> Tables, Lockers, Workbenches stored in center of building behind
central office area to be removed.
>> Repair drywall opening in demising wall.
OFFICE AREA #1 (Closest to I295)
>> Repair drywall as needed throughout office
>> Remove any telephone wiring that is not located within the wall
>> Repair one door handle off of lobby area
>> Remove internally built closet with pre-hung wood door and 2x4 studs
>> Women's room: replace one missing lens
>> Remove shelving in lunch area
<PAGE>
>> Replace damaged slats of mini-blinds
>> Remove chalkboard in rear warehouse area
>> Repair main door from office to warehouse where it is missing door
latch
>> Men's Employee Bathroom: Repair urinal screen. Remove wallcovering and
repaint
>> Women's Room: Repair toilet handle and remove wallcovering and paint.
LOADING DOCK AREA
>> Repair broken railing on personnel stairs.
>> Cut down bolts in concrete truck court next to stairs
>> Repair damaged concrete blocks at one loading dock location
OFFICE AREA #2/LUNCH ROOM
>> Remove pre-hung wood door and internal wall (future communications
room).
>> Replace one toilet paper holder
>> Repair blinds as needed
>> Remove bulletin boards and corkboards
>> Remove interior drywall, which is over top of exterior windows
>> Replace hardware for door into warehouse area.
>> Door to warehouse/frame to be repaired or replaced
>> Replace handle on men's room toilet
OFFICE AREA #3 (NEXT TO FOREST PARKWAY)
>> Front entrance door - replace broken glass
>> Replace damaged mini blinds as needed
>> Replace door strike going into old configuration room
>> Remove lock from rear rollup door / verify proper operation
>> Replace burnout light bulbs as needed
>> Repair damaged ceiling next to rollup door
EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
MICROAGE, INC
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
(in thousands, except per share data)
Fiscal years ended
--------------------------------------
November 3, November 2, November 3,
1998 1997 1996
---- ---- ----
Basic
Weighted average common shares 19,783 16,731 15,978
======= ======= =======
Diluted
Weighted average shares from basic
calculation 19,783 16,731 15,978
Dilutive effect of stock options
and warrants -- 904 474
------- ------- -------
Weighted average common and common
equivalent shares outstanding -
fully diluted 19,783 17,635 16,452
======= ======= =======
Net income (loss) $(8,325) $25,197 $15,529
Net income (loss) per common and
common equivalent share:
Basic $ (0.42) $ 1.51 $ 0.97
Diluted $ (0.42) $ 1.43 $ 0.94
SUBSIDIARIES
(AS OF 11/1/98)
I. MicroAge Computer Centers, Inc., a Delaware corporation Subsidiaries:
A. 153000 Canada Limited, a Canadian corporation
B. MCCI Holding Company, a Delaware corporation Subsidiaries:
1. Image Choice, Inc., a Delaware corporation
2. Ecadvantage, Inc., a Delaware corporation
3. MicroAge Integration Co., a Delaware corporation Subsidiaries:
(A) Centric Resources, Inc., a Delaware corporation
(B) MicroAge Deutschland GmbH, a German corporation
(1) ComIt, a German corporation
(C) MicroAge Infosystems Services Europe, Ltd., a UK corporation
Subsidiaries:
(1) MicroAge Europe Limited, a UK corporation
(2) MicroAge UK Limited, a UK corporation
(D) MCSS, Inc., a Delaware corporation
(E) MCSX, Inc., a Delaware corporation
<PAGE>
4. Pinacor, Inc., a Delaware corporation
(A) Pinacor Logistics Services, Inc., a Delaware corporation
(B) Complete Distribution, Inc., a Delaware corporation
(C) Contract PC, Inc., a Delaware corporation
(D) ConnectWorks, Inc., a Delaware corporation Subsidiaries:
(1) Phoenix, Connections, Inc., a Delaware corporation
II. Pride Technologies Incorporated, a New Jersey corporation
III. Access Microsystems, Inc., a California corporation
IV. Gaines Computer Service, Inc., a New York corporation
V. KNB Incorporated, a Pennsylvania corporation
VI. Integration Partners, Inc., a Delaware corporation
VII. Cass Marketing Services, Inc., a Delaware corporation
VIII. Advanced Information Services, Inc., an Alaska corporation Subsidiaries:
A. Margre, Inc., an Oregon corporation
B. Integrated Solutions Incorporated, an Alaska corporation
C. WASH Data, Inc., an Alaska corporation
D. N Corporation, an Alaska corporation
E. Cal Data, Inc., a California corporation
<PAGE>
IX. Microretailing, Inc., a Florida corporation Subsidiaries:
A. InterPC de Venezuela, a Venezuela corporation
B. InterPC de Bolivia, a Bolivia corporation
C. InterPC de Ecuador, an Ecuador corporation
D. InterPC de Columbia, a Columbia corporation
X. ECSource, Inc., a Delaware corporation
XI. MicroAge Administration, Inc., a Delaware corporation
XII. MicroAge Technologies, Inc., a Delaware corporation
XIII. MicroAge Ventures, Inc., a Delaware corporation
XIV. IntraCom Marketing, Inc., a Delaware corporation
XV. PCClearance, Inc., a Delaware corporation
XVI. MicroAge Government, Inc., a Delaware corporation
XVII. MicroAge Paymaster, Inc., a Delaware corporation
XVIII. MicroAge Infosystems Services, Inc., a Delaware corporation
XIX. PriTech Solutions, Inc., a Delaware corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-18967, 33-26351, 33-26565, 33-33370, 33-51978,
33-58899, 33-58901, 33-81040, 333-26247 and 333-42939) and the incorporation by
reference in the Prospectus constituting part of the Registration Statements on
Form S-3 (Nos. 33-35674, 333-27349, 333-35613, 333-36281, 333-40007 and
333-41145) and Form S-2 (Nos. 33-38764 and 33-33094) of MicroAge, Inc. of our
report dated January 8, 1999 appearing on page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED NOVEMBER
1, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-START> NOV-03-1997
<PERIOD-END> NOV-01-1998
<EXCHANGE-RATE> 1
<CASH> 41,894
<SECURITIES> 0
<RECEIVABLES> 550,295
<ALLOWANCES> 20,418
<INVENTORY> 486,150
<CURRENT-ASSETS> 1,082,353
<PP&E> 200,606
<DEPRECIATION> 108,459
<TOTAL-ASSETS> 1,315,143
<CURRENT-LIABILITIES> 1,003,743
<BONDS> 0
0
0
<COMMON> 203
<OTHER-SE> 290,283
<TOTAL-LIABILITY-AND-EQUITY> 1,315,143
<SALES> 5,520,031
<TOTAL-REVENUES> 5,520,031
<CGS> 5,166,790
<TOTAL-COSTS> 5,166,790
<OTHER-EXPENSES> 33,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,357
<INCOME-PRETAX> (7,418)
<INCOME-TAX> 907
<INCOME-CONTINUING> (8,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,325)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED FEBRUARY 2,
1997, MAY 4, 1997 AUGUST 3, 1997 AND NOVEMBER 2 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> NOV-02-1997 NOV-02-1997 NOV-02-1997 NOV-02-1997
<PERIOD-START> NOV-04-1996 FEB-03-1997 MAY-05-1997 NOV-04-1996
<PERIOD-END> FEB-02-1997 MAY-04-1997 AUG-03-1997 NOV-02-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 12,552 30,859 51,575 22,279
<SECURITIES> 0 0 0 0
<RECEIVABLES> 211,266 273,847 290,688 244,908
<ALLOWANCES> 13,187 12,395 13,326 10,966
<INVENTORY> 468,239 464,525 423,185 479,332
<CURRENT-ASSETS> 689,328 767,953 763,207 746,909
<PP&E> 119,810 125,387 134,705 149,862
<DEPRECIATION> 65,612 64,131 69,220 75,887
<TOTAL-ASSETS> 770,855 859,480 867,347 919,396
<CURRENT-LIABILITIES> 504,497 602,884 598,882 620,645
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 165 166 168 184
<OTHER-SE> 199,596 205,776 218,319 262,141
<TOTAL-LIABILITY-AND-EQUITY> 770,855 859,480 867,347 919,396
<SALES> 884,758 1,058,304 1,117,275 4,379,208
<TOTAL-REVENUES> 884,758 1,058,304 1,117,275 4,379,208
<CGS> 824,218 987,353 1,040,622 4,081,743
<TOTAL-COSTS> 824,218 987,353 1,040,622 4,081,743
<OTHER-EXPENSES> 4,881 7,441 7,662 27,626
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 595 2,335 1,610 6,142
<INCOME-PRETAX> 8,789 10,944 10,936 43,579
<INCOME-TAX> 3,719 4,568 4,583 18,382
<INCOME-CONTINUING> 5,070 6,376 6,353 25,197
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 5,070 6,376 6,353 25,197
<EPS-PRIMARY> 0.31 0.39 0.39 1.51
<EPS-DILUTED> 0.29 0.38 0.37 1.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED NOVEMBER
3, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-03-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> NOV-03-1996
<EXCHANGE-RATE> 1
<CASH> 21,935
<SECURITIES> 0
<RECEIVABLES> 279,593
<ALLOWANCES> 8,405
<INVENTORY> 326,924
<CURRENT-ASSETS> 631,373
<PP&E> 114,301
<DEPRECIATION> 60,429
<TOTAL-ASSETS> 711,979
<CURRENT-LIABILITIES> 516,408
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 191,418
<TOTAL-LIABILITY-AND-EQUITY> 711,979
<SALES> 3,608,230
<TOTAL-REVENUES> 3,608,230
<CGS> 3,401,249
<TOTAL-COSTS> 3,401,249
<OTHER-EXPENSES> 13,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,967
<INCOME-PRETAX> 26,543
<INCOME-TAX> 11,014
<INCOME-CONTINUING> 15,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,529
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.94
</TABLE>
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENT
In passing the Private Securities Litigation Reform Act of 1995
(the"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. MicroAge, Inc.
("MicroAge" or the "Company") intends to qualify both its written and oral
forward-looking statements for protection under the Reform Act and any other
similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those and
other uncertainties and risks, the investment community is urged not to place
undue reliance on written or oral forward-looking statements of MicroAge. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, MicroAge undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events, or changes to future operating results over time.
MicroAge provides the following risk factor disclosure in connection
with its continuing effort to qualify its written and oral forward-looking
statements under the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include the disclosures contained in the Annual
Report on Form 10-K to which this statement is appended as an exhibit and also
include the following:
RISK FACTORS
INTENSE COMPETITION
The Company operates in intensely competitive markets in both the
systems integration industry as well as the microcomputer products distribution
industry. The principal competitive factors in the systems integration industry
include the breadth and quality of product and service offerings, product
availability, pricing, and expertise and size of workforce. The microcomputer
products distribution industry is characterized by intense competition based
primarily on price, product availability, speed and accuracy of delivery,
effectiveness of sales and marketing programs, credit availability, ability to
tailor specific solutions to customer needs, quality and breadth of product
lines and services, availability of technical and product information, and
recruitment and retention of resellers. While the Company believes that it
competes favorably with respect to each of these factors, there can be no
assurance that it will continue to do so in the future. Additionally, certain of
the Company's current and potential competitors, in both the systems integration
industry and the microcomputer products distribution industry, have greater
financial, technical, marketing, and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, to devote greater resources to the
development, promotion, and sales of their products and services, or to be more
effective in responding to competitive bidding situations than the Company.
<PAGE>
NARROW MARGINS
The Company has experienced low operating and gross profit margins
caused by intense price competition within its industry. Future operating and
gross profit margins may be adversely affected by market pressures, the
introduction of new Company initiatives, changes in revenue mix, the Company's
utilization of early payment discount opportunities, vendor pricing actions,
changes in supplier incentive funds, and other competitive and economic
pressures.
DEPENDENCE ON SUPPLIER INCENTIVE FUNDS
The Company receives funds from certain suppliers which are earned
through marketing programs or meeting purchasing, sales, or other objectives
established by the supplier. There can be no assurance that these programs will
be continued by the suppliers. A substantial reduction in the supplier funds
available to the Company would have a material adverse effect on the Company's
business, financial condition, and results of operations.
PRODUCT SUPPLY; DEPENDENCE ON KEY VENDORS
The computer reseller industry continues to experience product supply
shortages and customer order backlogs due to the inability of certain
manufacturers to supply certain products. In addition, certain vendors have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that vendors will be able to
maintain an adequate supply of products to fulfill all of the Company's customer
orders on a timely basis. Although the Company has not historically encountered
such conditions, the failure to obtain adequate product supplies, if competitors
were able to obtain them, could have a material adverse effect on the Company's
business, financial condition, and results of operations.
Three vendors of the Company each represented more than 10% of total
product sales for the fiscal year ended November 1, 1998. They were COMPAQ
Computer Corporation ("COMPAQ"), Hewlett-Packard Company ("Hewlett- Packard"),
and International Business Machines Corporation ("IBM"). In fiscal 1998, sales
of products from COMPAQ, Hewlett-Packard, and IBM represented 26%, 19%, and 13%,
respectively, of the Company's total product sales. During fiscal 1998 and
fiscal 1997, sales of these three manufacturers' products represented
approximately 58% and 57%, respectively, of the Company's revenue from product
sales.
The Company's agreements with these vendors generally are renewed
periodically and permit termination by the vendor without cause, generally upon
30 to 90 days' notice, depending on the vendor. In addition, the Company's
business is dependent upon price and related terms and product availability
provided by its key vendors. Although the Company considers its relationships
with COMPAQ, Hewlett-Packard, and IBM to be good, there can be no assurance that
these relationships will continue as presently in effect or that changes by one
or more of these key vendors in their volume discount schedules or other
marketing programs would not adversely affect the Company. Termination or
nonrenewal of the Company's agreements with COMPAQ, Hewlett-Packard, or IBM
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
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 (see "Dependence on Supplier
Incentive Funds" above); the results of acquired businesses; product
availability; competitive conditions; new product introductions; changes in
customer order patterns; and general economic conditions. In particular, the
Company's operating results are sensitive to changes in the mix of product and
service revenues, product margins, inventory adjustments, and interest rates.
Although the Company attempts to control its expense levels, these levels are
based, in part, on anticipated revenues. Therefore, the Company may not be able
<PAGE>
to control spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, quarterly period-to-period comparisons of the Company's
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. In addition, although the Company's
financial performance has not exhibited significant seasonality in the past, the
Company and the computer industry in general tend to follow a sales pattern with
peaks occurring near the end of the calendar year, due primarily to special
vendor promotions and year-end business purchases.
RISK OF DECLINES IN INVENTORY VALUE
The Company's business is subject to the risk that the value of its
inventory will be adversely affected by price reductions by suppliers or by
technological changes affecting the usefulness or desirability of the products
comprising the inventory. It is the policy of most suppliers of the Company's
products to protect distributors such as the Company, who purchase directly from
such suppliers, from the loss in value of inventory due to technological change
or the supplier's price reductions. Under the terms of many of the Company's
distribution agreements, suppliers will credit the Company for inventory losses
resulting from the supplier's price reductions if the Company complies with
certain conditions. However, suppliers are taking steps to reduce such price
protection. In addition, under many of the Company's agreements, the Company has
the right to return for credit or exchange for other products a portion of the
inventory items purchased, within a designated period of time. Since the Company
can return only a portion of its inventory, the Company could be forced to
liquidate nonreturnable aged inventory at prices below the Company's cost. A
supplier who elects to terminate a distribution agreement may repurchase from
the distributor the supplier's products carried in the distributor's inventory.
The industry practices discussed above are sometimes not embodied in written
agreements and do not protect the Company in all cases from declines in
inventory value. No assurance can be given that such practices will continue,
that unforeseen new product developments will not materially adversely affect
the Company, or that the Company will be able to successfully manage its
existing and future inventories. The Company establishes reserves for estimated
losses due to obsolete inventory in the normal course of business. Historically,
the Company has not experienced losses due to obsolete inventory materially in
excess of established inventory reserves. However, significant declines in
inventory value in excess of established inventory reserves could have a
material adverse affect on the Company's business, financial condition, or
results of operations.
NO ASSURANCE OF SUCCESSFUL ACQUISITIONS OR INVESTMENTS
The Company has acquired or invested in, and intends to acquire or
invest in, local or regional resellers to expand the Company's service offerings
and its reach into certain geographic areas. As a result, the Company is
continually evaluating potential acquisition and investment opportunities, which
may be material in size and scope. Any acquisitions or investments by the
Company may result in potentially dilutive issuances of equity securities, the
incurrence of additional debt, and amortization of expenses related to goodwill
and intangible assets, all of which could adversely effect the Company's
profitability. Acquisitions involve numerous risks, such as the diversion of the
attention of the Company's management from other business concerns, the entrance
of the Company into markets in which it has had no or only limited experience,
the integration of the acquired companies' management information systems with
those of the Company, and the potential loss of key employees of the acquired
companies, all of which could have a material adverse effect on the Company's
business, financial condition, or results of operations.
CAPITAL INTENSIVE NATURE OF BUSINESS
The Company's business requires significant levels of capital to
finance accounts receivable and product inventory that is not financed by trade
creditors. The Company has financed its growth and cash needs to date primarily
through working capital financing facilities, bank credit lines, common stock
offerings, and cash generated from operations. The primary uses of cash have
been to fund increases in inventory and accounts receivable resulting from
increased sales. If the Company is successful in achieving continued revenue
growth, its working capital requirements will continue to increase.
<PAGE>
The Company maintains three primary financing agreements (the
"Financing Agreements") with an aggregate borrowing capacity of $800 million.
The Financing Agreements expire in August 2000, but any of the Financing
Agreements may be terminated 90 days after either party gives the other party
notice of termination. At November 1, 1998, the Company had approximately $425
million outstanding under the Financing Agreements. Of the $800 million of
borrowing capacity represented by the Financing Agreements, $375 million was
unused as of November 1, 1998. Utilization of the unused $375 million is
dependent upon, among other things, the Company's collateral availability at the
time the funds would be needed.
Borrowings under the Financing Agreements are secured by substantially
all of the Company's assets, and the Financing Agreements contain certain
restrictive covenants, including working capital and tangible net worth
requirements and ratios of debt to tangible net worth and current assets to
current liabilities. At November 1, 1998, the Company was in compliance with
these covenants.
The unavailability of a significant portion of, or the loss of, the
Financing Agreements or trade credit from vendors would have a material adverse
effect on the Company's business, financial condition, and results of
operations. There can be no assurance that the Company will be able to borrow
adequate amounts on terms acceptable to the Company.
DEPENDENCE ON INFORMATION SYSTEMS
The Company depends on a variety of information systems for its
operations, particularly its centralized information processing system which
supports, among other things, inventory management, order processing, shipping,
receiving, and accounting. Although the Company has not in the past experienced
significant failures or down time of its centralized information processing
system or any of its other information systems, any such failure or significant
down time could prevent the Company from taking customer orders, printing
product pick-lists, and/or shipping product and could prevent customers from
accessing price and product availability information from the Company. In such
event, the Company could be at a severe disadvantage in determining appropriate
product pricing or the adequacy of inventory levels or in reacting to rapidly
changing market conditions. A failure of the Company's information systems which
impacts any of these functions could have a material adverse effect on the
Company's business, financial condition, or results of operations. In addition,
the inability of the Company to attract and retain the highly-skilled personnel
required to implement, maintain, and operate its centralized information
processing system and the Company's other information systems could have a
material adverse effect on the Company's business, financial condition, or
results of operations. In order to react to changing market conditions, the
Company must continuously expand and improve its centralized information
processing system and its other information systems. There can be no assurance
that the Company's information systems will not fail, that the Company will be
able to attract and retain qualified personnel necessary for the operation of
such systems, or that the Company will be able to expand and improve its
information systems.
DEPENDENCE ON INDEPENDENT SHIPPING COMPANIES
The Company relies almost entirely on arrangements with independent
shipping companies for the delivery of its products. Products are shipped from
suppliers to the Company through a variety of independent common carriers.
Currently, United Parcel Service ("UPS") delivers a majority of the Company's
products to its reseller customers. The termination of the Company's
arrangements with UPS or other independent shipping companies, or the failure or
inability of one or more of these independent shipping companies to deliver
products from suppliers to the Company, or products from the Company to its
reseller customers or their end-user customers could have a material adverse
effect on the Company's business, financial condition, or results of operations.
For instance, an employee work stoppage or slow-down at one or more of these
independent shipping companies could materially impair that shipping company's
ability to perform the services required by the Company. There can be no
assurance that the services of any of these independent shipping companies will
continue to be available to the Company on terms as favorable as those currently
<PAGE>
available or that these companies will choose or be able to perform their
required shipping services for the Company.
TECHNOLOGICAL CHANGE
The Company's industry is subject to rapid technological change, new
and enhanced product specification requirements, and evolving industry
standards. These changes may cause inventory and stock to decline substantially
in value or to become obsolete. In addition, suppliers may give the Company
limited or no access to new products being introduced. Although the Company
believes that it has adequate price protection and other arrangements with its
suppliers to avoid bearing the costs associated with these changes, no assurance
can be given that future technological or other changes will not have a material
adverse effect on the Company's business, financial condition, or results of
operations. See "Risk of Declines in Inventory Value."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's results of
operations, changes in earnings estimates by research analysts, conditions in
the computer industry, or general market or economic conditions, among other
factors. In addition, in recent years the stock market has experienced
significant price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices of many technology companies, often
unrelated to the operating performance of the specific companies. Such market
fluctuations could materially adversely affect the market price for the Common
Stock.
FUTURE RELATIONSHIP WITH PINACOR
The Company, in efforts to increase shareholder value, is exploring
various financial options for Pinacor. A change in the current relationship
between Pinacor and the Company could cause risk and uncertainty. There can be
no assurance that the future relationship between the Company and Pinacor will
continue as presently in effect. Moreover, a change in the current relationship
between the Company and Pinacor could affect the Company's supply of products
and have a material adverse effect on the Company's business, financial
condition, or results of operations.
