-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E98Uuxeg9/IvG1A8S998rkWA1oWVwADKsWLTNVJhKG6tVRiswVCO3qHbynmnUxkX fMYJcf5pWgbY811ytOTG8Q== 0000950147-97-000035.txt : 19970203 0000950147-97-000035.hdr.sgml : 19970203 ACCESSION NUMBER: 0000950147-97-000035 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 19961103 FILED AS OF DATE: 19970131 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROAGE INC /DE/ CENTRAL INDEX KEY: 0000814249 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 860321340 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15995 FILM NUMBER: 97515932 BUSINESS ADDRESS: STREET 1: 2308 S 55TH ST CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6028042000 MAIL ADDRESS: STREET 1: 2308 SOUTH 55TH STREET CITY: TEMPE STATE: AZ ZIP: 85282 10-K405 1 ANNUAL REPORT ================================================================================ 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 (Fee Required) For the fiscal year ended November 3, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 (No Fee Required) For the transition period from ___________to ___________ Commission file number 0-15995 MICROAGE, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 86-0321346 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2400 South MicroAge Way, Tempe, AZ 85282-1896 (Address of Principal Executive Offices) (Zip Code) (602) 804-2000 (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 (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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $328,102.550 at January 15, 1997, based on the closing market price of the Common Stock on such date, as reported by NASDAQ. The number of shares of the registrant's Common Stock outstanding at January 15, 1997 was 14,772,030. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on April 2, 1997 are incorporated by reference into Part III hereof. ================================================================================ PART I ITEM 1. BUSINESS BUSINESS OVERVIEW MicroAge, Inc. (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 systems integrator and a full-line distributor of information technology products and services. Information technology solutions offered by the Company include servers, desktops, mobile computing, mass storage, connectivity, imaging, peripherals, software, and component products from leading manufacturers, including COMPAQ Computer Corporation ("COMPAQ"), Hewlett-Packard Company ("Hewlett-Packard"), International Business Machines Corporation ("IBM"), Toshiba America Information Systems, Inc., Apple Computer, Inc., Digital Equipment Corporation ("Digital"), NEC Technologies, Inc., Microsoft Corporation, and Novell, Inc.. Unless the context otherwise requires, as used herein, the term the "Company" refers to MicroAge, Inc., its predecessors, and subsidiaries. The Company's headquarters is located at 2400 South MicroAge Way, Tempe, Arizona 85282-1896, and its telephone number is (602) 804-2000. This document may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. See "Products and Vendors" and "Competition" in this Item and "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Results of Operations" and "Potential Fluctuations in Operating Results" in Part II, Item 7 of this report for a discussion of important factors that could affect the validity of any such forward-looking statements. BUSINESS STRATEGY The Company's dual strategic focus is to pursue profit expansion and revenue growth. The Company's profit expansion strategy focuses on expense control, including the improvement of the Company's internal processes and procedures, effective asset management, and the addition and expansion of higher-margin products and services. Revenue growth is driven primarily by sales to new resellers, the Company's focus on large account sales, increased demand for the Company's major vendors' products, and the addition of new product lines. BUSINESS GROUPS The Company implements its business strategy through four principal business groups: MicroAge Distribution Group, MicroAge Integration Group, MicroAge Logistics Group, and MicroAge Services Group. These business groups provide the framework for managing the Company's expanding technology services portfolio. Under the framework of these business groups, the Company will continue to expand and foster the customer-focused business unit structure, which delivers market-driven products and services to specific customer segments. In addition, the Company provides various support services to the four business groups, including financial services, through the MicroAge Headquarters Support Group. MicroAge Distribution Group General. The MicroAge Distribution Group consists of the Company's MicroAge Computer Centers and MicroAge Technologies business units. The Distribution Group provides more than 20,000 technology hardware and software products and value-added 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") (the "Network"). The Company provides distribution and support services to resellers so that the Company and the resellers may realize operating efficiencies and benefit from economies of scale in product purchasing and distribution, financing, and working capital management. See "MicroAge Logistics Group" below for a discussion of certain of the Company's services to resellers and end-user customers, including distribution and integration services. See "MicroAge Services Group" and "MicroAge Headquarters Support Group" for a discussion of other services available to resellers, including integration and financial services. Resellers generally operate independently, although franchisees operate under the Company's proprietary marks. The Company generally does not require minimum purchase levels from its reseller customers. Due in part to "open sourcing" (see "Products and Vendors - Open Sourcing" below) and the expansion of the Company's product offerings to include products that have previously been offered primarily by wholesale distributors (see "Products and Vendors - Product Strategy" below), sales tos VARs has been one of the Company's fastest growing sales segments. The loss of any single reseller would not have a material adverse impact on the Company. Reseller Purchasing Terms. The Company 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 the Company is successful in achieving continued revenue growth, this reseller financing program will place increased demands on the Company'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. See also "MicroAge Headquarters Support Group" for a discussion of the broad range of financial services that the Company offers to resellers. Network Expansion. The Company will continue to pursue Network expansion through the recruitment of established computer resellers that can use and benefit from the products and services offered by the Company. In addition, in order to establish or solidify its presence in strategic markets or in response to competitive pressures, the Company has made, and in the future may make, acquisitions of or investments in additional reseller locations. 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. 2 MicroAge Integration Group General. The MicroAge Integration Group consists of the Company's MicroAge Infosystems Services ("MIS"), MicroAge Solutions, Inc.("MAS"), and Selective Outsourcing Services business units. The Integration Group provides distributed computing solutions to large corporations, government agencies, and educational institutions worldwide through the global MIS network of qualified resellers (the "MIS Network"), which includes Company-owned and affiliated branches. As of November 3, 1996, the Company owned and operated thirteen resellers through its MAS business unit. Large end-user customers are generally solicited by the Company's large account sales and service force in collaboration with MIS Network resellers. While the MicroAge Network of resellers encompasses thousands of affiliated resellers worldwide, MIS Network resellers must meet rigorous MIS certifications. The MIS Network offers the advantage of the local presence of the MIS Network reseller combined with the Company's financial and operational stability to provide consistent pricing and services to large end-user customers. See "MicroAge Services Group" and "MicroAge Headquarters Support Group" for a discussion of various services available to MIS Network resellers and large end-user customers, including integration and financial services. See also "MicroAge Logistics Group -- Distribution Services" below for a discussion of the Company's distribution services to resellers and end-user customers. Selective Outsourcing Services. Selective Outsourcing Services serves as a large end-user customer's single point-of-contact for the planning, implementation, and support aspects of a project. Support Services. The MIS Network provides expertise and advanced technical support capabilities that can be accessed at the local level. Nationwide, the MIS Network currently deploys hundreds of technicians, systems engineers, certified network engineers, and supplier-specific certified engineers for various applications. MIS also coordinates strategic service alliances with industry leaders that include DecisionOne Corporation, Digital, Unisys Corporation, and Comdisco, Inc., to support large-account business. In addition, MIS offers expertise in Microsoft Windows NT, Lotus Notes, Cisco, Bay Networks, and Internet- related services. Global Services. "MIS Global" coordinates global fulfillment for international clients through local in- country fulfillment, regional distribution through "MIS Europe," and centralized distribution through exports from the United States. With a global reach that extends to 29 countries, MIS Global also offers the following services and capabilities: project planning and analysis; project management; supplier relations management in export authorization, pricing, warranty, and maintenance; international configuration and transportation services; and international technical support services. MicroAge Logistics Group General. The MicroAge Logistics Group consists of several of the Company's business units, including MicroAge Distribution Services, the MicroAge Quality Integration Center, MicroAge Service Solutions, MicroAge Sourcing Services, and MicroAge Global Support Services. The Logistics Group provides distribution and integration services to resellers, large organizations, and technology suppliers. 3 Distribution Services. Product orders are fulfilled and shipped from distribution centers located in Tempe, Arizona, Cincinnati, Ohio, and Sparks, Nevada for delivery in one to three business days to a reseller or end-user anywhere in the continental United States. In conjunction with product ordering and shipment, the Company offers various services to end-user customers and resellers, including expedited delivery, vendor direct shipment, deferred shipment, and the following special services: Back-order Management. Network resellers may elect to receive notification of the receipt by the Company of products that were not available for shipment within three days of order placement, rather than having the product shipped to them automatically, thereby avoiding costly product returns. Multi-site Direct Shipment. Product shipments, including configured system orders, may be specified for delivery directly to multiple end-user customer locations from the Company's distribution centers. This allows resellers to reduce freight expense, product handling costs, and delivery times to end-user customers. Complete Order Shipment. Resellers and end-user customers may elect to defer shipment of orders until all products and services specified in the order are fulfilled, thereby eliminating the costs associated with multiple shipments and the storage of inventory. Quality Integration Center. The MicroAge Quality Integration Center is an ISO 9001-certified facility that offers 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. Each integrated system is tested and inspected before delivery to ensure that manufacturer and customer specifications are met. The Quality Integration Center can incorporate unique or highly complex system testing requirements into the integration process. The Quality Integration Center also direct-ships configured systems to end-user customers, allowing resellers to service these customers more profitably by reducing inventory levels, carrying costs, and freight expense, and by freeing up technical staff. MicroAge Service Solutions. Through MicroAge Service Solutions, the Company's customers can select a help desk solution that provides end-users with a single point of contact for questions or problems relating to the use of shrink-wrap software, network operating systems, communications software, and proprietary client application software. For large scale technical and non-technical teleservices, MicroAge Service Solutions offers customers state-of-the-art call center technology to conduct inbound support and outbound services, including new product launches, surveys, and direct mail follow up. MicroAge Sourcing Services. Through alliances with industry-leading suppliers, the Company provides clients with one-stop sourcing for information technology hardware and software. MicroAge Sourcing Services has relationships with more than 500 on-demand suppliers to quickly procure products outside of the Company's major manufacturing alliances. The Company also offers consigned storage and redistribution of customer-owned proprietary products. MicroAge Global Support Services. "GSS" coordinates an international network of service providers who provide total systems support for customers worldwide. Through this network, GSS offers centralized hardware call screening, diagnostics, and service dispatching for personal computers, workstations, laptops, 4 terminals, options, and peripherals. The available services include the following: on-site or mail-in depot repair, manufacturer depot warranty to on-site warranty upgrades, out-of -warranty on-site maintenance, and time and materials fulfillment service. MicroAge Services Group General. The MicroAge Services Group consists of several of the Company's business units, including ECadvantage, Inc., MicroSource, Inc., MicroAge Data Services, MicroAge Marketing Services, MicroAge Strategic Alliances, and MicroAge Category Management. The MicroAge Services Group surveys customer needs and establishes the go-to-market strategies that provide information technology solutions ranging from mobile computing and computer telephony integration to multimedia and software licensing. ECadvantage. Introduced in September 1996, ECadvantage is a series of integrated tools that allow MicroAge's resellers and large account customers to electronically configure systems, retrieve technical specifications, generate quotes, and place orders. ECadvantage provides access to MicroAge's extensive product catalog, including product and technical specifications, as well as capabilities for order management and checking on order status at any time. MicroSource. MicroSource incorporates the MicroAge Internet Department and MicroAge Multimedia Department. The Internet Department is a focal point for Internet-related projects and web-hosting services. The Multimedia Department develops custom multimedia applications for businesses. MicroAge Data Services. MDS is designed to capture, package, and deliver product and market information to technology manufacturers, resellers, consultants, and end-users. MDS also manages the Company's information systems infrastructure and provides help desk services to large organizations through MicroAge Information Services. In addition, MDS provides resellers and certain end-user customers with various technical services, including telephone hotline support, technical publications, on-line technical services, training programs, product evaluation, and on-site consultation. MicroAge Marketing Services. Marketing Services develops, sells, and implements high-quality marketing programs that create demand and increase sales for the Company and its suppliers, enhance the MicroAge brand, and generate profit for the Company. MicroAge Strategic Alliances. This business unit develops strategic alliances with select suppliers with the goal of identifying and executing mutually beneficial joint efforts. MicroAge Category Management. In an effort to maximize revenue and profitability, the Company has implemented product/service category management principles and practices, managing categories as strategic businesses, and producing enhanced business results by focusing on integrating sales, marketing, and purchasing to deliver client value. 5 MicroAge Headquarters Support Group Headquarters Support provides numerous services, including financial (described below), administrative, human resources, and facilities services. The Company has developed numerous financial services that are designed to improve the ability of qualifying resellers to purchase products from the Company in a cost-effective manner. The Company also sponsors payment programs with commercial credit companies to facilitate reseller purchases of products from vendors that do not offer their own payment programs; under these programs, the Company receives payment for product sales within three to five business days and pays the commercial credit company a fee based on a percentage of the products sold. The Company also offers a program to its resellers whereby the Company grants credit and assumes collection and administration responsibilities for large end-user customers. The continuing use of this program will provide increased revenue and profit opportunities for the Company but will continue to increase working capital requirements as accounts receivable for large end-user customers increase. 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. PRODUCTS AND VENDORS Product Strategy. The Company sells a broad selection of products with a predominant focus on the products of major microcomputer and peripheral manufacturers. Three vendors of the Company each represented more than 10% of total product sales for the year ended November 3, 1996. They were COMPAQ, Hewlett-Packard, and IBM. The following table sets forth the percentage of sales of these vendors' products for the last three fiscal years: 1994 1995 1996 ---------------------------------------- COMPAQ 22% 21% 22% Hewlett-Packard 19% 20% 20% IBM 19% 15% 14% Sales of these three manufacturers' products represented approximately 56% of the Company's revenue from product sales during both fiscal 1996 and fiscal 1995. 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. The Company believes that these provisions are standard in the computer reseller industry. 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. 6 The Company continually evaluates its product assortment based on technological advances, the market for information technology products, and the Network's requirements related to technological capability, product availability, and marketability. Over the last several years, the Company has expanded its product offerings in response to market conditions and has established relationships with new vendors 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 the Company'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 the Company, 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 vendors have initiated new channels of distribution that increase competition for the available product supply. The backlog of orders for products distributed by the Company was $401.6 million on November 3, 1996, compared to $149.6 million at October 29, 1995. Such orders are not necessarily firm since 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 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 results of operations. Open Sourcing In the past, certain of the Company's vendors required resellers to purchase their products and services exclusively from one source. Vendors have generally removed this requirement, resulting in "open sourcing" of their products. To date, open sourcing has significantly contributed to the rapid growth of the Company's sales to VARs. However, competitive pricing pressures throughout the industry have intensified; these competitive pressures have been particularly evident in the Company's distribution business. During 1996, 61% of total sales were attributable to the Company's distribution business and 39% of total sales were attributable to its systems integration business. While the Company believes that it can effectively compete for sales of those products available under open sourcing, there can be no assurance that open sourcing will not adversely affect the Company's business. Vendor Relationships Because of its quantity purchasing capabilities, the Company generally obtains volume discounts from its vendors, enabling it to sell products to resellers on more favorable terms than the typical reseller could obtain on its own from such vendors. In general, the Company's agreements have price protection provisions to protect the Company in the event of price reductions by its vendors on eligible products in the Company's inventory and to permit the return of slow-moving and other products for credit (generally at cost minus a restocking fee). Subject to product availability, the Company 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. 7 Several major vendors sponsor payment programs with commercial credit companies to facilitate product sales to and through the Network. Such programs generally provide Network resellers with payment terms ranging from 30 to 60 days, depending on the vendor. Under these programs, the Company generally receives payment for product sales within three to five business days, thus significantly reducing the Company's working capital requirements and credit exposure. See "MicroAge Headquarters Support Group" for a discussion of payment programs that the Company sponsors with commercial credit companies to facilitate reseller purchases of products from vendors that do not offer their own payment programs. COMPETITION The computer reseller industry is characterized by intense competition, based primarily on product availability, price, speed of delivery, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines, service and post-sale support, and quality of customer training. In addition, the Company faces competition in the recruitment and retention of resellers for the Network. The Company and Network locations compete for sales with numerous resellers, including (i) master resellers; (ii) direct resellers; (iii) wholesalers (resellers that do not sell to end-users); (iv) vendors that sell directly to large purchasers; and (v) parties that implement other sales methods, such as direct mail, computer "superstores," and mass merchandisers. See "Products and Vendors -- Open Sourcing" for a discussion of the competitive pressures associated with open sourcing. EMPLOYEES As of November 3, 1996, the Company employed approximately 2,892 persons, 569 of whom were employed at the thirteen Company-owned reseller locations. No employees are represented by labor unions. The Company considers its employee relations to be good. GOVERNMENT REGULATION The Company is subject to a substantial number of state laws regulating franchise operations. In general, these laws impose registration and disclosure requirements on franchisors in the offering and sale of franchises. Also, 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 is also subject to Federal Trade Commission regulations governing disclosure requirements in the sale of franchises. The Company believes it is in substantial compliance with all such regulations. See Note 2 of the Company's Consolidated Financial Statements in Part II, Item 8 for additional information regarding the Company's franchising activities. 8 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) MicroAge 2000,(R) The Franchise Program for the 90's and Beyond,(R) and ZDATA.(R) All trademarks and service marks are registered 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. 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, 1997:
NAME AGE POSITION Jeffrey D. McKeever 54 Chairman of the Board and Chief Executive Officer Alan P. Hald 50 Vice Chairman of the Board and Secretary; and President, MicroAge Enterprises, Inc. Robert G. O'Malley 51 President James R. Daniel 49 Senior Vice President, Chief Financial Officer and Treasurer; and President, Headquarters Support Group James G. Manton 49 Senior Vice President - Operations Christopher J. Koziol 36 Senior Vice President - Sales and President, Distribution Group John S. Lewis 43 President, Integration Group; and President, MicroAge Infosystems Services, Inc. John H. Andrews 40 President, Logistics Group; and President, MicroAge Logistics Services, Inc. Jeffrey M. Swanson 42 President, MicroAge Solutions, Inc. Raymond L. Storck 36 Vice President - Controller and Assistant Treasurer James H. Domaz 41 Corporate Counsel and Assistant Secretary
9 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 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. ALAN P. HALD has served as Vice-Chairman of the Board since October 1991 and as Secretary since February 1987. He co-founded the Company in August 1976 and has served as a director of the Company since October 1976. He also served as President from 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. ROBERT G. O'MALLEY has served as President of the Company since November 1996 and as President, MicroAge Data Services, MCCI, since May 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. JAMES R. DANIEL has served as Senior Vice President and Chief Financial Officer of the Company since January 1993, and as Treasurer of the Company from January 1993 until December 1994, at which time he assumed the additional position of President, Headquarters Support Group. 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 G. MANTON has served as Senior Vice President - Operations of the Company since November 1996. 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. CHRISTOPHER J. KOZIOL has served as President, Distribution Group since November 1996, and as Senior Vice President - Sales of the Company since May 1996. 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. 10 JOHN S. LEWIS has served as President, Integration Group of the Company and as President, MicroAge Infosystems Services, Inc. since January 1997. Prior to joining the Company, he served as Executive Vice President, Division Manager of Wells Fargo Bank's Southwest Region branch network from April 1996, when Wells Fargo acquired First Interstate Bancorp, to November 1996. He also served as Chairman and Chief Executive Officer of First Interstate's Southwest Region and as Chairman of the Board and Chief Executive Officer of First Interstate Bank of Arizona from January 1995 to April 1996. Mr. Lewis joined First Interstate Bank of Arizona in August 1990 as Executive Vice President and served in a variety of positions, including Chief Operating Officer for the Southwest Region from April 1994 to December 1995. JOHN H. ANDREWS has served as President, Logistics Group of the Company since November 1996 and as President, MicroAge Logistics Services, MCCI, since July 1993. 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. JEFFREY M. SWANSON has served as President, MicroAge Solutions, Inc. since December 1994 and served as General Manager of MCSB, Inc., a Company-owned location in Plymouth, Minnesota from October 1991 to November 1994. Prior to joining MicroAge, he served as Executive Vice President of AmeriData Incorporated from 1981 to 1991. RAYMOND L. STORCK has served as Vice President - Controller of the Company since July 1993, and as Controller and Assistant Treasurer 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. JAMES H. DOMAZ has served as 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. ITEM 2. PROPERTIES The Company's executive offices are located in Tempe, Arizona and occupy approximately 232,428 square feet of commercial office space. The Company operates automated distribution and logistics centers in Tempe, Arizona and Cincinnati, Ohio, which occupy approximately 300,000 square feet each, and in Sparks, Nevada, which occupies approximately 100,000 square feet. The Company also maintains a 125,000 square foot Technical Services Center in Tempe, Arizona, adjacent to a 135,000 square foot Quality Integration Center. As of November 3, 1996, the Company operated thirteen Company-owned reseller locations (one each in Tempe, Arizona; Plymouth, Minnesota; Chicago, Illinois; Westminster, Colorado; Burlington, Massachusetts; Wilton, Connecticut; Novi, Michigan; St. Louis, Missouri; New York, New York; Oklahoma City, 11 Oklahoma; Tulsa, Oklahoma; Houston, Texas; and Irving, Texas), which occupy an aggregate of approximately 146,575 square feet. 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. ITEM 3. LEGAL PROCEEDINGS On July 14 through July 19, 1994, seven class action complaints were filed in the United States District Court for the District of Arizona against the Company, certain of its officers and directors, and, in three of the lawsuits, one of the underwriters of the Company's June 16, 1994 public offering of common stock. On December 5, 1994, the Court consolidated the seven actions into a single action. On February 16, 1995, plaintiffs filed and served an amended, consolidated complaint against the Company, certain officers and directors of the Company, and three of the underwriters of the Company's June 16, 1994 public offering of common stock (the "Complaint"). The Complaint purports to be brought on behalf of a class of purchasers of the Company's common stock during the period April 13, 1994 through July 14, 1994. The Complaint alleges, among other things, that the Company violated federal securities laws by making misleading public statements and omitting material facts regarding the Company's operations and financial results, which the plaintiffs contend to have artificially inflated the price of the Company's common stock during the alleged class period. The Complaint seeks unspecified compensatory damages as well as fees and costs. On April 28, 1995, the Company filed a motion to dismiss the Complaint in its entirety. On March 25, 1996, the court dismissed the majority of the allegations contained in the Complaint. An agreement in principle has since been reached to settle the litigation, subject to reducing the settlement terms to writing and obtaining court approval thereof. The Company's contribution to the proposed settlement, after the contributions of the Company's director's and officer's insurers, will not be material to the Company's financial position or results of operations. 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 1996. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded in the over-the-counter market under the symbol MICA and has been quoted on the Nasdaq National Market since July 1, 1987. The following table sets forth the quarterly high and low sale prices for the common stock as reported by the Nasdaq National Market for the two most recent fiscal years: RANGE OF SALE PRICES HIGH LOW ---- --- FISCAL 1995 First Quarter . . . . . . . . . . . . . $12 1/2 $10 3/4 Second Quarter . . . . . . . . . . . . . $11 3/4 $ 8 5/8 Third Quarter . . . . . . . . . . . . . . $14 7/8 $ 9 13/16 Fourth Quarter . . . . . . . . . . . . . $13 1/8 $ 8 1/8 FISCAL 1996 First Quarter . . . . . . . . . . . . . . $ 9 1/2 $ 7 1/2 Second Quarter . . . . . . . . . . . . . $10 5/8 $ 9 Third Quarter . . . . . . . . . . . . . . $15 3/8 $11 Fourth Quarter . . . . . . . . . . . . . $20 $12 7/16 As of January 15, 1997, there were approximately 392 stockholders of record of the common stock. The Company believes that as of such date there were approximately 3,906 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 Board of Directors. During fiscal 1996, the Company did not sell any equity securities that were not registered under the Securities Act of 1933, as amended. 13 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five fiscal year periods ended November 3, 1996 are derived from the Company's 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: (1) Fiscal years ended -------------------------------------------------------------------------- Nov. 3, Oct. 29, Oct. 30, Sept. 30, Sept. 30, 1996 1995 (2) 1994 1993 1992 -------------------------------------------------------------------------- (in thousands, except per share data) Revenue $3,516,446 $2,941,100 $2,220,816 $1,509,823 $1,016,948 Gross profit 184,836 152,091 115,747 77,346 56,486 Income before income taxes 23,131 1,110 26,970 17,493 7,814 Net income 13,253 241 16,342 10,500 4,681 Net income per common share $ 0.89 $ 0.02 $ 1.22 $ 1.15 $ 0.59 Weighted average common and common equivalent shares 14,883 14,338 13,385 9,125 7,921 Balance Sheet Data: Nov. 3, Oct. 29, Oct. 30, Sept. 30, Sept. 30, 1996 1995 1994 1993 1992 -------------------------------------------------------------------------- (in thousands) Working capital $110,568 $107,703 $120,556 $84,315 $44,573 Total assets 689,505 572,563 510,199 323,409 226,892 Long-term obligations 3,892 4,079 2,054 1,215 9,324 Stockholders' equity 186,123 168,453 166,159 108,152 56,866
- -------------------- (1) Effective for the Company's 1994 fiscal year, the Company changed its fiscal year end from September 30 to the Sunday nearest October 31 in each calendar year. (2) The fiscal year ended October 29, 1995 included $9,029,000 of restructuring and other one-time charges. See "Managements's Discussion and Analysis of Financial Condition and Results of Operations." 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the indicated periods, data as percentages of total revenue:
Fiscal years ended -------------------------------------------------------- Nov. 3, Oct. 29, Oct. 30, 1996 1995 1994 ---------------- -------------- -------------- Revenue $3,516,446 $2,941,100 $2,220,816 Cost of sales 94.7 % 94.8 % 94.8 % ---------------- -------------- -------------- Gross profit 5.3 5.2 5.2 Operating other expenses Operating expenses 4.2 4.3 3.7 Restructuring and other one-time charges -- 0.3 -- ---------------- -------------- -------------- Total 4.2 4.6 3.7 ---------------- -------------- -------------- Operating income 1.0 0.6 1.5 Other expenses - net 0.4 0.5 0.3 ---------------- -------------- -------------- Income before income taxes 0.7 0.0 1.2 Provision for income taxes 0.3 0.0 0.5 ---------------- -------------- -------------- Net income 0.4 % 0.0 % 0.7 % ================ ============== ==============
Fiscal Year Ended November 3, 1996 Versus Fiscal Year Ended October 29, 1995 Total Revenue. Total revenue during fiscal 1996 was $3.5 billion, $2.1 billion (61%) of which was attributable to the Company's distribution business, and $1.4 billion (39%) of which was attributable to the Company's systems integration business. The Company's distribution business is conducted through the MicroAge Distribution Group, which provides more than 20,000 technology hardware and software products and value-added services to reseller customers worldwide. The Company's systems integration business is conducted through the MicroAge Integration Group, which provides distributed computing solutions to large corporations, government agencies, and educational institutions worldwide through a global network of qualified resellers, which includes affiliated branches and thirteen Company-owned resellers. See "Business -- Business Groups" in Part 1, Item 1 for additional information about the MicroAge Distribution Group, the MicroAge Integration Group, and the Company's other principal business groups. 15 Total revenue increased $575 million, or 20%, for the fiscal year ended November 3, 1996 as compared to the fiscal year ended October 29, 1995. This revenue increase included a $422 million, or 25%, increase in distribution business revenue and a $214 million, or 19%, increase in systems integration business revenue, partially offset by a decrease in revenue due to the sale of the Company's memory distribution business in the fourth quarter of fiscal year 1995. The revenue increases were primarily due to sales to resellers (primarily non-franchised resellers) added since October 29, 1995, the Company's focus on large account sales, increased demand for the Company's major vendors' products and the Company's addition of new product lines. The fiscal year ended November 3, 1996 included 53 weeks, while the fiscal year ended October 29, 1995 included 52 weeks. See Note 3 to the Company's Consolidated Financial Statements in Part II, Item 8. During the first three quarters of fiscal 1996, the Company's primary focus was on improving internal processes and profitability, rather than pursuing aggressive revenue growth. Revenue for this period grew by 14% compared to the same period of fiscal 1995. In the fourth quarter of fiscal 1996, the Company began to emphasize revenue growth. Revenue for the fourth quarter of fiscal 1996 was $1.0 billion, a 35% increase over the fourth quarter of fiscal 1995. The Company intends to continue to pursue revenue growth; however, there can be no assurances that revenue increases will be achieved. If revenue does continue to increase, the Company's capital requirements are likely to increase. Gross Profit Percentage. The Company's gross profit percentage was 5.3% for the fiscal year ended November 3, 1996 and 5.2% for the fiscal year ended October 29, 1995. Future gross profit percentages may be affected by market pressures, the introduction of new Company programs, changes in revenue mix, the Company's utilization of early payment discount opportunities, vendor pricing actions and other competitive and economic factors. 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 decreased to 4.2% for the fiscal year ended November 3, 1996 compared to 4.3% for the fiscal year ended October 29, 1995. Operating expenses increased from $126.4 million for fiscal 1995 to $148.4 million for fiscal 1996. The increase was primarily due to increased costs as a result of higher volumes. Restructuring and Other One-Time Charges. The Company's consolidated statement of income for fiscal 1995 includes $9.0 million of pre-tax charges ($5.4 million net of taxes, or $0.38 per share) for restructuring and other one-time charges. See "Fiscal Year Ended October 29, 1995 Versus Fiscal Year Ended October 30, 1994 -- Restructuring and Other One-Time Charges" below. Other Expenses - Net. Other expenses - net decreased to $13.3 million for the fiscal year ended November 3, 1996 from $15.6 million for the fiscal year ended October 29, 1995. The decrease is primarily attributable to a decrease in net financing costs during the year as a result of the 16 Company's focus on inventory management during the 1996 fiscal year. Days cost of sales in ending inventory decreased from 37 days at October 29, 1995 to 33 days at November 3, 1996. Marketing Development Funds. The Company receives funds from certain vendors which are earned through marketing programs, meeting established purchasing objectives or meeting other objectives determined by the vendor. There can be no assurance that these programs will be continued by the vendors. A substantial reduction in the vendor funds available to the Company would have an adverse effect on the Company's results of operations. Fiscal Year Ended October 29, 1995 Versus Fiscal Year Ended October 30, 1994 Total Revenue. Total revenue increased $720 million, or 32%, to $2.9 billion for the fiscal year ended October 29, 1995 as compared to the fiscal year ended October 30, 1994. This revenue increase included a $320 million, or 41%, increase in sales to large accounts and a $341 million, or 26%, increase in sales to resellers. These revenue increases were primarily due to sales to resellers added since October 30, 1994, the Company's focus on large account sales, increased demand for the Company's major vendors' products, the Company's addition of new product lines and same location sales growth (including sales to large accounts). The Company experienced quarterly revenue growth rates in excess of 40% (when compared to the same quarters of the prior years) during the fiscal years ended September 30, 1993 and October 30, 1994 as well as for the first two quarters of fiscal 1995. Quarter over quarter revenue growth decreased to 30% and 20% for the last two quarters of fiscal 1995. Gross Profit Percentage. The Company's gross profit percentage was 5.2% for the fiscal year ended October 29, 1995 and for the fiscal year ended October 30, 1994. Operating Expense Percentage. As a percentage of revenue, operating expenses increased to 4.3% for the fiscal year ended October 29, 1995, from 3.7% for the fiscal year ended October 30, 1994. Operating expenses for the year increased by $43.2 million over the prior year. If expenses had remained at the same percentage of revenue as in the prior year, the expense increase would have been $27.0 million. The remainder of the increase was primarily due to facilities expansion ($3.0 million), increased depreciation as a result of automation initiatives and facilities expansion ($5.8 million), the addition of a Company-owned location ($6.0 million) and other personnel additions. Some of the expense increases were made in anticipation of revenue growth at historical rates. Revenue growth slowed in the last two quarters of fiscal year 1995 (see "Total Revenue" above) and a decision was made to reduce expense levels during the fourth quarter. This contributed to the restructuring charges taken during the fourth quarter. Restructuring and Other One-Time Charges. During the fourth quarter of fiscal 1995, the Company approved and implemented actions targeted at reducing the Company's future cost structure and improving its profitability. These actions included, among other things, (i) the sale of the Company's memory distribution business, (ii) outsourcing a certain business function and (iii) a reduction in the number of the Company's employees. The Company's consolidated statement of income for fiscal 1995 includes $9.0 million of pretax charges ($5.4 million net of tax benefits, or $0.38 per share) for restructuring and other one-time charges. 17 The charges for the memory distribution business sale included a loss on the sale of fixed assets and intangible assets of $3.4 million. Also included in these charges was $1.3 million for asset liquidations and write-offs and other charges totaling $0.9 million. The pretax loss for the memory distribution company in fiscal 1995 was $1.7 million. Losses incurred during fiscal 1995 on the outsourced business function totaled $1.6 million. Most of the costs related to this business will be eliminated, although some expenses will be incurred for coordinating the relationship with the outsourcing company. The charges associated with staff reductions consist primarily of severance pay for 219 associates. See Note 16 of the Company's Consolidated Financial Statements in Part II, Item 8 for additional information regarding the 1995 restructuring charges. If the restructuring and other one-time charges are calculated as though all of the actions targeted at reducing expenses and improving profitability had been implemented on the first day of the fourth fiscal quarter, the total of these charges would have been $10.8 million before tax, or $0.45 per share. The Company reported a loss of $0.40 per share for its fourth fiscal quarter of 1995, including restructuring and other one-time charges. Excluding the $10.8 million in charges, the Company's fourth quarter net income would have been $744,000, or $0.05 per share, up slightly from the $662,000, or $0.05 per share reported for the third quarter of fiscal 1995, and net income for the year would have been $6.7 million, or $0.47 per share. The Company believes the restructuring charges contributed to the Company's improved financial performance in fiscal 1996 by positively impacting the Company's earnings and cash flows through a reduction in expenses and the sale or outsourcing of certain parts of the business that were operating at a loss. However, there can be no assurance that the restructuring charges will continue to positively impact the Company's earnings and cash flows. Other Expenses - Net. Other expenses - net increased to $15.6 million for the fiscal year ended October 29, 1995 from $5.6 million for the fiscal year ended October 30, 1994. The increase is primarily attributable to an increase in net financing costs during the year. The financing cost increase included higher expenses from the sale of receivables under an agreement with a commercial lender ($7.2 million increase), higher costs from flooring subsidies provided to the lenders that floor product purchases for the Company's customers ($1.1 million increase) and higher net interest expense due to higher average borrowings during the fiscal year ($1.6 million increase). The flooring subsidy costs represent amounts paid to finance companies who provide payment terms to the Company's customers on sales made by the Company to such customers. Effective tax rate. The Company's effective tax rate increased from 39.4% for the fiscal year ended October 30, 1994 to 78.3% for the fiscal year ended October 29, 1995. This increase is a result of the impact of certain state taxes not based on income and non-deductible expenses, such as meals and entertainment and goodwill amortization, on a lower pretax income amount. 18 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, product availability, competitive conditions, and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments, and interest rates. See "Products and Vendors" 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. 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 (see "Business Strategy" in Part I, Item 1), its working capital requirements will continue to increase. During the fiscal year ended November 3, 1996, the Company used $4 million of cash for a business purchase. See Note 14 of the Company's Financial Statements in Part II, Item 8 for information regarding non-cash investing activities. In order to establish or solidify its presence in strategic markets or to respond to competitive pressures, the Company may make acquisitions of, or investments in, reseller locations. These acquisitions or investments may be made utilizing cash, stock or a combination of cash and stock. See "Competition" in Part I, Item 1 for information regarding competitive pressures. For the fiscal year ended November 3, 1996, $36 million of cash was provided by operating activities. Net cash provided by operating activities included an increase in accounts payable of $91 million, income (before certain non-cash charges) of $41 million and an increase in accrued liabilities of $9 million, partially offset by an increase in accounts receivable of $78 million and an increase in inventory of $26 million. The number of days sales in ending accounts receivable increased from 22 days at October 29, 1995 to 25 days at November 3, 1996. The receivable days adjusted for receivables sold under a financing facility (see discussion below) were 42 days at November 3, 1996 compared to 36 days at October 29, 1995. The increase in receivable days was primarily due to the continued increases in sales to large end-user customers through the MicroAge Integration Group. The number of days cost of sales in ending inventory decreased from 37 days at October 29, 1995 to 33 days at November 3, 1996. The decrease in inventory days was primarily due to a focus on controlling inventory levels; however, there can be no assurance that the inventory level will remain as low as the 33 days reported at November 3, 1996. For fiscal year 1996, net cash of $28 million used in investing activities consisted of $24 million for the purchase of property and equipment and $4 million for a business purchase. 19 The Company maintains a primary financing agreement (the "Agreement") with a financing facility of $400 million. The Agreement includes two major components: an accounts receivable facility (the "A/R Facility") and an inventory facility (the "Inventory Facility"). The Agreement expires in August 1997, but will remain in effect until 90 days after either party to the Agreement gives the other party notice of termination. 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 $250 million sold at any given time. At November 3, 1996, the net amount of sold accounts receivable was $191 million, and the effective funding rate was LIBOR plus 2.1%. The Inventory Facility provides for borrowings up to $150 million. Within the Inventory Facility, the Company has a line of credit for the purchase of inventory from selected product suppliers ("Inventory Line of Credit") of $50 million and a line of credit for general working capital requirements ("Supplemental Line of Credit") of $100 million, provided in the aggregate that the sum under the A/R Facility and the Supplemental Line of Credit may not exceed $350 million at any given time. Payments for products purchased under the Inventory Line of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. No interest or finance charges are payable on the Inventory Line of Credit if payments are made when due. At November 3, 1996, the Company had $2 million outstanding under the Inventory Line of Credit and had no amounts outstanding under the Supplemental Line of Credit. Of the $400 million of financing capacity represented by the Agreement, $207 million was unused as of November 3, 1996. Utilization of the unused $207 million is dependent upon the Company's collateral availability at the time the funds would be needed. Borrowings under the Agreement are secured by substantially all of the Company's assets, and the Agreement contains 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 3, 1996, the Company was in compliance with these covenants. The Company also maintains trade credit arrangements with its vendors and other creditors to finance product purchases. Several major vendors maintain security interests in their products sold to the Company. The unavailability of a significant portion of, or the loss of, the Agreement or trade credit from vendors 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 $20 to $25 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. 20 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(a) Beneficial Ownership Reporting Compliance Requirements" in the Company's Proxy Statement relating to its 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement"). Information regarding executive officers of the Company is included in Part I, Item 1 hereof, 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 1997 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 1997 Proxy Statement. 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 1997 Proxy Statement. 21 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 3, 1996 and October 29, 1995 F-3 Consolidated Statements of Income for the fiscal years ended November 3, 1996, October 29, 1995, and October 30, 1994 F-4 Consolidated Statements of Cash Flows for the fiscal years ended November 3, 1996, October 29, 1995, and October 30, 1994 F-5 Consolidated Statements of Stockholders' Equity for the fiscal years ended November 3, 1996, October 29, 1995, and October 30, 1994 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 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 3, 1996: 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. 22 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. MICROAGE, INC. (Registrant) By:/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 31, 1997 - ----------------------- and Chief Executive Officer Jeffrey D. McKeever (Principal Executive Officer) /s/ Alan P. Hald Director, Vice-Chairman of January 31, 1997 - ------------------------ the Board and Secretary Alan P. Hald /s/ William H. Mallender Director January 31, 1997 - ------------------------ William H. Mallender /s/ Steven G. Mihaylo Director January 31, 1997 - ------------------------ Steven G. Mihaylo /s/ Fred Israel Director January 31, 1997 - -------------------------- Fred Israel /s/ Lynda M. Applegate Director January 31, 1997 - ---------------------- Lynda M. Applegate /s/ Roy A. Herberger, Jr. Director January 31, 1997 - ------------------------- Roy A. Herberger, Jr. /s/ James R. Daniel Senior Vice President, Chief January 31, 1997 - ------------------------- Financial Officer and Treasurer James R. Daniel (Principal Financial Officer) /s/ Raymond L. Storck Vice President - Controller January 31, 1997 - --------------------- and Assistant Treasurer Raymond L. Storck (Principal Accounting Officer)
23 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d) ------------------------ INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS EXHIBITS ------------------------ YEAR ENDED NOVEMBER 3, 1996 MICROAGE, INC. AND SUBSIDIARIES TEMPE, ARIZONA MICROAGE, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants F-2 Consolidated Balance Sheets at November 3, 1996 and October 29, 1995 F-3 Consolidated Statements of Income for each of the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994 F-4 Consolidated Statements of Cash Flows for each of the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994 F-5 Consolidated Statements of Stockholders' Equity for each of the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994 F-6 Notes to Consolidated Financial Statements F-7 Schedule I - Valuation and Qualifying Accounts and Reserves S-1 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 3, 1996 and October 29, 1995, and the results of their operations and their cash flows for the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Phoenix, Arizona December 11, 1996 F-2 MICROAGE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
ASSETS November 3, October 29, 1996 1995 ------------ ------------ Current assets: Cash and cash equivalents $ 20,496 $ 13,700 Accounts and notes receivable, net 253,220 183,286 Inventory, net 325,213 297,742 Other 11,129 13,006 ------------ ------------ Total current assets 610,058 507,734 Property and equipment, net 53,141 45,689 Intangible assets, net 17,499 11,201 Other 8,807 7,939 ------------ ------------ Total assets $ 689,505 $ 572,563 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 471,318 $ 379,897 Accrued liabilities 22,478 13,968 Current portion of long-term obligations 2,121 2,908 Other 3,573 3,258 ------------ ------------ Total current liabilities 499,490 400,031 Long-term obligations 3,892 4,079 Stockholders' equity: Preferred stock, par value $1.00 per share; -- -- Shares authorized: 5,000,000 Issued and outstanding: none Common stock, par value $.01 per share; Shares authorized: 40,000,000 Issued: November 3, 1996 -- 14,679,640 October 29, 1995 -- 14,459,847 147 145 Additional paid-in capital 124,115 122,399 Retained earnings 62,792 49,539 Loan to ESOT (207) (768) Note receivable - stock purchase agreement -- (2,000) Treasury stock, at cost; Shares: November 3, 1996 -- 97,028 October 29, 1995 -- 115,443 (724) (862) ------------ ------------ Total stockholders' equity 186,123 168,453 ------------ ------------ Total liabilities and stockholders' equity $ 689,505 $ 572,563 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 MICROAGE, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
Fiscal years ended ---------------------------------------------------------- November 3, October 29, October 30, 1996 1995 1994 ---------------- ---------------- ---------------- Revenue $ 3,516,446 $ 2,941,100 $ 2,220,816 Cost of sales 3,331,610 2,789,009 2,105,069 ---------------- ---------------- ---------------- Gross profit 184,836 152,091 115,747 Operating and other expenses Operating expenses 148,388 126,400 83,226 Restructuring and other one-time charges -- 9,029 -- ---------------- ---------------- ---------------- Total 148,388 135,429 83,226 ---------------- ---------------- ---------------- Operating income 36,448 16,662 32,521 Other expenses - net 13,317 15,552 5,551 ---------------- ---------------- ---------------- Income before income taxes 23,131 1,110 26,970 Provision for income taxes 9,878 869 10,628 ---------------- ---------------- ---------------- Net income $ 13,253 $ 241 $ 16,342 ================ ================ ================ Net income per common share Primary $ 0.89 $ 0.02 $ 1.22 ================ ================ ================ Fully diluted $ 0.86 $ 0.02 $ 1.22 ================ ================ ================ Weighted average common and common equivalent shares outstanding Primary 14,883 14,338 13,385 Fully diluted 15,397 14,342 13,385
The accompanying notes are an integral part of these financial statements F-4 MICROAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Fiscal years ended ----------------------------------- November 3, October 29, October 30, 1996 1995 1994 --------- --------- --------- Cash flows from operating activities: Net income $ 13,253 $ 241 $ 16,342 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 20,337 15,439 9,280 Provision for losses on accounts and notes receivable 7,629 5,844 3,193 Non-cash restructuring and other one-time charges -- 7,410 -- Changes in assets and liabilities net of business acquisitions: Accounts and notes receivable (77,563) (52,790) (28,404) Inventory (26,307) 9,280 (117,859) Other current assets 1,877 (4,802) (7,146) Other assets (3,668) (1,830) 2,007 Accounts payable 91,421 50,950 99,460 Accrued liabilities 8,510 1,833 5,516 Other liabilities 315 396 1,223 --------- --------- --------- Net cash provided by (used in) operating activities 35,804 31,971 (16,388) Cash flows from investing activities: Purchases of property and equipment (23,991) (22,885) (17,569) Purchases of businesses and investments in unconsolidated companies (4,150) (6,099) (8,955) --------- --------- --------- Net cash used in investing activities (28,141) (28,984) (26,524) Cash flows from financing activities: Amounts received from ESOT 561 640 595 Proceeds from issuance of stock, net of issuance costs 1,856 1,037 40,305 Principal payments on long-term obligations (3,284) (2,038) (1,418) --------- --------- --------- Net cash provided by (used in) financing activities (867) (361) 39,482 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 6,796 2,626 (3,430) Cash and cash equivalents at beginning of period 13,700 11,074 14,504 --------- --------- --------- Cash and cash equivalents at end of period $ 20,496 $ 13,700 $ 11,074 ========= ========= ========= Supplemental disclosure to cash flows - See Note 14
The accompanying notes are an integral part of these financial statements. F-5 MICROAGE, INC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
For the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994 ------------------------------------------------------------------------------------- Additional Note-stock Total Preferred Common paid-in Retained Loan to purchase Treasury stockholders' stock stock capital earnings ESOT agreement stock equity -------- -------- -------- -------- -------- ---------- --------- -------- BALANCE at October 31, 1993 $ -- $ 80 $ 78,558 $ 32,995 $ (2,005) $ -- $ (1,344) $108,284 Issuance of 2,000,000 shares of common stock, net of issuance costs -- 20 39,482 -- -- -- -- 39,502 Three for two stock split -- 39 -- (39) -- -- -- -- Options for 153,365 common shares exercised -- 3 800 -- -- -- -- 803 Issuance of 72,728 shares of common stock for convertible subordinated debentures -- 1 1,999 -- -- (2,000) -- -- Contribution of 26,266 treasury shares to employee benefit plan -- -- 200 -- -- -- 221 421 Tax benefit from employees' stock option plans -- -- 210 -- -- -- -- 210 Loan payments from ESOT -- -- -- -- 597 -- -- 597 Net income -- -- -- 16,342 -- -- -- 16,342 -------- -------- -------- -------- -------- ---------- --------- -------- BALANCE at October 30, 1994 -- 143 121,249 49,298 (1,408) (2,000) (1,123) 166,159 Options for 192,147 common shares exercised -- 2 1,035 -- -- -- -- 1,037 Contribution of 34,991 treasury shares to employee benefit plan -- -- 115 -- -- -- 261 376 Loan payments from ESOT -- -- -- -- 640 -- -- 640 Net income -- -- -- 241 -- -- -- 241 -------- -------- -------- -------- -------- ---------- --------- -------- BALANCE at October 29, 1995 -- 145 122,399 49,539 (768) (2,000) (862) 168,453 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 Cancellation of convertible subordinated debentures due to acquisition -- -- -- -- -- 2,000 -- 2,000 Loan payments from ESOT -- -- -- -- 561 -- -- 561 Net income -- -- -- 13,253 -- -- -- 13,253 -------- -------- -------- -------- -------- ---------- --------- -------- BALANCE at November 3, 1996 $ -- $ 147 $124,115 $ 62,792 $ (207) $ -- $ (724) $186,123 ======== ======== ======== ======== ======== ========== ========= ========
The accompanying notes are an integral part of these financial statements. F-6 MICROAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS - ----------------- MicroAge, Inc. ("MicroAge") is a global systems integrator and a full-line distributor of information technology products and services. Information technology solutions offered by the Company include servers, desktops, mobile computing, mass storage, connectivity, imaging, peripherals, software, and component products. Unless the context otherwise requires, references to the "Company" include MicroAge, Inc. and its consolidated subsidiaries, which include thirteen Company-owned resellers. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Principles of consolidation - --------------------------- The consolidated financial statements of the Company include the accounts of companies more than 50% owned. Investments in affiliates owned 20% to 50% are accounted for by the equity method. All material intercompany accounts and transactions have been eliminated. 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 - ---------------- All highly liquid debt instruments purchased with an original maturity of three months or less are considered to be cash equivalents. The Company did not have any cash equivalents at November 3, 1996 or October 29, 1995. 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 $65.0 and $38.5 million at November 3, 1996 and October 29, 1995, respectively, are included as a component of accounts payable in the accompanying 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 $7,254,000 and $12,255,000 at November 3, 1996 and October 29, 1995, respectively. F-7 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 $43,231,000 and $54,083,000 included in inventory at November 3, 1996 and October 29, 1995, 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 3, 1996, sales of COMPAQ Computer Corporation, Hewlett-Packard Company and IBM products accounted for approximately 22%, 20% and 14%, respectively, of the Company's revenue from sales of merchandise. The sales of no other individual vendor's products accounted for more than 10% of such revenue during the fiscal year ended November 3, 1996. 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 4 to 5 years Leasehold improvements 3 to 5 years Expenditures for maintenance and repairs are charged to operations in the year in which the expense is incurred. Intangible assets - ----------------- Intangible assets are amortized over their economic lives ranging from three to fifteen years using the straight-line method. The Company periodically reviews goodwill to assess recoverability, and impairments would be recognized in operating results if a permanent reduction in value were to occur. The excess of cost over the fair value of net identifiable assets acquired is classified as goodwill and is included in intangible assets. Intangible assets are net of $5,343,000 and $4,573,000 of accumulated amortization at November 3, 1996 and October 29, 1995, respectively. Revenue recognition - ------------------- Revenue from product sales is recognized at the time of shipment. Revenue associated with service contracts is initially recorded as deferred income (included in other liabilities) and amortized on the straight-line method over the service period of the contract. Marketing development funds - --------------------------- In general, vendors provide the Company with various incentive programs. The funds received under these programs are determined based on the Company's purchases and/or sales of the vendor's product. The funds are earned by the performance of specific marketing programs or upon completion of predetermined objectives dictated by the vendor. Once earned, the funds are applied against product cost or operating expenses. F-8 Income taxes - ------------ In addition to charging income for taxes paid or payable, the provision for income taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the accompanying financial statements. Income per common share - ----------------------- Income per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options and warrants using the treasury stock method. The weighted average common and common equivalent shares consist of the following:
Fiscal years ended ---------------- ------------- -------------- November 3, October 29, October 30, 1996 1995 1994 ---------------- ------------- -------------- (in thousands) Primary Weighted average common shares 14,409 14,133 12,755 Stock options and warrants 474 205 630 ---------------- ------------- -------------- Weighted average common and common equivalent shares outstanding 14,883 14,338 13,385 ================ ============= ============== Fully diluted Weighted average shares from primary calculation 14,883 14,338 13,385 Additional stock options and warrants 514 4 - ---------------- ------------- -------------- Weighted average common and common equivalent shares outstanding 15,397 14,342 13,385 ================ ============= ==============
The additional stock options and warrants in the fully diluted calculation are a result of using the market price of the Company's stock at the end of the period under the treasury stock method. Franchising Activities - ---------------------- MicroAge distributes its products and services through a network of franchised and affiliated resellers and Company-owned locations. In fiscal 1996, 193 franchised resellers were added and 203 were eliminated due to transferring to an affiliate agreement, closing or terminating their agreement, resulting in 779 franchised reseller locations at November 3, 1996. There were 13 Company-owned locations at November 3, 1996. In fiscal 1996, total revenue and total cost of sales from Company-owned locations were $403,852,000 and $360,426,000, respectively. F-9 Postemployment Benefits - ----------------------- During 1994, the Company adopted Financial Accounting Standards Board Statement No. 112 ("SFAS 112"), "Employers Accounting for Postretirement Benefits." SFAS 112 established standards of financial accounting and reporting for the estimated cost of benefits provided by an employer to current and former employees pursuant to the terms of an employer's agreement to provide those benefits. The adoption of this statement did not have a material impact on the Company's operating results. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform with current year financial statement presentation. Use of Estimates - ---------------- Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE 3 - FISCAL YEAR - -------------------- The Company's fiscal year ends on the Sunday nearest October 31 in each calendar year. The fiscal year ended November 3, 1996 included 53 weeks. The fiscal years ended October 29, 1995 and October 30, 1994 included 52 weeks. NOTE 4 - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment consist of the following: November 3, October 29, 1996 1995 ------------- ------------- (in thousands) Equipment, furniture, fixtures and software $82,528 $62,376 Equipment under capital lease 14,179 11,876 Leasehold improvements 14,071 12,581 Land 1,839 164 ------------- ------------- 112,617 86,997 Less: accumulated depreciation and amortization 59,476 41,308 ------------- ------------- $53,141 $45,689 ============= ============= F-10 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 3, 1996: Operating Capital leases leases ------------- ------------- Fiscal year ending in: (in thousands) 1997 $6,172 $2,557 1998 5,782 1,960 1999 5,383 1,394 2000 4,341 550 2001 3,520 410 Thereafter 10,737 68 ------------- ------------- Total minimum lease obligations $35,935 6,939 ============= Less: amount representing interest 926 ------------- Present value of minimum lease obligations $6,013 ============= None of the leases contain significant restrictive provisions; however, some of the leases contain renewal options and provisions for payment by the Company of real estate taxes, insurance and maintenance costs. Total rent expense was (in thousands): Fiscal year ended: October 30, 1994 $ 6,017 October 29, 1995 7,830 November 3, 1996 10,175 NOTE 6 - FINANCING ARRANGEMENTS - ------------------------------- The Company maintains a primary financing agreement (the "Agreement") with a financing facility of $400 million. The Agreement includes two major components: an accounts receivable facility (the "A/R Facility") and an inventory facility (the "Inventory Facility"). The Agreement expires in August 1997, but will remain in effect until 90 days after either party to the Agreement gives the other party notice of termination. 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 $250 million sold at any given time. At November 3, 1996, the net amount of sold accounts receivable was $191 million, and the effective funding rate was LIBOR plus 2.1% The Inventory Facility provides for borrowings up to $150 million. Within the Inventory Facility, the Company has a line of credit for the purchase of inventory from selected product suppliers ("Inventory Line of Credit") of $50 million and a line of credit for general working capital requirements ("Supplemental Line of Credit") of $100 million, provided in the aggregate that the sums under the A/R Facility and the Supplemental Line of Credit may not exceed $350 million at any given time. Payments for products purchased under the Inventory Line of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. No interest or finance charges are payable on the Inventory Line of Credit if payments are made when due. At November 3, 1996, the Company had $2 million outstanding under the Inventory Line of Credit (included in accounts payable in the accompanying Balance Sheet), and no amounts outstanding under the Supplemental Line of Credit. F-11 Borrowings under the Agreement are secured by substantially all of the Company's assets, and the Agreement contains 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 3, 1996, the Company was in compliance with these covenants. The Company also maintains trade credit arrangements with its vendors and other creditors to finance product purchases. Several major vendors maintain security interests in their products sold to the Company. NOTE 7 - LONG-TERM OBLIGATIONS - ------------------------------ Long-term obligations consist of the following: November 3, October 29, 1996 1995 ------------ ------------- (in thousands) Capital lease obligations $6,013 $5,987 Note payable resulting from business purchase -- 1,000 ------------ ------------- 6,013 6,987 Less: current portion 2,121 2,908 ------------ ------------- $3,892 $4,079 ============ ============= Following are the annual maturities of long-term obligations (in thousands): Fiscal year ending in: 1997 $2,121 1998 1,691 1999 1,257 2000 491 2001 386 Thereafter 67 ------------ $6,013 ============ NOTE 8 - STOCKHOLDERS' EQUITY - ----------------------------- Stock Split - ----------- On December 8, 1993, the Company's Board of Directors declared a 3-for-2 stock split effected in the form of a common stock dividend. The dividend was paid on January 13, 1994, to stockholders of record on December 20, 1993, in the amount of 0.5 shares of common stock for each share of common stock held by such stockholders. All data in the accompanying financial statements and related notes have been restated to give effect to the stock split effected in the form of a common stock dividend. Public offering - --------------- On June 16, 1994, the Company completed a public offering of 2,000,000 shares of common stock. The proceeds from the sale, net of issuance costs, were approximately $39,502,000. Increase in Authorized Common Shares - ------------------------------------ In March 1994, the Company's stockholders approved an increase in the number of authorized common shares, par value $.01 per share, from 20,000,000 shares to 40,000,000 shares. F-12 Employee stock option and award plans - ------------------------------------- During fiscal 1994, the Board of Directors and stockholders of the Company approved the adoption of the MicroAge Inc. Long-Term Incentive Plan (the "Incentive Plan") for officers and other key employees of the Company. The Incentive Plan authorizes grants of Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights, Performance Shares, Restricted Stock, Dividend Equivalents and other Common Stock based awards. The total number of shares of common stock available for awards under the Incentive Plan is 1,800,000. The Company has issued NQSOs and ISOs under the Incentive Plan at prices representing the fair market value of the Company's common stock on the date of the grant. The NQSOs and ISOs are granted for terms of five years and become exercisable on a pro-rata basis on each anniversary of the grant over a five-year period as long as the holder remains an employee of the Company. NQSOs under the Incentive Plan were also granted in fiscal 1994 to selected employees in exchange for the employees' irrevocable waiver of a specific amount of base salary or bonus otherwise payable by the Company during a specific period. The options will vest in one-third increments beginning on the January 1 which is three years following the January 1 of the calendar year in which the participant elects to waive compensation. No other awards have been made under the Incentive Plan. In addition to the Incentive Plan, stock options are available under four plans for grant to certain officers and employees of the Company at prices representing the fair market value of the Company's common stock on the date of the grant. Options under these plans are granted for terms of five years and become exercisable on a pro-rata basis on each anniversary date of the grant over a five-year period as long as the holder remains an employee of the Company. Changes during fiscal 1994, 1995 and 1996 in options outstanding under the employee stock option plans (including the Incentive Plan) were as follows:
Price Range Number --------------------------------------- of Options From To ----------------- ----------------- ----------------- Outstanding at October 31, 1993 949,455 $4.00 $14.59 Granted 919,547 $21.00 $31.75 Exercised (74,185) $4.00 $7.92 Canceled or expired (18,595) $4.42 $31.75 ----------------- Outstanding at October 30, 1994 1,776,222 $4.42 $31.75 Granted 162,750 $9.25 $11.13 Exercised (120,900) $4.42 $10.42 Canceled or expired (46,174) $5.33 $24.83 ----------------- Outstanding at October 29, 1995 1,771,898 $4.42 $31.75 Granted 339,000 $8.75 $14.13 Exercised (97,125) $5.33 $10.88 Canceled or expired (157,630) $5.33 $31.75 ----------------- Outstanding at November 3, 1996 1,856,143 $4.42 $31.75 ================= Exercisable at November 3, 1996 512,225 $4.42 $31.75 =================
F-13 Director stock plans - -------------------- During fiscal 1989, the Board of Directors and stockholders approved a stock option plan for those Directors who are not officers or employees of the Company or its subsidiaries (the "Directors' Plan"). Under the Directors' Plan, options to purchase 1,000 shares of common stock were automatically granted, immediately following each annual meeting of stockholders, to eligible Directors. The option price is the fair market value of the Company's common stock on the date of the grant. Options granted pursuant to this plan are exercisable, in full, during the period between three months from the date of grant and three years from the date of grant, and terminate on the earlier of the expiration date or six months after the date that an optionee ceases to be a Director of the Company for any reason other than death or permanent disability. As of November 3, 1996, 27,000 options had been granted under this plan at prices ranging from $8.42 to $31.88 per share. There were 7,500 options exercisable as of November 3, 1996. Options to eligible Directors may no longer be granted under the Directors' Plan. Instead, eligible Directors are granted options under the 1995 Director Plan (see below). 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 3, 1996, 16,000 options had been granted under this plan at prices ranging from $8.38 to $19.38 per share. There were 6,000 options exercisable as of November 3, 1996. The aggregate number of shares of the Company's common stock available for awards under the 1995 Director Plan is 80,000. Restricted stock plan - --------------------- In accordance with the provisions of a restricted stock plan approved in fiscal 1982, 45,000 shares of common stock were reserved for issuance. At November 3, 1996, 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 F-14 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 the 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. NOTE 9 - OTHER EXPENSES - NET - ----------------------------- Other expenses - net consists of the following:
Fiscal years ended ------------------------------------------------------------- November 3, October 29, October 30, 1996 1995 1994 ----------------- ----------------- ----------------- (in thousands) Interest expense $ 1,286 $ 3,370 $1,263 Expenses from the sale of accounts receivable 11,438 10,468 3,274 Other 593 1,714 1,014 ----------------- ----------------- ----------------- $13,317 $15,552 $5,551 ================= ================= =================
NOTE 10 - INCOME TAXES - ---------------------- The provision for income taxes consists of the following:
Fiscal years ended ------------------------------------------------------------- November 3, October 29, October 30, 1996 1995 1994 ----------------- ----------------- ----------------- (in thousands) Current Federal $ 6,806 $ 3,905 $ 10,398 State 1,721 1,065 2,416 Deferred 1,351 (4,101) (2,186) ----------------- ----------------- ----------------- $ 9,878 $ 869 $ 10,628 ================= ================= =================
F-15 The components of deferred income tax expense (benefit) from operations are as follows:
Fiscal years ended ------------------------------------------------------------- November 3, October 29, October 30, 1996 1995 1994 ----------------- ----------------- ----------------- (in thousands) Allowance for doubtful accounts $1,440 $ (2,014) $ (1,142) Software development costs 433 247 224 Depreciation and amortization (429) (159) (163) Restructuring reserves 358 (533) -- Inventory obsolescence reserve (300) (112) (1,382) State deferral, net of federal benefit 168 (528) (242) All other - net (319) (1,002) 519 ----------------- ----------------- ----------------- $1,351 $ (4,101) $ (2,186) ================= ================= =================
Deferred tax assets, which are recorded as a component of other assets or other current assets, are comprised of the following:
November 3, October 29, 1996 1995 ---------------- --------------- (in thousands) Gross deferred tax assets: Depreciation and amortization $ 3,682 $ 2,007 Allowance for doubtful accounts 3,265 5,208 Inventory valuation 2,729 3,067 Deferred service revenue 596 593 Restructuring reserve 234 667 Other 2,337 1,139 ---------------- --------------- Total gross deferred tax assets 12,843 12,681 ---------------- --------------- Gross deferred tax liabilities: Software development 1,872 1,347 Other 471 171 ---------------- --------------- Total gross deferred tax liabilities 2,343 1,518 ---------------- --------------- Net deferred tax asset $10,500 $11,163 ================ ===============
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. F-16 The effective tax rate applied to income before income taxes differs from the expected federal statutory rate as follows:
Fiscal years ended ------------------------------------------------------------- November 3, October 29, October 30, 1996 1995 1994 ----------------- ----------------- ----------------- Federal statutory rate 35.0 % 34.0 % 35.0 % Addition (reduction) in taxes resulting from: State income taxes, net of federal tax benefit 5.6 15.7 4.6 Non-deductible meals and entertainment 0.7 13.8 0.1 Goodwill amortization 0.2 3.6 0.2 Other 1.2 11.2 (0.5) ================= ================= ================= 42.7 % 78.3 % 39.4 % ================= ================= =================
During fiscal 1994, the Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach for financial accounting and reporting of income taxes. Adoption of this statement did not have a material impact on the Company's operating results. 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 3, 1996, such repurchases have been insignificant. The Company also provides a program whereby the Company may guarantee an addition to a reseller's credit facility with certain finance companies. As of November 3, 1996 losses related to the guarantee program have been insignificant, and the Company's exposure for guaranteed amounts is not material. NOTE 12 - EMPLOYEE BENEFIT PLAN - ------------------------------- In July 1988, a deferred compensation plan (the "Savings Plan") became effective for all eligible employees of the Company under the provisions of Section 401(k) of the Internal Revenue Code. Employees are eligible to participate after one year of service and may contribute a percentage of their salary subject to certain limitations. Subject to certain profitability requirements, the Company has historically matched 25% of the employee contribution up to a maximum employee contribution of 6%, as defined in the Savings Plan. Participants are at all times fully vested in their contributions, and the Company contributions, if any, become fully vested to the participant after five years of employment. In April 1989, the Company amended and restated the Savings Plan to include a leveraged Employee Stock Ownership Plan and Trust (the "ESOT") for eligible employees. The ESOT used proceeds of loans from the Company to purchase 312,500 shares and 157,827 shares of the Company's common stock for $2,396,000 and $1,105,000 during the years ended September 30, 1990 and 1989, respectively. F-17 The Company's stock is held by the ESOT trustee as collateral for the loans from the Company. The Company makes periodic contributions to the ESOT which are used to make loan principal and interest payments. A portion of the common stock is allocated to the accounts of participating employees annually based upon principal and interest payments. The Company, using the shares allocated method, recognized contribution expenses of $510,000, $675,000, and $694,000 during the fiscal years ended November 3, 1996, October 29, 1995 and October 30, 1994, respectively. The loans from the Company to the ESOT are payable in quarterly installments ending March 31,1997. Interest is payable quarterly at rates equal to 85% of prime and prime plus 0.75%. The Company's receivable from the ESOT is recorded as a separate reduction of the Company's stockholders' equity. NOTE 13 - NOTE RECEIVABLE - STOCK PURCHASE AGREEMENT - ---------------------------------------------------- During fiscal 1994, the Company exchanged 72,728 shares of common stock for a $2,000,000 convertible subordinated debenture. During fiscal 1996, the debenture was forgiven as partial consideration in an agreement for the purchase of certain assets from the issuer. NOTE 14 - 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 3, October 29, October 30, 1996 1995 1994 ----------------- ----------------- ----------------- (in thousands) Details of acquisitions:- Fair value of assets acquired $ 2,000 $ 1,252 $ 20,158 Liabilities assumed and acquisition- $ -- $ 383 $ 17,549 related accruals Cash acquired $ -- $ -- $ 354 Note forgiven $ 2,000 $ -- $ -- Purchase obligation forgiven $ 1,029 $ -- $ -- Details of other investing activities: Note receivable exchanged for 72,728 shares of the Company's stock (See Note 13) $ -- $ -- $ 2,000 Details of other financing activities: Capital lease obligations executed for equipment $ 2,303 $ 4,726 $ 2,780 Cash paid for: Interest $ 1,286 $ 3,370 $ 1,263 Income taxes $ 4,903 $ 9,050 $ 12,449
F-18 NOTE 15 - LITIGATION - -------------------- On July 14 through July 19, 1994, seven class action complaints were filed in the United States District Court for the District of Arizona against the Company, certain of its officers and directors, and, in three of the lawsuits, one of the underwriters of the Company's June 16, 1994 public offering of common stock. On December 5, 1994, the Court consolidated the seven actions into a single action. On February 16, 1995, plaintiffs filed and served an amended, consolidated complaint against the Company, certain officers and directors of the Company, and three of the underwriters of the Company's June 16, 1994 public offering of common stock ("the Complaint"). The Complaint purports to be brought on behalf of a class of purchasers of the Company's common stock during the period April 13, 1994 through July 14, 1994. The Complaint alleges, among other things, that the Company violated federal securities laws by making misleading public statements and omitting material facts regarding the Company's operations and financial results, which the plaintiffs contend to have artificially inflated the price of the Company's common stock during the alleged class period. The Complaint seeks unspecified compensatory damages as well as fees and costs. On April 28, 1995, the Company filed a motion to dismiss the Complaint in its entirety. On March 25, 1996, the Court dismissed the majority of the allegations contained in the Complaint. An agreement in principle has since been reached to settle the litigation, subject to reducing the settlement terms to writing and obtaining court approval thereof. The Company's contribution to the proposed settlement, after the contributions of the Company's directors and officers insurers, constitutes amounts immaterial to the Company's financial statements. NOTE 16 - RESTRUCTURING AND OTHER ONE-TIME CHARGES - -------------------------------------------------- During the fourth fiscal quarter of 1995, the Company approved and implemented actions targeted at reducing expenses and improving profitability. The Company's consolidated statement of income for fiscal 1995 includes $9.0 million of pretax charges ($5.4 million net of tax benefits, or $0.38 per share) for restructuring and other one-time charges, consisting of the following (in thousands): Charges associated with the sale of a memory distribution business $5,563 Charges associated with outsourcing business function 1,517 Charges associated with staff reductions 1,170 Other one-time charges 779 -------- Total restructuring and other one-time charges $9,029 ======== The charges associated with staff reductions consist primarily of severance pay for 219 associates. The reductions occurred in virtually all areas of the Company and were completed by October 29, 1995. The amount of benefits paid and charged against the restructuring liability as of October 29, 1995 was $1.0 million. All actions related to the restructuring were implemented as of October 29, 1995, and the liability for restructuring activities at October 29, 1995 was not material. The revenue and net operating results of the activities that will not be continued are as follows (in millions): 1995 1994 1993 Revenue Memory distribution business $70.5 $47.1 $0.0 Outsourced business function $3.5 $7.1 $0.3 Pretax income (loss) Memory distribution business $(1.7) $(0.1) $0.0 Outsourced business function $(1.6) $0.0 $0.2 F-19 NOTE 17 - RECENT ACCOUNTING PRONOUNCEMENTS - ------------------------------------------ Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Effective for fiscal years beginning after December 15, 1995, the standard establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will implement the provisions of SFAS 121 for its fiscal year ending November 2, 1997. The Company does not believe that adoption of this Statement will have a material impact on its financial position or results of operations. Statement of Financial Accounting Standards No. 123 - Accounting for Stock-Based Compensation. The accounting requirements are effective for transactions entered into in fiscal years beginning after December 15, 1995. The disclosure requirements are effective for fiscal years beginning after December 31, 1995. Pro forma disclosures required for entities that elect to continue to measure compensation cost using APB Opinion No. 25 must include the effects of all awards granted in fiscal years that begin after December 15, 1994. This Statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This Statement defines the fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company expects to implement the disclosure provisions of SFAS No. 123 for its fiscal year ending November 2, 1997. NOTE 18 - SUBSEQUENT EVENT (UNAUDITED) - -------------------------------------- On January 14, 1997, the Company completed the acquisition of a previously franchised reseller location. Under the terms of the acquisition, to be accounted for as a pooling of interests, the Company exchanged 640,493 common shares for all of the outstanding shares of the acquired company. The financial position and results of operations of the Company and the acquired company will be combined in fiscal 1997 retroactive to November 4, 1996. In addition, all prior periods presented will be restated to give effect to the merger. The impact of the combination on the previously reported financial position and results of operations of the Company will not be material. F-20 MicroAge, Inc. Schedule I Valuation and Qualifying Accounts and Reserves (in thousands) Years ended November 3, 1996, October 29, 1995 and October 30, 1994
Balance at Charged to Charged to Balance at beginning costs and other Deductions/ end Description of period expenses accounts write-offs of period - --------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Allowance for doubtful accounts: Year ended October 30, 1994 $3,911 $3,370 -- ($448) $6,833 ================ ================ ================ ================ ================ Year ended October 29, 1995 $6,833 $5,844 -- ($422) $12,255 ================ ================ ================ ================ ================ Year ended November 3, 1996 $12,255 $7,629 -- ($12,630) $7,254 ================ ================ ================ ================ ================
S-1 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 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 MicroAge, Inc. for the quarter ended May 1, 1994) 3.2 By-Laws of MicroAge, Inc., amended and restated as of January 18, 1996 (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for fiscal year ended October 29, 1995) 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 for MicroAge, Inc. 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 10.1 MicroAge, Inc. Restated Executive Supplemental Savings Plan(1) dated September 26, 1996 10.2 MicroAge, Inc. Supplemental Executive Retirement Plan dated as of October 1, 19921 (Incorporated by reference to Exhibit 10.65.2 to Registration Statement No. 33-33094) 10.2.1 First Amendment to MicroAge, Inc. Supplemental Executive Retirement Plan dated as of September 26, 1996(1) - ------- * Included only in manually signed original E - 1 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.3 Form of MicroAge, Inc. 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 MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.3.1 Form of First Amendment dated as of December 14, 1995 to the MicroAge, Inc. 1994 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives(1) 10.4 Form of MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives(1) 10.5 Amended and Restated Employment Agreement dated as of November 4, 1996 by and between Jeffrey D. McKeever and the Company(1) 10.5.1 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 MicroAge, Inc. for the quarter ended July 30, 1995) 10.5.2 MicroAge, Inc. 1994 Management Equity Program Award Agreement dated as of December 14, 1993 by and between MicroAge, Inc. and Jeffrey D. McKeever(1) 10.5.3 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) 10.6 Amended and Restated Employment Agreement dated as of November 4, 1996 by and between Alan P. Hald and the Company(1) - ------- * Included only in manually signed original E - 2 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.6.1 Split-Dollar Insurance Agreement dated as of January 29, 1997, by and between MicroAge, Inc. and Alan P. Hald(1) 10.6.2 MicroAge, Inc. 1994 Management Equity Program Award Agreement dated as of December 14, 1993 by and between MicroAge, Inc. and Alan P. Hald(1) 10.6.3 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) 10.7 Amended and Restated Employment Agreement dated as of November 4, 1996 by and between James R. Daniel and the Company(1) 10.7.1 Split-Dollar Insurance Agreement dated as of September 1, 1995 by and between James R. Daniel and the Company(1) (Incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for fiscal year ended October 29, 1995) 10.7.2 MicroAge, Inc. 1994 Management Equity Program Award Agreement dated as of December 14, 1993 by and between MicroAge, Inc. and James R. Daniel(1) 10.7.3 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) 10.8 Amended and Restated Employment Agreement dated as of November 4, 1996 by and between Robert G. O'Malley and the Company(1) 10.8.1 Split-Dollar Insurance Agreement dated as of September 1, 1995 by and between Robert G. O'Malley and the Company(1) 10.8.2 Split-Dollar Insurance Agreement dated as of January 27, 1997 by and between Robert G. O'Malley and the Company(1) - ------- * Included only in manually signed original E - 3 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.8.3 MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and Robert G. O'Malley(1) 10.9 Amended and Restated Employment Agreement dated as of November 4, 1996 by and between Christopher J. Koziol and the Company(1) 10.9.1 Split-Dollar Insurance Agreement dated as of September 1, 1995 by and between Christopher J. Koziol and the Company(1) 10.9.2 MicroAge, Inc. 1994 Management Equity Program Award Agreement dated as of December 14, 1993 by and between MicroAge, Inc. and Christopher J. Koziol(1) 10.9.3 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) 10.10 Employment Agreement dated as of September 1, 1993 by and between Kenneth R. Waters and the Company(1)(Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended September 30, 1993) 10.11 Form of Employment Agreement dated as of November 4, 1996 by and between MicroAge, Inc. and certain executives(1) 10.12 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 fiscal year ended October 29, 1995) 10.13 Resolutions by the Compensation Committee of the Board of Directors of MicroAge, Inc. approving the fiscal year 1997 bonus compensation formula for certain executives(1) - ------- * Included only in manually signed original E - 4 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.14 The Amended and Restated MicroAge, Inc. 1984 Incentive Stock Option Plan(1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended January 30, 1994) 10.15 The Amended and Restated MicroAge, Inc. 1986 Incentive Stock Option Plan(1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended January 30, 1994) 10.16 The Amended and Restated MicroAge, Inc. 1988 Stock Option Plan(1)(Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended January 30, 1994) 10.17 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 MicroAge, Inc. for the quarter ended January 30, 1994) 10.18 MicroAge, Inc. 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) 10.19 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 MicroAge, Inc. for the quarter ended January 30, 1994) 10.19 1995 MicroAge, Inc. Director Incentive Plan(1) (Incorporated by reference to Appendix C to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 15, 1995, File No. 0-15995) 10.21 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 MicroAge, Inc. for the fiscal year ended October 30, 1994) - ------- * Included only in manually signed original E - 5 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.21.1 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 MicroAge, Inc. for the quarter ended April 30, 1995) 10.21.2 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 fiscal quarter ended July 28, 1996) 10.22.3 Third Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement dated October 28, 1996(1) 10.23.4 Fourth Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement dated December 4, 1996(1) 10.24 1988 MicroAge, Inc. Franchisee Stock Option Plan (Incorporated by reference to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held February 9, 1988, File No. 0-15995) 10.25 1989 MicroAge, Inc. Franchisee Stock Option Plan (Incorporated by reference to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 1, 1989, File No. 0-15995) 10.26 MicroAge, Inc. 1995 Associate Stock Purchase Plan1 (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) 10.26.1 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) - ------- * Included only in manually signed original E - 6 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.26.2 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) 10.27 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 10.7 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended May 1, 1994) 10.27.1 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 MicroAge, Inc. for the quarter ended May 1, 1994) 10.28 Agreement For Wholesale Financing by and between IBM Credit Corporation and MicroAge Computer Centers, Inc. dated December 17, 1993 (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended May 1, 1994) 10.29 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 MicroAge, Inc. for the quarter ended July 30, 1995) 10.29.1 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 MicroAge, Inc. for the quarter ended July 30, 1995) - ------- * Included only in manually signed original E - 7 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.30 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 MicroAge, Inc. for the quarter ended May 1, 1994) 10.30.1 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 MicroAge, Inc. for the quarter ended July 30, 1995) 10.31 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) 10.32 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) 10.32.1 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 MicroAge, Inc. for the quarter ended March 31, 1993) 10.33 IBM Business Partner Agreement dated April 25, 1994 by and between International Business Machines Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended October 30, 1994) - ------- * Included only in manually signed original E - 8 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.34 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 MicroAge, Inc. for the fiscal year ended September 30, 1989) 10.34.1 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 MicroAge, Inc. for the fiscal year ended September 30, 1990) 10.34.2 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 MicroAge, Inc. for the quarter ended March 31, 1993) 10.34.3 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 MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.34.4 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 MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.35 Hewlett-Packard Company U.S. Agreement for Authorized Resellers effective March 1, 1995, by and between Hewlett Packard Company and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended April 30, 1995) - ------- * Included only in manually signed original E - 9 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.36 Form of Franchise Agreement by and between the Company and its franchisees effective January 1996 (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10- Q for fiscal quarter ended April 28, 1996) 10.37 Form of Agreement by and between the Company and its Independent Computer Dealers effective June 1994 (Incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.38 Form of Purchase Agreement by and between the Company and its resellers effective January 1997 10.39 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 MicroAge, Inc. for the quarter ended May 1, 1994) 10.40 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 MicroAge, Inc. for the quarter ended May 1, 1994) 10.40.1 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 MicroAge, Inc. for the quarter ended May 1, 1994) 10.41 Lease dated as of October 27, 1994 by and between Chimiarra Investments Limited and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended October 30, 1994) - ------- * Included only in manually signed original E - 10 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.41.1 Addendum dated October 27, 1994 to lease dated as of October 27, 1994 by and between Chimiarra Investments Limited and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.35.1 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.41.2 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 MicroAge, Inc. for the fiscal year ended October 30, 1994) 10.42 Lease dated March 6, 1990 by and between MicroAge Computer Centers, Inc. and Petula Associates, Ltd. and The Alameda Group, as tenants in common (Incorporated by reference to Exhibit 10.40 to Registration Statement No. 33- 45510) 10.42.1 First Amendment dated July 1, 1990 to Lease dated March 6, 1990 by and between MicroAge Computer Centers, Inc. and Petula Associates, Ltd. and The Alameda Group, as tenants in common (Incorporated by reference to Exhibit 10.40.1 to Registration Statement No. 33-45510) 10.42.2 Second Amendment dated August 10, 1993 to Lease dated March 6, 1990 by and between MicroAge Computer Centers, Inc. and Petula Associates, Ltd. and The Alameda Group, as tenants in common (Incorporated by reference to Exhibit 10.31.2 to the Annual Report on Form 10-K for MicroAge, Inc. for the fiscal year ended September 30, 1993) 10.43 Lease Agreement dated April 12, 1994 by and between Duke Realty Limited Partnership and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.23 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended May 1, 1994) - ------- * Included only in manually signed original E - 11 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.43.1 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 MicroAge, Inc. for the quarter ended July 30, 1995) 10.43.2 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 MicroAge, Inc. for the quarter ended July 30, 1995) 10.44 Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. Southern Pacific Industrial Development Company (Incorporated by reference to Exhibit 10.41 to Registration Statement No. 33-45510) 10.44.1 Amendment No. 1 dated September 18, 1985 to Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. and Southern Pacific Industrial Development Company (Incorporated by reference to Exhibit 10.41.1 to Registration Statement No. 33-45510) 10.44.2 Amendment No. 2 dated September 19, 1986 to Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. and Southern Pacific Industrial Development Company (Incorporated by reference to Exhibit 10.41.2 to Registration Statement No. 33-45510) 10.44.3 Supplemental Agreement (Amendment No. 3) dated April 19, 1990 to Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. and Southern Pacific Industrial Development Company (Incorporated by reference to Exhibit 10.41.3 to Registration Statement No. 33-45510) - ------- * Included only in manually signed original E - 12 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.44.4 Amendment No. 4 dated July 2, 1990 to Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. Catellus Development Corporation (fka Santa Fe Pacific Realty Corporation), successor by merger with Southern Pacific Industrial Development Company (Incorporated by reference to Exhibit 10.41.3 to Registration Statement No. 33-45510) 10.44.5 Lease Amendment dated July 28, 1993 to Triple Net Industrial Lease dated as of July 16, 1985, by and between MicroAge Computer Centers, Inc. and Catellus Development Corporation (Incorporated by reference to Exhibit 10.41.3 to Registration Statement No. 33-45510) 10.44.6 Lease Amendment dated December 21, 1993 to Triple Net Industrial Lease dated July 16, 1985 by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.20 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended May 1, 1994) 10.45 Standard Industrial/Commercial Single-Tenant Lease dated January 18, 1995, by and between Chamberlain Family Trust dated September 21, 1979 dba Chamberlain Enterprises and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for MicroAge, Inc. for the quarter ended January 29, 1995) 10.46 Lease dated September 14, 1993 by and between MicroAge Computer Centers, Inc. and Amberjack, Ltd. (Incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10- K for MicroAge, Inc. for the fiscal year ended September 30, 1993) 10.47 Land Purchase and Sale Agreement dated August 8, 1996 by and between CMD Southwest Inc. and MicroAge Computer Centers, Inc. - ------- * Included only in manually signed original E - 13 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 10.48 Single-Tenant Lease-Net, dated March 31, 1995, by and between Chamberlain Development, L.L.C. and MicroAge Computer Centers, Inc. 10.48.1 First Amendment, dated as of August 29, 1995, to the Single- Tenant Lease-Net, dated March 31, 1995, by and between Chamberlain Development, L.L.C. and MicroAge Computer Centers, Inc. 10.49 Standard Industrial Lease dated September 27, 1996 by and between Dermody Properties and MicroAge Logistics Services, Inc. 11.1 EPS Detail Calculation (Incorporated by reference to Footnote 2 to the Audited Financial Statements included herein) 21 List of Subsidiaries of MicroAge, Inc. 23 Consent of Independent Accountants 27 Financial Data Schedule 99.1 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 for MicroAge, Inc. dated May 7, 1990) 99.2 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 for MicroAge, Inc. dated May 7, 1990) - ---------- * Included only in manually signed original E - 14 EXHIBIT INDEX Exhibit No. Description Page No. * - ----------- ----------- ---------- 99.3 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 MicroAge, Inc. 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. * Included only in manually signed original E - 15 EX-4.2.1 2 FIRST AMENDMENT TO AMENDED AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT This First Amendment (the "First Amendment") to the Amended and Restated Rights Agreement dated as of November 5, 1996, between MicroAge, Inc., a Delaware corporation (the "Company"), and American Stock Transfer and Trust Company amends that certain Amended and Restated Rights Agreement (the "Amended and Restated Rights Agreement") dated September 28, 1994. WHEREAS, on September 3, 1996, the Board of Directors approved the appointment of American Stock Transfer and Trust Company (the "Rights Agent") to serve as successor rights agent to First Interstate Bank of California; and WHEREAS, pursuant to Section 27, the Company has decided to amend the provisions of the Amended and Restated Rights Agreement regarding the qualifications of successor rights agents; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Amendments to Amended and Restated Rights Agreement. ---------------------------------------------------- The Amended and Restated Rights Agreement is hereby amended as follows: A. Section 21 of the Amended and Restated Rights Agreement is hereby amended in its entirety to read as follows: "Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. After appointment, any successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred 1 Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be." Section 2. Effectiveness. -------------- This First Amendment will become effective as of September 3, 1996. Section 3. Miscellaneous. -------------- A. Full Force and Effect. Except as expressly provided in this First Amendment, the Amended and Restated Rights Agreement will remain unchanged and in full force and effect. B. Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together will constitute One and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. C. Arizona Law. It is the intention of the parties that the laws of Arizona will govern the validity of this First Amendment, the construction of its terms, and the interpretation of the rights and duties of the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. ATTEST: MICROAGE, INC. By:/s/ Barbara Baker /s/ Jeffrey D. McKeever - --------------------------------- ------------------------------------- Title:___________________________ By: Jeffrey D. McKeever Its: Chairman and Chief Executive Officer ATTEST: AMERICAN STOCK TRANSFER AND TRUST COMPANY By:/s/ Susan Silber /s/ Herbert J. Lemmer - --------------------------------- ------------------------------------- Title:___________________________ By: Herbert J. Lemmer --------------------------------- Its: Vice President --------------------------------- 2 EX-10.1 3 RESTATED EXECUTIVE SUPPLEMENTAL SAVINGS PLAN MICROAGE, INC. RESTATED EXECUTIVE SUPPLEMENTAL SAVINGS PLAN September 26, 1996 MICROAGE, INC. RESTATED EXECUTIVE SUPPLEMENTAL SAVINGS PLAN TABLE OF CONTENTS Page ---- SECTION 1 PREAMBLE......................................................... 1 SECTION 2 DEFINITIONS...................................................... 1 SECTION 3 ELIGIBILITY...................................................... 4 SECTION 4 CONTRIBUTIONS.................................................... 6 SECTION 5 WITHDRAWALS...................................................... 8 SECTION 6 CREDITING OF CONTRIBUTIONS AND INCOME............................ 10 SECTION 7 RETIREMENT BENEFITS.............................................. 13 SECTION 8 DEATH BENEFITS................................................... 13 SECTION 9 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH....................... 14 SECTION 10 PAYMENT OF BENEFITS ON TERMINATION OF SERVICE ................................................................ 15 SECTION 11 ADMINISTRATION OF THE PLAN....................................... 17 SECTION 12 ADOPTION OF PLAN BY AFFILIATES................................... 19 SECTION 13 CLAIM REVIEW PROCEDURE........................................... 19 SECTION 14 LIMITATION OF RIGHTS, CONSTRUCTION............................... 20 SECTION 15 LIMITATION ON ASSIGNMENT; PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE.......................................... 21 SECTION 16 AMENDMENT, MERGER AND TERMINATION................................ 22 SECTION 17 GENERAL PROVISIONS............................................... 22 i MICROAGE, INC. EXECUTIVE SUPPLEMENTAL SAVINGS PLAN SECTION 1 PREAMBLE -------- MICROAGE, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), previously adopted the MicroAge, Inc. Executive Supplemental Savings Plan (the "Plan") in order to provide its key executives with an opportunity and incentive to save for retirement and other purposes. By this document, the Company wishes to amend and restate the Plan to incorporate certain changes. SECTION 2 DEFINITIONS ----------- When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not begin a sentence, the word or phrase shall generally be a term defined in this Section 2. The following words and phrases used in the Plan with the initial letter capitalized shall have the meanings set forth in this Section 2, unless a clearly different meaning is required by the context in which the word or phrase is used: 2.1 "Account" or "Accounts" means the accounts which may be maintained by the Plan Administrator to reflect the interest of a Participant under the Plan which shall include the following: (a) "Company Contribution Account" which shall reflect the portion of a Participant's Account representing contributions made by a Plan Sponsor to the Trust pursuant to Section 4.2, as adjusted to reflect the rate of return on the Investment Funds in which the Account is invested and other credits or charges called for by this Plan. (b) "Employee Deferral Account" which shall reflect the portion of a Participant's Account representing deferrals by a Participant pursuant to Section 4.1 hereof, as adjusted to reflect the rate of return on the Investment Funds in which the Account is invested and other credits or charges called for by this Plan. (c) "After-Tax Rollover Contribution Account" which shall reflect the portion of a Participant's Account representing the amount of all After-Tax Rollover Contributions made by a Participant pursuant to Section 4.3, as adjusted to reflect the rate of return on the Investment Funds in which the Account is invested and other credits or charges called for by this Plan. 1 2.2 "Affiliate" means (a) a corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as is a Plan Sponsor, (b) any other trade or business (whether or not incorporated) controlling, controlled by, or under common control (within the meaning of Section 414(c) of the Code) with a Plan Sponsor, and (c) any other corporation, partnership, or other organization which is a member of an affiliated service group (within the meaning of Section 414(m) of the Code) with a Plan Sponsor or which is otherwise required to be aggregated with a Plan Sponsor pursuant to Section 414(o) of the Code. 2.3 "After-Tax Rollover Contribution" means a contribution by a Participant pursuant to Section 4.3. 2.4 "Base Salary" means the total basic compensation paid by a Plan Sponsor to a Participant during the portion of the Plan Year in which an election by a Participant to make Deferral Contributions pursuant to Section 4.1 is in effect. 2.5 "Beneficiary" means only the person or trust that a Participant, in his most recent written designation filed with the Plan Administrator, shall have designated to receive his benefit under the Plan in the event of his death; provided that, if the Participant has failed to make a designation or if no person designated shall be alive or if no trust shall have been established by the Participant, and no successor Beneficiary shall have been designated and be alive, any death benefit payable hereunder on behalf of such Participant shall be paid to the legal representative of such deceased Participant's estate. Changes in designations of Beneficiaries may be made upon written notice to the Plan Administrator in any form as the Plan Administrator may prescribe and the Plan Administrator shall immediately notify the Trustee, in writing, of any designation or change in designation. 2.6 "Board of Directors" means the Board of Directors of the Company. 2.7 "Bonus" means the additional cash compensation paid to a Participant by a Plan Sponsor pursuant to any incentive or bonus plan, program, or practice of the Plan Sponsor which is subject to an election to make Deferral Contributions pursuant to Section 4.1(b). 2.8 "Code" means the Internal Revenue Code of 1986, as amended. 2.9 "Compensation" means the sum of a Participant's Base Salary and Bonuses plus any amounts deferred under the Management Equity Plan. 2.10 "Deferral Contributions" means contributions by a Participant pursuant to Section 4.1 of this Plan. 2.11 "Delayed Retirement Date" means the first day of the month subsequent to a Participant's Normal Retirement Date during which he actually terminates service with a Plan Sponsor. 2 2.12 "Distributable Amount" means the least of (i) the maximum elective contributions that could be made to the 401(k) Plan for the Plan Year consistent with Sections 402(g) and 401(k)(3) of the Code and the provisions of the 401(k) Plan, (ii) the Participant's Deferral Contributions made pursuant to Section 4.1 above during the Plan Year, or (iii) the balance of the Participant's Employee Deferral Account. 2.13 "Effective Date" of this restated Plan with respect to the Company and any Plan Sponsor that previously adopted this Plan means November 1, 1996. With respect to each Plan Sponsor that adopts this Plan after November 1, 1996, Effective Date means, the date designated by the adopting Plan Sponsor. 2.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.15 "401(k) Plan" means the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan, as the same may be amended from time to time. 2.16 "Income Fund" means one of the Investment Funds established by the Plan Administrator, the assets of which shall be invested by the Trustee with the objective of earning interest income without exposing the fund to significant fluctuations in value. 2.17 "Investment Fund" means the investment fund or funds established by the Plan Administrator pursuant to Section 6.3, into which Participants may direct the Trustee to invest amounts credited to their Bookkeeping Accounts. 2.18 "Leadership Team" means the group consisting of officers of the Plan Sponsors holding the positions and titles of Vice President or higher. 2.19 "Normal Retirement Age" means age 65. 2.20 "Normal Retirement Date" means the first day of the month coinciding with or next following the date on which the Participant attains Normal Retirement Age. 2.21 "Participant" means any individual providing services to a Plan Sponsor who has become a Participant in the Plan for as long as his benefit under the Plan has not been fully distributed pursuant to the provisions of the Plan. 2.22 "Participation Agreement" means the agreement entered into by a Plan Sponsor and a Participant as set forth in Section 3.2. 2.23 "Plan Administrator" means the Company or the committee designated by the Company to carry out its responsibilities under the Plan as set forth in Section 11.3. 3 2.24 "Plan Sponsor" means individually (i) the Company or any successor thereto and (ii) each organization which has adopted the Plan and become a party to the Trust in the manner set forth in Section 12 of the Plan. 2.25 "Plan Year" has meant the calendar year. For the Plan Year beginning January 1, 1996, the Plan Year shall be a short Plan Year beginning January 1, 1996 and ending on October 27, 1996. Thereafter, the Plan Year shall be the Company's fiscal year, i.e., the Plan Year shall end on the Sunday closest to October 31. 2.26 "Plan Year Quarter" means the quarters of the Plan Year, which for convenience, shall be deemed to begin on the first day of each Plan Year and on each February 1, May 1 and August 1. 2.27 "Retirement" means termination of a Participant's service with a Plan Sponsor on his Normal Retirement Date or Delayed Retirement Date. 2.28 "Trust Agreement" means that certain trust agreement established pursuant to the Plan between the Company and the Trustee or any trust agreement hereafter established, the provisions of which are incorporated herein by reference. 2.29 "Trustee" means the Trustee under the Trust Agreement. 2.30 "Trust Fund" means all assets of whatsoever kind or nature held from time to time by the Trustee pursuant to the Trust Agreement and forming a part of this Plan, without distinction as to income and principal and without regard to source, i.e., Plan Sponsor or Participant contributions, earnings or forfeitures. 2.31 "Valuation Date" means the last business day of each Plan Year and such other dates as the Plan Administrator may designate. 2.32 "Years of Service" means the years of service credited to a Participant for purposes of determining such Participant's vested benefit under the 401(k) Plan, all as determined under Sections 2.66 and 6.01 of the 401(k) Plan as such provisions may be amended, superseded or replaced from time to time. All years of service credited to a Participant under the 401(k) Plan shall be considered in determining the Participant's Years of Service under this Plan. SECTION 3 ELIGIBILITY ----------- 3.1 GENERAL. Participation in the Plan shall be limited to those individuals who are members of the Leadership Team. The Company has determined that each current member of the Leadership Team holds a key position of management and responsibility and that the Leadership Team presently constitutes a select group of management or highly compensated employees for 4 purposes of Title I of ERISA. The Compensation Committee of the Board of Directors shall have the full discretion and authority to exclude a member of the Leadership Team from participation in the Plan if it concludes that such member is not properly characterized as a management or highly compensated employee. The Compensation Committee's decision shall be made in its discretion and shall be final and binding for all purposes under this Plan. 3.2 PARTICIPATION AGREEMENT. Subsequent to an individual becoming eligible to participate in the Plan, such individual shall enter into a Participation Agreement in such form and at such time as the Plan Administrator shall require. If the individual's initial Participation Agreement is executed and delivered within thirty (30) days of the day on which the individual is notified that he is eligible to participate in the Plan, the individual's Deferral Contributions may be determined with reference to Compensation earned on or after the first day of the first full payroll period next following receipt of the Participation Agreement by the Plan Administrator or as of such other uniform date (not earlier than the first day of the next full payroll period) as may be designated by the Plan Administrator. If the individual does not execute and deliver the Participation Agreement within the initial thirty (30) day period, the individual's Deferral Contributions may be determined with reference to Compensation earned on or after the first day of the first payroll period in any later Plan Year Quarter by executing and delivering a Participation Agreement to the Plan Administrator prior to the first day of such quarter. The individual shall designate on the Participation Agreement the amount of his Deferral Contributions and shall authorize the reduction of his Compensation in an amount equal to his Deferral Contributions. 3.3 DISCONTINUANCE OF PARTICIPATION. Once an individual is designated as a Participant, he will continue as such for all future Plan Years unless and until the individual is no longer categorized as a member of the Leadership Team, or the Compensation Committee specifically acts to discontinue the individual's participation, or the Participant's participation is suspended pursuant to Section 5.3(c) hereof. The Compensation Committee may discontinue an individual's participation in the Plan at any time for any or no reason. If an individual's participation is discontinued, the individual will no longer be eligible to make Deferral Contributions. The individual will not be entitled to receive a distribution, however, until the occurrence of one of the events listed in Sections 5.1 through 5.3 or Sections 7.1 through 7.5, unless the Compensation Committee, in the exercise of its discretion, directs that a distribution be made as of an earlier dated in which case the individual's Accounts shall be distributed on the same basis as if the individual's employment had been terminated. SECTION 4 CONTRIBUTIONS ------------- 4.1 PARTICIPANT CONTRIBUTIONS. (a) DEFERRAL OF BASE SALARY. For any Plan Year, a Participant may elect to defer a portion of the Base Salary otherwise payable to him. Any such deferrals shall be in whole percentages or a specific dollar amount of the Participant's Base Salary, as specified in the 5 Participant's Participation Agreement. Contributions of amounts deferred shall be made by the Plan Sponsor directly to the Trust. (b) DEFERRAL OF BONUSES. A Participant may also elect to defer a portion of any Bonuses which might be payable to him by a Plan Sponsor. Any such deferrals shall be in whole percentages or a specific dollar amount of the Participant's Bonuses, as specified in the Participant's Participation Agreement. Contributions of amounts so deferred shall be made by the Plan Sponsor directly to the Trust. (c) LIMITATIONS ON DEFERRALS. The Plan Administrator may limit the amount of a Participant's Deferral Contributions in accordance with such uniform rules as it may adopt from time to time. 4.2 MATCHING CONTRIBUTIONS. In addition to any contributions required to be made by a Plan Sponsor pursuant to Section 6.2(b), for each year in which a Plan Sponsor achieves a net profit, the Plan Sponsor may make matching contributions to the Trust on behalf of each of its Participants who has elected to make any Deferral Contributions during the Plan Year under Section 4.1 hereof, other than Participants who terminated service with the Plan Sponsor during the Plan Year for reasons other than death, disability or Retirement. The matching contribution shall equal such amount as the Plan Sponsor, in its sole and absolute discretion, determines, but the matching contribution shall not exceed ten percent (10%) of the Plan Sponsor's before-tax income for the year. The matching contribution shall be allocated to each eligible Participant's Company Contribution Account as of the year-end Valuation Date in the ratio that each such Participant's Deferral Contributions for the Plan Year bears to the Deferral Contributions made by all of that Plan Sponsor's Participants for the Plan Year. In the exercise of its discretion, the Plan Sponsor may choose to disregard Deferral Contributions in excess of a ceiling (e.g., 10% of Compensation) set from time to time by the Plan Sponsor and may further limit allocations in its sole and absolute discretion in a uniform and nondiscriminatory manner. In no event shall matching contributions be made in stock or other securities of a Plan Sponsor. 4.3 AFTER-TAX ROLLOVER CONTRIBUTIONS. Each Participant may, upon the Plan Administrator's prior approval, make after-tax contributions to the Trust. Such contributions may be made through payroll deductions or otherwise. A Participant's after-tax contributions, in the aggregate, shall not exceed the distribution received by the Participant from a nonqualified deferred compensation plan not sponsored by any Plan Sponsor and received by the Participant within the twelve (12) month period before or after the Participant commences employment with a Plan Sponsor. 4.4 CHANGE IN CONTRIBUTIONS. A Participant may change the amount or percentage of contributions under Sections 4.1 or 4.3 once during each Plan Year Quarter by written notice to the Plan Administrator, which change shall be effective beginning with the Participant's first full payroll period beginning in the Plan Year Quarter immediately following the Plan Administrator's receipt of such written notice. 6 4.5 SUSPENSION OF CONTRIBUTIONS. (a) SUSPENSION. A Participant may suspend his contributions under Sections 4.1 or 4.3 as of the first day of the first full payroll period in any Plan Year Quarter, but in no event more than once during each Plan Year, by giving written notice to the Plan Administrator on a form prescribed by the Plan Administrator at least thirty (30) days prior to the date on which the suspension shall become effective. (b) RESUMPTION OF CONTRIBUTIONS. A Participant who has suspended his contributions pursuant to Section 4.5(a) above and who applies to the Plan Administrator in a timely manner shall be entitled to resume his contributions in accordance with Section 4.3 on the first day of any Plan Year Quarter following the expiration of at least six (6) months from the date on which the suspension became effective. Any application shall be made in writing to the Plan Administrator, on a form prescribed by the Plan Administrator, at least thirty (30) days prior to the first day of the applicable Quarter. 4.6 DISTRIBUTION AND TRANSFER OF PARTICIPANT DEFERRALS. (a) ELECTION. A Participant must elect either to have the Distributable Amount distributed from this Plan and contributed to the 401(k) Plan as a pre-tax contribution or to have such amount distributed to the Participant in a single lump sum payment. Elections made pursuant to the preceding sentence must be filed with the Plan Administrator prior to the first day of the applicable Plan Year. Any election made pursuant to this Section shall be irrevocable during the Plan Year covered by the election but may be changed prior to the beginning of a new Plan Year by submitting a revised election to the Plan Administrator in writing prior to the first day of the new Plan Year. (b) DETERMINATION OF 401(k) PLAN CONTRIBUTION. Not later than thirty (30) days after the close of the Plan Year, i.e., November 30th, the Plan Administrator shall request the administrator of the 401(k) Plan to inform the Plan Administrator of the amount of elective contributions that each Participant may contribute to the 401(k) Plan for the immediately preceding Plan Year consistent with Sections 402(g) and 401(k)(3) of the Code and the provisions of the Plan. The Plan Administrator then shall compute the Distributable Amount for each Participant pursuant to Section 2.12 and Section 4.7(a). (c) DISTRIBUTION. The Plan Administrator will thereafter, but in no event later than two and one-half (2 1/2) months after the close of the Plan Year, distribute on behalf of each Participant an amount equal to the Distributable Amount. If the Participant has elected to transfer the Distributable Amount to the 401(k) Plan, the Plan Administrator will make a direct transfer of the Distributable Amount to the Trust Fund maintained pursuant to the 401(k) Plan. If the Participant has elected to receive the Distributable Amount, the Plan Administrator will make a single lump sum payment to the Participant and the Plan Sponsor will include the Distributable Amount in the Participant's gross income for the calendar years in which the Compensation to which the Deferral Contributions are attributable was earned. Amounts attributable to the positive or 7 negative rate of return allocable to the Participant's Accounts will not be distributed until an event described in Sections 5.1 through 5.3 or Sections 7.1 through 7.4 has occurred. (d) TREATMENT OF MATCHING CONTRIBUTIONS. The matching contributions, if any, due pursuant to Section 4.2 shall be reduced by the amount of the matching contributions attributable to the Distributable Amount. If the matching contributions have already been credited to the Participant's Matching Contributions Account when the Distributable Amount is calculated and distributed, the Matching Contributions Account shall be debited for the amount of the matching contributions attributable to the Distributable Amount. The Participant shall then be entitled to receive whatever matching contributions may be due pursuant to the 401(k) Plan if the Distributable Amount is transferred to the 401(k) Plan. No matching contributions shall be due if the Participant has elected to receive a cash distribution of the Distributable Amount. SECTION 5 WITHDRAWALS ----------- 5.1 AFTER-TAX ROLLOVER CONTRIBUTIONS. A Participant may at any time, upon written notice to the Plan Administrator at least thirty (30) days in advance of the last day of any Plan Year Quarter, on a form prescribed by the Plan Administrator, request a withdrawal of all or any portion of the lesser of (i) the total amount of After-Tax Rollover Contributions contributed by the Participant, or (ii) the then current balance in the Participant's After-Tax Rollover Contribution Account. Such request for a withdrawal from the Participant's After-Tax Rollover Contribution Account shall designate a specific dollar amount to be withdrawn therefrom; provided, however, that no withdrawal request shall be made for a withdrawal that is less than $500.00, unless such withdrawal is of the entire balance of the After- Tax Rollover Contribution Account. Upon approval of the Plan Administrator, any amount payable under this Section 5.1 shall be paid as soon as administratively practicable after the first day of the Plan Year Quarter following the Plan Administrator's timely receipt of a withdrawal request. No Participant shall make more than one withdrawal under this Section 5.1 in any Plan Year Quarter. 5.2 HARDSHIP. In the event of financial hardship, and only after a Participant has withdrawn all amounts available to him under Section 5.1 hereof, a Participant may make a written request to the Plan Administrator for a hardship withdrawal from his Employee Deferral Account. For purposes of this Section, the term "financial hardship" shall mean any extraordinary or unforeseeable need for funds arising from events beyond the Participant's control for the purpose of: (i) paying medical expenses described in Section 213(d) of the Code incurred by the Participant, the Participant's spouse, or any dependent of the Participant, as defined in Section 152 of the Code; (ii) purchasing (excluding mortgage payments) a principal residence for the Participant; (iii) paying tuition, room and board, and related expenses for the next 12 months of post-secondary education for the Participant, or the Participant's spouse, children or dependents, as defined in Section 152 of the Code; (iv) preventing the eviction of the Participant from his principal residence or the foreclosure on the mortgage of the Participant's principal residence; or (v) such other circumstance as is determined by the Plan Administrator, in its sole and absolute discretion, to constitute a 8 financial hardship. Any determination of the existence of financial hardship and the amount to be withdrawn on account thereof shall be made by the Plan Administrator. Notwithstanding the foregoing, no hardship withdrawal shall be made which is less than $500.00, unless the distribution is of the entire portion of the Participant's Employee Deferral Account. A request for a hardship withdrawal must be made in writing at least thirty (30) days in advance, on a form provided by the Plan Administrator, and must be expressed as a specific dollar amount. The amount of a hardship withdrawal may not exceed the lesser of (a) the amount required to meet the Participant's financial hardship or (b) the entire balance of the Participant's Employee Deferral Account less the difference between (i) the Participant's Deferral Contributions made during the current Plan Year and (ii) the maximum elective contributions that could be made to the 401(k) Plan for the current Plan Year consistent with Sections 402(g) of the Code. 5.3 ACCELERATION OF BENEFITS. (a) GENERAL. A Participant may elect to receive an accelerated withdrawal by filing an election with the Plan Administrator on such forms as may be prescribed from time to time by the Plan Administrator. If a Participant makes such an election, except as otherwise provided below, the Participant shall receive a single lump sum payment equal to the sum of ninety-five percent (95%) of the Participant's "available Account balance." For this purpose, the Participant's "available Account balance" is equal to the Participant's Employee Deferral Account plus the Participant's vested interest in the Participant's Company Contribution Account. For purposes of determining the amount to be distributed, the Participant's Accounts shall be valued as of the Valuation Date immediately preceding the date of the withdrawal. In calculating such value, Deferral Contributions made by the Participant during the Plan Year in which the request is made shall be disregarded as shall any matching contributions attributable to such Deferral Contributions. The Participant's vested interest in his Company Contribution Account shall be determined as of the day on which the accelerated withdrawal is paid to the Participant. The accelerated withdrawal shall be paid as soon as reasonably possible following the filing of the election by the Participant. (b) FORFEITURE. The Participant shall forfeit the remaining five percent (5%) of the "available Account balance" as well as the unvested portion of the Participant's Company Contribution Account as of the day on which the accelerated withdrawal is distributed to the Participant. The Deferral Contributions made by the Participant during the Plan Year in which the accelerated withdrawal request is made and the matching contributions attributable to such Deferral Contributions (both of which are not subject to or available for withdrawal) shall not be forfeited. (c) SUSPENSION OF PARTICIPATION. If a Participant elects to receive an accelerated withdrawal, the Participant's right to participate in the Plan shall be suspended for twelve (12) months from the date the accelerated withdrawal is paid to the Participant. Upon expiration of the twelve (12) month suspension period, the Participant shall be permitted to execute a new Participation Agreement and to begin making Deferral Contributions in accordance with Section 3.2, as of the first day of the first payroll period in any subsequent Plan Year Quarter. 9 (d) REPAYMENT OF ACCELERATED BENEFITS BY PARTICIPANT. A Participant who receives an accelerated withdrawal under this Section 5.3 shall be required to repay the Trustee the full amount of the payment if the Company is or becomes subject to a pending proceeding as a debtor under the United States Bankruptcy Code within three (3) months of the date of the Participant's filing of the election to receive an accelerated withdrawal pursuant to Section 5.3(a). 5.4 CREDITING OF WITHDRAWALS. Withdrawals and other distributions shall be charged pro rata to the Investment Funds in which the Account of the Participant is invested, pursuant to his designation under Section 6.3 hereof. SECTION 6 CREDITING OF CONTRIBUTIONS AND INCOME ------------------------------------- 6.1 TRANSFER TO TRUSTEE. All Deferral Contributions, After-Tax Rollover Contributions and Plan Sponsor contributions shall be transmitted to the Trustee by the Plan Sponsor as soon as reasonably practicable and shall be credited to the Employee Deferral Account, After-Tax Rollover Contribution Account and Company Contribution Account, respectively, of the Participant immediately upon receipt. All payments from an Account between Valuation Dates shall be charged against the Account as of the preceding Valuation Date. The Accounts are bookkeeping accounts only and the Plan Administrator is not in any way obligated to segregate assets for the benefit of any Participant. 6.2 CREDITING TO BOOKKEEPING ACCOUNTS. (a) GENERAL. Except as otherwise provided in the Plan and Trust, as of each Valuation Date the Plan Administrator shall adjust each Participant's Accounts with the positive or negative rate of return on the Investment Funds selected by the Participant pursuant to Section 6.3(b). The rate of return will be determined by the Plan Administrator pursuant to Section 6.3(c) and will be credited or charged against the "adjusted balance" of the Account, which will be the balance of the Account as of the preceding Valuation Date less all withdrawals, distributions and other amounts chargeable against the Account pursuant to any other provisions of this Plan since the prior Valuation Date. In the exercise of its discretion, the Plan Administrator also may direct that a portion of the Employee Deferral Contributions made since the prior Valuation Date be considered in calculating the adjusted balance of the Employment Deferral Account. If the Participant's Distributable Amount for a Plan Year is transferred to the 401(k) Plan pursuant to Section 4.6, despite the preceding sentence, the Plan Administrator, in the exercise of its discretion, may elect to include all or any portion of the Distributable Amount in the adjusted balance of the Participant's Accounts for purposes of making the adjustments called for by this Section for the valuation period in which the Distributable Amount is distributed to the 401(k) Plan. The amount representing any positive rate of return on the Distributable Amount shall not be transferred to the 401(k) Plan but shall remain in this Plan. In addition, the amount representing any negative rate of return on the Distributable Amount shall not be serve to reduce the amount transferred to the 401(k) 10 Plan but rather shall serve to reduce the remaining balance of the Participant's Accounts in this Plan, provided, however, that the amount representing any negative rate of return shall serve to reduce the amount transferred to the 401(k) Plan if the Participant's Account balance is less than the amount that would otherwise be transferred to the 401(k) Plan. Notwithstanding any provision hereof to the contrary, if the Participant elects to receive a distribution of the Distributable Amount pursuant to Section 4.6(a), no adjustment shall be made for any positive rate of return with respect to the Distributable Amount, but any negative rate of return shall serve to reduce the Distributable Amount. (b) INCOME FUND GUARANTEE. For each Plan Year, the Plan Sponsors shall guarantee that the Participants' "adjusted account balance" that is invested in the Income Fund shall earn a minimum annual rate of return equal to ten percent (10%), or such other percentage as may be determined and announced by the Company before the beginning of the Plan Year. For purposes of the preceding sentence, a Participant's "adjusted account balance" shall mean the portion of the Participant's Account that is invested in the Income Fund as of the first day of such Plan Year (or the effective date of a Participant's participation in the Plan, if such effective date is not the first day of the Plan Year), plus 50% of the contributions made by the Participant pursuant to Section 4 that are credited to the Income Fund pursuant to the Participant's direction during the applicable Plan Year. If the earnings on the investments that comprise the Income Fund are not adequate to assure such minimum annual rate of return, the Plan Sponsors shall make a special contribution to the Trust Fund in the amount of the shortfall, which contribution shall be credited to the Income Fund and shall be allocated to the Accounts of Participants whose Accounts are invested in the Income Fund in the same manner as investment earnings are otherwise allocated. 6.3 INVESTMENT DIRECTION. (a) INVESTMENT FUNDS. The Plan Administrator shall establish one or more Investment Funds in which each Participant shall invest amounts credited to his Account. The Investment Funds shall include an Income Fund and such other funds as may be selected from time to time by the Plan Administrator. The Investment Funds may be changed from time to time by the Plan Administrator. (b) PARTICIPANT DIRECTIONS. (1) GENERAL. Upon becoming a Participant of the Plan, each Participant may direct that all of the amounts attributable to his Account be invested in a single investment fund or may direct fractional (percentage) increments of his Account to be invested in such fund or funds as he shall desire, on such forms and in accordance with such procedures, if any, as may be established by the Plan Administrator. Such designation may be changed as of the first day of any Plan Year Quarter, with respect to future contributions and transfers among Investment Funds, by filing an election with the Plan Administrator, on a form prescribed by the Plan Administrator, at least thirty (30) days (or such fewer number of days as may be prescribed by the Plan Administrator) prior to the applicable Plan Year Quarter. The designation will continue until changed by the timely submission of a new form, which change will be effective as of the first day of the next succeeding Plan Year Quarter. 11 (2) INCOME FUND. Notwithstanding paragraph (1), above, a Participant shall only be permitted to invest amounts credited to his Account in, or otherwise change such direction with respect to, the Income Fund as of the first day of each Plan Year. (3) DEFAULT SELECTION. In the absence of any designation, a Participant will be deemed to have directed the investment of his Accounts in such Investment Funds as the Trustee, in its sole and absolute discretion, shall determine. In no event may a Participant designate the investment of his Account in stock or other securities of a Plan Sponsor. (4) IMPACT OF ELECTION. The Participant's selection of Investment Funds shall serve only as a measurement of the value of the Accounts of said Participant pursuant to Section 6.2(a) and Section 6.3(c) and the Plan Administrator and the Trustee are not required to invest a Participant's Accounts in accordance with the Participant's selections. (c) RATE OF RETURN. As soon as possible after each Valuation Date, the Plan Administrator shall determine the rate of return, positive or negative, experienced on each of the Investment Funds. The rate of return determined by the Plan Administrator in good faith and in its discretion pursuant to this Section shall be binding and conclusive on the Participant, the Participant's Beneficiary and all parties claiming through them. (d) CHARGES. The Plan Administrator may charge each Participant's Account for the reasonable expenses of carrying out investment instructions directly related to such Account. SECTION 7 RETIREMENT BENEFITS ------------------- 7.1 RETIREMENT DATE. The provisions of this Section 7 apply only in the event that a Participant remains in the service of a Plan Sponsor or an Affiliate until reaching a Retirement date. Wherever reference is made in this Plan to a Retirement date, it shall mean the Normal Retirement Date or Delayed Retirement Date of a Participant, whichever is applicable. 7.2 NORMAL RETIREMENT. The Participant shall be entitled, as of his Normal Retirement Date, to the entire value of his Accounts. 7.3 DELAYED RETIREMENT. A Participant shall be entitled, as of his Delayed Retirement Date, to the entire value of his Accounts. 7.4 PAYMENT OF RETIREMENT BENEFIT. Any benefit payable under this Section 7 shall be paid in accordance with Section 9 or Section 10 of the Plan, whichever is applicable, after receipt by the Trustee from the Plan Administrator of notice of the Retirement of the Participant. 12 SECTION 8 DEATH BENEFITS -------------- 8.1 DEATH BEFORE TERMINATION OF EMPLOYMENT. Upon the death of a Participant prior to the termination of his service with all Plan Sponsors and Affiliates, the Beneficiary of such Participant shall be entitled to the entire value of his Accounts. 8.2 DEATH AFTER TERMINATION OF EMPLOYMENT. Upon the death of a Participant who, at the time of his death, has terminated his service with all Plan Sponsors and Affiliates, the Beneficiary of such Participant shall be entitled to receive the vested portion of the Participant's Accounts, determined pursuant to Section 10. 8.3 ENTITLEMENT TO DEATH BENEFIT. If subsequent to the death of a Participant, the Participant's Beneficiary dies while entitled to receive benefits under this Plan, the successor Beneficiary of the Participant, if any, shall be entitled to receive benefits of the Participant under this Plan. However, if no successor Beneficiary shall have been designated and shall be alive, the benefits shall be paid to the legal representative of the deceased Beneficiary's estate to be paid according to the deceased Beneficiary's will, or if the deceased Beneficiary has no will, by the laws of intestacy of the state in which the deceased Beneficiary resided at the date of the deceased Beneficiary's death. If the Participant is married, a designation of a person other than the Participant's spouse as his Beneficiary with respect to more than fifty percent (50%) of the amount allocated to the Participant's Accounts shall not be effective without the written consent of the Participant's spouse. 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 Plan Administrator. 8.4 PAYMENT OF DEATH BENEFIT. Any benefit payable under this Section 8 shall be paid in accordance with Section 9 or Section 10 of the Plan, whichever is applicable, after receipt by the Trustee from the Plan Administrator of notice of the death of the Participant. SECTION 9 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH ------------------------------------------ 9.1 COMMENCEMENT OF PAYMENTS. Upon the Retirement or death of a Participant, the value of the Accounts of such Participant shall be determined as of the Valuation Date coinciding with or next following the Participant's Retirement date or date of death, provided, however, that the Participant or, if applicable, his Beneficiary, may request that payment be made promptly after the date of Retirement or death of a Participant. In such event, and upon approval of the Plan Administrator, in its sole and absolute discretion, the Accounts of the Participant shall be valued as of the Valuation Date next preceding the Participant's Retirement date or date of death, increased by any After-Tax Rollover Contributions, Deferral Contributions and Plan Sponsor contributions made since that Valuation Date, and in that event payment shall commence or be made no later than sixty (60) days after the Retirement date or death of the Participant or sixty (60) days 13 after the Participant or the Participant's Beneficiary, as the case may be, files a request for distribution, whichever is later. If the Plan Administrator does not approve prompt payment as described in the preceding sentence, then payment to a Participant, or to the Beneficiary of a deceased Participant, shall be made no later than sixty (60) days after the Valuation Date coinciding with or next following the Retirement date or the death of the Participant. Notwithstanding the foregoing, if the amount of the payment required to be made on that date cannot be ascertained by that date, payment shall be made no later than sixty (60) days after the earliest date on which the amount of the payment can be ascertained under the Plan. 9.2 FORM OF PAYMENT. The payment of a Participant's benefits shall be made either in a lump sum in cash, or in cash payments in annual, quarterly, or monthly installments over a period certain not exceeding ten (10) years, such method of payment to be elected by the Participant in his Participation Agreement. If installment payments are made, the unpaid balance shall be continued to be invested in the Trust Fund in accordance with the Participant's direction and shall continue to share in any gain or loss attributable to the Investment Fund or Funds. SECTION 10 PAYMENT OF BENEFITS ON TERMINATION OF SERVICE --------------------------------------------- 10.1 TERMINATION OF SERVICE DEFINED. Transfer of a Participant from one Plan Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to be a termination of service by the Participant. A Participant shall be deemed to have terminated service only upon the earlier of his death, Retirement or other actual termination of service with all Plan Sponsors and Affiliates. 10.2 TERMINATION OF SERVICE BENEFITS. In the event of the termination of service of a Participant for reasons other than death or Retirement, the Participant shall be entitled to that portion of his Accounts in which he is vested, as set forth in Section 10.3 below. 10.3 VESTING OF BENEFITS. (a) DEFERRAL CONTRIBUTIONS AND AFTER-TAX ROLLOVER CONTRIBUTIONS. Each Participant shall at all times be fully vested in all amounts credited to a Participant's Employee Deferral Account and After-Tax Rollover Contribution Account, and a Participant's rights and interest therein shall not be forfeitable for any reason. The amounts distributable to a Participant from the Participant's Employee Deferral Account and After-Tax Rollover Contribution Account shall equal the value in such Accounts as of the Valuation Date coinciding with or immediately preceding the date of the Participant's termination of service, increased by any After-Tax Rollover Contributions and Deferral Contributions made by the Participant subsequent to that Valuation Date. (b) FULL VESTING. Each Participant shall be fully vested in the amounts credited to his Company Contribution Account on and after the first to occur of the following events: 14 (1) Attainment by the Participant of the age of sixty-five (65) years; (2) The date of death of the Participant; (3) Termination of the Plan; or (4) The completion of five (5) Years of Service. (c) VESTING SCHEDULE. If a Participant terminates service with a Plan Sponsor at a time when the Participant is not fully vested in the amounts credited to his Company Contribution Account, the Participant's vested interest shall be determined in accordance with the following vesting schedule: Years of Service Percentage Vested ---------------- ----------------- Fewer than 1 Year 0% 1 but less than 2 20% 2 but less than 3 40% 3 but less than 4 60% 4 but less than 5 80% 5 or more 100% A Participant's vested interest in his Company Contribution Account shall be determined as of the Valuation Date immediately preceding the first distribution to the Participant from his Company Contribution Account following his termination of employment. 10.4 FORM OF PAYMENT. Payment shall be made either in a lump sum in cash, or in cash payments in annual, quarterly or monthly installments over a period certain not exceeding ten (10) years, such method of payment to be elected by the Participant in his Participation Agreement. If installment payments are made, the unpaid balance shall continue to be invested in the Trust Fund and the Participant will continue to be entitled to make investment elections pursuant to Section 6.3(b) and to have his Accounts adjusted pursuant to Section 6.2(a). Payment shall commence or be made as soon as practicable after the Participant's date of termination of service, but in no event later than one year following that date. 10.5 CHANGES IN VESTING SCHEDULE. In the event that an amendment to this Plan directly or indirectly changes the vesting schedule set forth in Section 10.3 of the Plan, the vested percentage for each Participant in his benefit accumulated to the date when the amendment is adopted shall not be reduced as a result of the amendment. In addition, any Participant with at least three (3) Years of Service may irrevocably elect, by written notice to the Plan Administrator within the election period hereinafter provided, to remain under the pre- amendment vesting schedule with respect to all of his benefits accrued both before and after the amendment. The election period shall begin no later than the date on which the amendment is adopted and shall end no earlier than sixty (60) days after the latest of: (i) the date on which the amendment is adopted, (ii) the date on 15 which the amendment becomes effective, or (iii) the date on which the Participant is issued written notice of the amendment by a Plan Sponsor or the Plan Administrator. 10.6 FORFEITURES. Any portion of a Participant's Company Contribution Account in which he is not vested as provided in Section 10.3 above shall be forfeited in the Plan Year in which the Participant receives a distribution under this Section 10. SECTION 11 ADMINISTRATION OF THE PLAN -------------------------- 11.1 ADOPTION OF TRUST. The Company shall enter into a Trust Agreement with the Trustee, which Trust Agreement shall form a part of this Plan and is hereby incorporated herein by reference. 11.2 POWERS OF THE PLAN ADMINISTRATOR. (a) The Plan Administrator is the named fiduciary with respect to the administration of the Plan. (b) The Plan Administrator shall have the power and discretion to perform the administrative duties described in this Plan or required for proper administration of the Plan and shall have all powers necessary to enable it to properly carry out such duties. Without limiting the generality of the foregoing, the Plan Administrator shall have the power and discretion to construe and interpret this Plan, to hear and resolve claims relating to this Plan, and to decide all questions and disputes arising under this Plan. The Plan Administrator shall determine, in its discretion, the service credited to the Participants, the status and rights of a Participant, and the identity of the Beneficiary or Beneficiaries entitled to receive any benefits payable hereunder on account of the death of a Participant. The Compensation Committee of the Board of Directors shall have the discretion to exclude Leadership Team members from participation in the Plan and to discontinue a Participant's participation in the Plan. (c) Except as is otherwise provided hereunder, the Plan Administrator shall determine the manner and time of payment of benefits under this Plan. All benefit disbursements by the Trustee shall be made upon the instructions of the Plan Administrator. (d) The decision of the Plan Administrator upon all matters within the scope of its authority shall be binding and conclusive upon all persons. (e) The Plan Administrator shall file all reports and forms lawfully required to be filed by the Plan Administrator and shall distribute any forms, reports or statements to be distributed to Participants and others. 16 (f) The Plan Administrator shall keep itself advised with respect to the investment of the Trust Fund and shall report to the Plan Sponsor regarding the investment and reinvestment of the Trust Fund not less frequently than annually. 11.3 CREATION OF COMMITTEE. The Company may appoint a committee to perform its duties as Plan Administrator by the adoption of appropriate Board of Directors resolutions. The committee must consist of at least two (2) members, and they shall hold office during the pleasure of the Board of Directors. The committee members shall serve without compensation but shall be reimbursed for all expenses by the Company. The committee shall conduct itself in accordance with the provisions of this Section 11. The members of the committee may resign with thirty (30) days notice in writing to the Company and may be removed immediately at any time by written notice from the Company. 11.4 CHAIRMAN AND SECRETARY. The committee shall elect a chairman from among its members and shall select a secretary who is not required to be a member of the committee and who may be authorized to execute any document or documents on behalf of the committee. The secretary of the committee or his designee shall record all acts and determinations of the committee and shall preserve and retain custody of all such records, together with such other documents as may be necessary for the administration of this Plan or as may be required by law. 11.5 APPOINTMENT OF AGENTS. The committee may appoint such other agents, who need not be members of the committee, as it may deem necessary for the effective performance of its duties, whether ministerial or discretionary, as the committee may deem expedient or appropriate. The compensation of any agents who are not employees of the Company shall be fixed by the committee within any limitations set by the Board of Directors. 11.6 MAJORITY VOTE AND EXECUTION OF INSTRUMENTS. In all matters, questions and decisions, the action of the committee shall be determined by a majority vote of its members. They may meet informally or take any ordinary action without the necessity of meeting as a group. All instruments executed by the committee shall be executed by a majority of its members or by any member of the committee designated to act on its behalf. 11.7 ALLOCATION OF RESPONSIBILITIES. The committee may allocate responsibilities among its members or designate other persons to act on its behalf. Any allocation or designation, however, must be set forth in writing and must be retained in the permanent records of the committee. 11.8 CONFLICT OF INTEREST. No member of the committee who is a Participant shall take any part in any action in connection with his participation as an individual. Such action shall be voted or decided by the remaining members of the committee. 11.9 ACTION TAKEN BY PLAN SPONSOR. Any action to be taken by a Plan Sponsor shall be taken by resolution adopted by its board of directors or an executive committee thereof; provided, however, that by resolution, the board of directors or an executive committee 17 thereof may delegate to any committee of the board or any officer of the Plan Sponsor the authority to take any actions hereunder, other than the power to determine the basis of Plan Sponsor contributions. 11.10 FIDUCIARY AUTHORITY. All delegations of fiduciary responsibility set forth in this document regarding the determination of benefits and the interpretation of the terms of the Plan confer discretionary authority upon the named fiduciary. SECTION 12 ADOPTION OF PLAN BY AFFILIATES ------------------------------ The adoption of this Plan by any Affiliate or any corporation related to the Company by function or operation shall not be effective without the written consent of the Company. Any adoption shall be evidenced by certified copies of the resolution of the foregoing board of directors indicating the adoption and by the execution of the Trust by the adopting corporation or Affiliate. The resolution shall define the Effective Date for the purpose of the Plan as adopted by the corporation or Affiliate. SECTION 13 CLAIM REVIEW PROCEDURE ---------------------- 13.1 GENERAL. In the event that a Participant or Beneficiary is denied a claim for benefits under this Plan (the "claimant"), the Plan Administrator shall provide to the claimant written notice of the denial which shall set forth: (a) the specific reason or reasons for the denial; (b) specifIc references to pertinent Plan provisions on which the Plan Administrator based its denial; (c) a description of any additional material or information needed for the claimant to perfect the claim and an explanation of why the material or information is needed; (d) a statement that the claimant may: (i) Request a review upon written application to the Plan Administrator; (ii) Review pertinent Plan documents; and (iii) Submit issues and comments in writing; and 18 (e) That any appeal the claimant wishes to make of the adverse determination must be in writing to the Plan Administrator within sixty (60) days after receipt of the Plan Administrator's notice of denial of benefits. The Plan Administrator's notice must further advise the claimant that his failure to appeal the action to the Plan Administrator in writing within the sixty (60) day period will render the Plan Administrator's determination final, binding, and conclusive. 13.2 APPEALS. (a) If the claimant should appeal to the Plan Administrator, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The Plan Administrator shall re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator shall advise the claimant in writing of its decision on his appeal, the specific reasons for the decision, and the specific Plan provisions on which the decision is based. The notice of the decision shall be given within sixty (60) days of the claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the sixty (60) day period infeasible, but in no event shall the Plan Administrator render a decision regarding the denial of a claim for benefits later than one hundred twenty (120) days after its receipt of a request for review. If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the date the extension period commences. (b) If, upon appeal, the Plan Administrator shall grant the relief requested by the claimant, then, in addition, the Plan Administrator shall award to the claimant reasonable fees and expenses of counsel, or any other duly authorized representative of claimant, which shall be paid by the Company. The determination as to whether such fees and expenses are reasonable shall be made by the Company in its sole and absolute discretion and such determination shall be binding and conclusive on all parties. 13.3 NOTICE OF DENIALS. The Plan Administrator's notice of denial of benefits shall identify the address to which the claimant may forward his appeal. SECTION 14 LIMITATION OF RIGHTS, CONSTRUCTION ---------------------------------- 14.1 LIMITATION OF RIGHTS. Neither this Plan, the Trust nor membership in the Plan shall give any employee or other person any right except to the extent that the right is specifically fixed under the terms of the Plan. The establishment of the Plan shall not be construed to give any individual a right to be continued in the service of a Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the service of any individual at any time. 19 14.2 CONSTRUCTION. The masculine gender, where appearing in the Plan, shall include the feminine gender (and vice versa), and the singular shall include the plural, unless the context clearly indicates to the contrary. Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of this Plan. If any provision of this Plan is determined to be for any reason invalid or unenforceable, the remaining provisions shall continue in full force and effect. All of the provisions of this Plan shall be construed and enforced in accordance with the laws of the State of Delaware. SECTION 15 LIMITATION ON ASSIGNMENT; PAYMENTS TO LEGALLY --------------------------------------------- INCOMPETENT DISTRIBUTEE ----------------------- 15.1 ANTI-ALIENATION CLAUSE. No benefit which shall be payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of the same shall be void. No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for or against any person, except to the extent as may be required by law. 15.2 PERMITTED ARRANGEMENTS. Section 15.1 shall not preclude arrangements for the withholding of taxes from benefit payments, arrangements for the recovery of benefit overpayments, arrangements for the transfer of benefit rights to another plan, or arrangements for direct deposit of benefit payments to an account in a bank, savings and loan association or credit union (provided that such arrangement is not part of an arrangement constituting an assignment or alienation). Additionally, Section 15.1 shall not preclude arrangements for the distribution of the benefits of a Participant or Beneficiary pursuant to the terms and provisions of a "domestic relations order" in accordance with such procedures as may be established from time to time by the Plan Administrator. 15.2 PAYMENT TO MINOR OR INCOMPETENT. Whenever any benefit which shall be payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined by the Plan Administrator to be incompetent by qualified medical advice, the Plan Administrator need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of the minor or incompetent, or to cause the same to be paid to the minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of the minor or incompetent if one has been appointed or to cause the same to be used for the benefit of the minor or incompetent. 20 SECTION 16 AMENDMENT, MERGER AND TERMINATION --------------------------------- 16.1 AMENDMENT. The Company shall have the right at any time, by an instrument in writing duly executed, acknowledged and delivered to the Plan Administrator, to modify, alter or amend this Plan, in whole or in part, prospectively or retroactively; provided, however, that the duties and liabilities of the Plan Administrator and the Trustee hereunder shall not be substantially increased without its written consent; and provided further that the amendment shall not reduce any Participant's vested interest in the Plan, calculated as of the date on which the amendment is adopted. If the Plan is amended by the Company after it is adopted by an Affiliate, unless otherwise expressly provided, it shall be treated as so amended by such Affiliate without the necessity of any action on the part of the Affiliate. Any Affiliate or other corporation adopting this Plan hereby delegates the authority to amend the Plan to the Company. An Affiliate or other corporation that has adopted this Plan may terminate its future participation in the Plan at any time. 16.2 MERGER OR CONSOLIDATION OF COMPANY. The Plan shall not be automatically terminated by the Company's acquisition by or merger into any other employer, but the Plan shall be continued after such acquisition or merger if the successor employer elects and agrees to continue the Plan. All rights to amend, modify, suspend, or terminate the Plan shall be transferred to the successor employer, effective as of the date of the merger. 16.3 TERMINATION OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS. It is the expectation of the Company that this Plan and the payment of contributions hereunder will be continued indefinitely. However, continuance of the Plan is not assumed as a contractual obligation of the Company, and the right is reserved at any time to terminate this Plan or to reduce, temporarily suspend or discontinue contributions hereunder. 16.4 LIMITATION OF COMPANY'S LIABILITY. The adoption of this Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any employee or Participant or to be consideration for, an inducement to, or a condition of the employment of any employee. A Participant, employee, or Beneficiary shall not have any right to retirement or other benefits except to the extent provided herein. SECTION 17 GENERAL PROVISIONS ------------------ 17.1 STATUS OF PARTICIPANTS AS UNSECURED CREDITORS. All benefits under the Plan shall be the unsecured obligations of the Company and each Plan Sponsor, as applicable, and, except for those assets which will be placed in the Trust established in connection with this Plan, no assets will be placed in trust or otherwise segregated from the general assets of the Company or each Plan Sponsor, as applicable, for the payment of obligations hereunder. To the 21 extent that any person acquires a right to receive payments hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company and each Plan Sponsor, as applicable. 17.2 UNIFORM ADMINISTRATION. Whenever in the administration of the Plan any action is required by the Plan Administrator, such action shall be uniform in nature as applied to all persons similarly situated. 17.3 HEIRS AND SUCCESSORS. All of the provisions of this Plan shall be binding upon all persons who shall be entitled to any benefits hereunder, and their heirs and legal representatives. To signify its adoption of this restated Plan document, the Company has caused this restated Plan document to be executed by a duly authorized officer of the Company on this 26th day of September, 1996. MicroAge, Inc. By /s/ Jeffrey D. McKeever ---------------------------------- Its Chairman & CEO ------------------------------ 22 EX-10.2.1 4 FIRST AMEND TO SUPP EXEC RETIRE PLAN FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THIS FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Amendment"), is made and entered into as of September 26, 1996. R E C I T A L S - - - - - - - - WHEREAS, MicroAge, Inc. (the "Company") has previously adopted the Supplemental Executive Retirement Plan of MicroAge, Inc., dated October 1, 1992 (the "SERP"); and WHEREAS, pursuant to Section 8.01 of the SERP the Compensation Committee of the Company's Board of Directors may amend the SERP; and WHEREAS, pursuant to action taken by the Compensation Committee on September 26, the SERP was amended as follows: A M E N D M E N T - - - - - - - - - 1. Section 2.02 of the SERP is hereby amended to read in its entirety as follows: 2.02 "Average Compensation" means the average of a Participant's Compensation for the highest five calendar years out of the last fifteen calendar years ending with the calendar year in which occurs his or her Normal Retirement Date or earlier termination of his or her employment with the Company. 2. Section 2.08 of the SERP is hereby amended to read in its entirety as follows: 2.08 "Compensation" means the amount paid to the Participant which is, or in the absence of any salary or bonus deferral under any deferred compensation plan of the Company and any contributions by the Participant to the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan would be, considered "wages" under Section 3401(a) of the Code. Notwithstanding the foregoing, the term "Compensation" shall not include the Warrant Restitution and Founder's Bonus paid to Jeffrey D. McKeever and Alan P. Hald pursuant to action taken by the Company's Compensation Committee on February 22, 1995. 3. The first sentence of Section 2.14 of the SERP is hereby amended to read in its entirety as follows: 2.14 "Other Benefits" means the sum of: (i) the annual amount the Participant would receive as a primary benefit under the Social Security Act as in effect on the 1 date of calculation if he continued to work until his Normal Retirement Date with wages for purposes of that Act equal to his most recent rate of Compensation; and (ii) the Actuarial Equivalent of the amount which would be payable to the Participant in the form of a life annuity payable monthly commencing on the Participant's Normal Retirement Date utilizing the sum of the amounts, if any, in (a) the Participant's "Employer Contribution Account" in The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan on the date of his termination of employment; and (b) the Participant's Company contribution account in the MicroAge, Inc. Executive Supplemental Savings Plan on the date of his termination of employment; provided, however, that if any amount was previously distributed to the Participant from the Participant's Company account or the Company contribution account, proper adjustment shall be made to the annuity amount to reflect the amount of such distribution. IN WITNESS WHEREOF, the Company has adopted this First Amendment to Supplemental Executive Retirement Plan as of the day and year first above written. MICROAGE, INC. a Delaware corporation By: /s/Jeffrey D. McKeever ---------------------- Name: Jeffrey D. McKeever ------------------- Title: Chairman and CEO ------------------- 2 EX-10.3.1 5 AWARD AGREEMENT FORM OF FIRST AMENDMENT TO THE MICROAGE 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT FOR CERTAIN EXECUTIVES THIS FIRST AMENDMENT to the Award Agreement dated December 14, 1993 ("Award Agreement"), is entered into by MicroAge, Inc. ("Company"), and certain executives (the "Executive") pursuant to the Management Equity Plan ("MEP") under the MicroAge, Inc. Long- Term Incentive Plan ("Plan"), as of December 14, 1995. WHEREAS, the Company and the Executive entered into the Award Agreement effective December 14, 1993, to enable the Executive to acquire an option to purchase Company stock by making salary deferrals; and WHEREAS, the exercise price of the option to purchase Company common stock, $.01 par value ("Common Stock"), under the Award Agreement is $24.83 per share, after giving effect to a 3-for-2 stock split that was payable on January 13, 1994; and WHEREAS, the closing price of the Common Stock on the Nasdaq National Market on December 13, 1995, was $8.75 per share; and WHEREAS, in order to provide a meaningful incentive for the Executive under the MEP, the Compensation Committee of the Company's Board of Directors has reduced the exercise price under the Award Agreement to the current fair market value of the Common Stock. NOW THEREFORE, the Executive and the Company agree as follows: 1. Paragraph 5 of the Award Agreement is hereby amended and restated in its entirety as follows: 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below: (1) TOTAL COMPENSATION WAIVED (1994-1996) $______ (2) $______ (TOTAL COMPENSATION WAIVED) MULTIPLIED BY 3.5234705 (THE "LEVERAGING FACTOR") $_______ (3) COMMON STOCK CLOSING PRICE ON DECEMBER 13, 1995 (THE "COMMON STOCK PRICE") $8.75 (4) TOTAL OPTIONS GRANTED (2) / (3) ______ 2. Paragraphs 8, 9, and 10 of the Award Agreement shall be amended by deleting the references to the number "ten" and replacing such reference with the phrase "the Leveraging Factor." 3. This First Amendment shall be effective as December 14, 1995. MICROAGE, INC. By: -------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer -------------------------------- Executive 2 EX-10.4 6 1997 MANAGEMENT EQUITY PROGRAM MICROAGE, INC. FORM OF 1997 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT (EXECUTIVE) December 4, 1996 Dear Executive: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1997 Management Equity Program (the "1997 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1997 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive all or a portion of your base salary and any bonuses you may receive for the 1997, 1998, and 1999 fiscal years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1997 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT, AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1997 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO AL LYONS BY 12:00 P.M. NOON ON FRIDAY, DECEMBER 27, 1996. 1. EFFECTIVE DATE. The effective date of your participation in the 1997 MEP is January 6, 1997. 2. 1997-1999 WAIVER. You hereby elect to waive a portion of your salary and bonuses received for the Company's 1997, 1998, and 1999 fiscal years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 2 and Example A attached to this Award Agreement)):
1997-1999 WAIVER TABLE ---------------------- ============================= ============================ ============================ ============================= Fiscal Year Salary1 Bonus2 Total - ----------------------------- ---------------------------- --------------------------- ------------------------------ 1997 $ $ $ (11/4/96 - 11/2/97) - ----------------------------- ---------------------------- --------------------------- ------------------------------ 1998 $ $ $ (11/3/97 - 11/1/98) - ----------------------------- ---------------------------- --------------------------- ------------------------------ 1999 $ $ $ (11/2/98 - 10/31/99) - ----------------------------- ---------------------------- --------------------------- ------------------------------ 1997-1999 $ $ $ 3 ============================= ============================ =========================== ==============================
3. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1997-1999 Waiver Table in Paragraph 2, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge):
(1) Total Compensation Waived (1997-1999 fiscal years): $_______________ (2) $ (Total Compensation Waived) $_______________ ------------------------ Multiplied by Seven (7) (the Leverage Factor"): (3) Common Stock Closing Price on Effective Date (January 6, 1997) (the "Common Stock Price"): $_______________ (4) Total Options Granted (2) / (3) (rounded up): (See Example B attached to this Award Agreement) $_______________
___________________________ 1 The minimum annual salary waiver amount is $8,000 (5% of your Current Base Salary). The maximum annual salary waiver amount is $24,000 (15% of your Current Base Salary). 2 There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $40,000 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year, the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until January 6, 2006. See Example A attached to this Award Agreement. Note: The bonus waiver amounts are for bonuses relating to a given fiscal year, whether or not the bonus is paid during such fiscal year. For example, if a bonus for fiscal year 1997 is paid in December 1997 (during fiscal year 1998), any 1997 bonus waiver amount you have included in the Waiver Table would be deducted from your December 1997 bonus. 3 The minimum waiver amount (salary and bonuses combined) for the three-year period (1997- 1999) is $______ (50% of your Current Base Salary). The maximum waiver amount (salary and bonuses combined) for the three-year period (1997-1999) is $_______ (100% of your Current Base Salary). 2 (See Example B attached to this Award Agreement) $______________ 4. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the first day of the fiscal year which is three years following the first day of the fiscal year for each year you elect to waive base salary and/or bonus amounts. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. FOR EXAMPLE, the options to be purchased with the compensation you receive for fiscal year 1997 will vest in 1/3 increments beginning on November 1, 1999 (the first day of fiscal year 2000) and will be 100% vested on October 29, 2001 (the first day of fiscal year 2002). Correspondingly, the options to be purchased with the waived compensation you receive for fiscal year 1998 will vest in 1/3 increments beginning on October 30, 2000 (the first day of fiscal year 2001) and will be 100% vested on November 4, 2002 (the first day of fiscal year 2002), and so on. If you elect to waive a specific amount of your bonuses for the next three fiscal years, but do not receive bonuses for the next three fiscal years sufficient to cover the amount you agreed to waive, the bonuses you may be otherwise entitled to receive in later years (up through January 6, 2006) will be used to make up any shortfall on a "first-in, first-out" theory. See Examples C and D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of January 6, 2006, unless you otherwise terminate employment before such date. 5. EXPIRATION OF OPTIONS. Subject to Section 6 and 7 of this Award Agreement, your options will expire, unless sooner exercised, on January 6, 2006. 6. TERMINATION OF EMPLOYMENT. Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 3 Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1997 MEP. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 7. TERMINATION OF 1997 MEP. If the Committee decides to terminate the 1997 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 8. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1997 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 9. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended October 29, 1995, and (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended January 28, April 28, and July 28, 1996 (the "SEC Reports"), and that you were given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. 10. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1997 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also 4 acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1997 MEP. 5 I hereby elect to participate in the 1997 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1997 MEP. SIGNATURE____________________________ DATE_________________________________ SSN__________________________________ ACCEPTED: MICROAGE, INC. BY___________________________________ Jeffrey D. McKeever ITS: Chairman of the Board and Chief Executive Officer 6 EX-10.5 7 AMEND AND RESTATE EMPLOY AGREE W/ J.D.MCKEEVER AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and JEFFREY D. MCKEEVER TABLE OF CONTENTS ARTICLE I - DUTIES AND TERM.................................................. 1 Section 1.1 Continued Employment....................................... 1 Section 1.2 Position and Responsibilities.............................. 1 Section 1.3 Term....................................................... 2 Section 1.4 Location................................................... 2 ARTICLE II - COMPENSATION.................................................... 3 Section 2.1 Base Salary................................................ 3 Section 2.2 Bonus Payments............................................. 3 Section 2.3 Stock Options.............................................. 3 Section 2.4 Additional Benefits........................................ 4 ARTICLE III - TERMINATION OF EMPLOYMENT...................................... 6 Section 3.1 Death or Retirement of Executive........................... 6 Section 3.2 By Executive............................................... 6 Section 3.3 By Company................................................. 6 ARTICLE IV - COMPENSATION UPON TERMINATION OF EMPLOYMENT..................... 6 Section 4.1 Upon Termination for Death or Disability................... 6 Section 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason.............................. 7 Section 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason Prior to a Change of Control.......................................... 8 Section 4.4 Upon Termination by the Company Without Cause Following a Change of Control or by Executive for Good Reason Following a Change of Control or Pursuant to a Change of Control Resignation............. 12 Section 4.5 Certain Additional Payments by Company..................... 12 ARTICLE V - RESTRICTIVE COVENANTS............................................ 15 Section 5.1 Confidential Information and Materials..................... 15 Section 5.2 General Knowledge.......................................... 16 Section 5.3 Executive Obligations as to Confidential Information and Materials.................................. 17 Section 5.4 Inform Subsequent Employers................................ 17 Section 5.5 Ideas and Inventions....................................... 17 Section 5.6 Inventions and Patents..................................... 18 Section 5.7 Copyrights................................................. 18 Section 5.8 Conflicting Obligations and Rights......................... 18 - i - Section 5.9 Non-Competition............................................ 19 Section 5.10 Non-Disparagement.......................................... 20 Section 5.11 Remedies................................................... 20 Section 5.12 Consulting Agreement....................................... 21 Section 5.13 Scope of Article........................................... 21 ARTICLE VI - COMPANY'S RIGHT OF FIRST REFUSAL................................ 21 Section 6.1 The Company's Right of First Refusal....................... 21 Section 6.2 Exceptions................................................. 22 ARTICLE VII - MISCELLANEOUS.................................................. 23 Section 7.1 Definitions................................................ 23 Section 7.2 Key Man Insurance.......................................... 28 Section 7.3 Mitigation of Damages; No Set-Off; Dispute Resolution...... 28 Section 7.4 Successors; Binding Agreement.............................. 29 Section 7.5 Modification; No Waiver.................................... 29 Section 7.6 Severability............................................... 30 Section 7.7 Notices.................................................... 30 Section 7.8 Assignment................................................. 30 Section 7.9 Entire Understanding....................................... 30 Section 7.10 Executive's Representations............................... 31 Section 7.11 Liability of Company with Respect to Insurance Policies.... 31 Section 7.12 Governing Law.............................................. 31 EXHIBIT A - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT B - SPLIT DOLLAR INSURANCE AGREEMENT EXHIBIT C - REGISTRATION RIGHTS EXHIBIT D - LIST OF DESIGNATED BENEFICIARIES EXHIBIT E - EXECUTIVE'S RIGHTS EXHIBIT F - EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT G - CONSULTING AGREEMENT EXHIBIT H - DISPUTE RESOLUTION PROCEDURES - ii - AMENDED AND RESTATED -------------------- EMPLOYMENT AGREEMENT -------------------- Amended and Restated EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of November 4, 1996 by and between MICROAGE, INC., a Delaware corporation (the "Company"), and JEFFREY D. MCKEEVER ("Executive"). R E C I T A L S : - - - - - - - - - WHEREAS, the Company and Executive entered into an Employment Agreement on October 1, 1992 (the "Employment Agreement"); and WHEREAS, pursuant to Section 7.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company and Executive desire to amend and restate the Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T : - - - - - - - - - - ARTICLE I DUTIES AND TERM 1.1. Continued 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 continue Executive in its employ, 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 shall serve as Chairman and 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 of Directors of the Company (the "Board"). Executive agrees to perform services not inconsistent with his position and involving duties of comparable scope, dignity and importance to those of the Chairman of the Board and Chief Executive Officer on November 4, 1996 as shall from time to time be assigned to him by the Board. 1 (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. During the period of his employment hereunder, so long as Executive owns at least 80,000 shares of the common stock, par value $.01 per share, of the Company (the "Common Stock"), the Company agrees to use its best efforts to cause Executive to be nominated for election and all reasonable efforts to cause Executive to be elected as a director of the Company. (c) During the period of his employment hereunder, Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, that Executive may serve or continue to serve on the board of directors (or equivalent governing body) of, or hold other offices or positions with, companies or organizations if they involve no conflict of interest with the interests of the Company and may engage in customary professional activities which in the judgment of the Board will not adversely affect the performance by Executive of his duties hereunder. Executive has disclosed to the Board all material business ventures in which he is currently involved, and, subject to approval by the Board (after written notice to it), may in the future have other business investments and participate in other business ventures which may, from time to time, require portions of his time, but shall not interfere with his duties hereunder. Executive shall be deemed to be in compliance with the provisions of this Section 1.2(c) if the professional activities and business investments and ventures in which he engages are similar in nature and time commitment to those in which he was engaged during the twelve-month period ended November 3, 1996. 1.3. Term. The term of Executive's employment under this Agreement shall commence on the date first above written and shall continue, unless sooner terminated, until October 31, 1999; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the 36 month period commencing on each such day. 1.4. Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2 2.1. Base Salary. The Company shall pay to Executive an annual base salary of not less than $600,000 (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 $18,985 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 $18,985 (the "Annual Fixed Cash Bonus"). (b) Executive shall, in addition, be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1996 (the "1996 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1996 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1996 Executive Bonus Plan or any such subsequent plan less any bonus waivers under the 1994 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus." 2.3. Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Senior Executives (as such term is defined in Section 7.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4. Additional Benefits. Executive shall 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 disability benefits, travel or accident insurance plans) and to receive fringe benefits, such as club dues and fees of professional organizations and associations, which are from time to time available to the Company's executive personnel; provided, however, that there shall be no 3 duplication of termination or severance or disability 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 shall be reduced by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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, provided that in no event shall the Company have any obligation to acquire and maintain in effect during the term of Executive's employment hereunder a long-term disability insurance policy on Executive (except that Executive may participate in any group disability plan in which other executive officers of the Company may participate). Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to all Senior Executives entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Retirement and Death Benefits. Not later than the date of execution of this Agreement, (i) Executive shall be designated as a participant in, and entitled to receive retirement benefits in accordance with, the Company's Supplemental Executive Retirement Plan dated October 1, 1992, as amended (the "SERP"), a copy of which is annexed as Exhibit A hereto and which is incorporated as a part hereof; and (ii) the Company and Executive shall execute and deliver the agreement annexed as Exhibit B hereto, and in accordance therewith, the Company shall implement and maintain in effect during the period of Executive's employment hereunder a "split dollar" life insurance policy on Executive's life issued by Northwestern Mutual Life Insurance Company in such amount and in accordance with such terms and conditions as are set forth in Exhibit B which is incorporated as a part hereof. (b) Medical Expenses. Executive shall during the term of his employment hereunder continue to be provided with medical, dental, hospitalization and other health benefits at a level and of a kind substantially equivalent to the benefits provided to Executive by the Company immediately prior to the effective date of this Agreement; provided, however, that if the Company terminates or reduces any such benefits with respect to all Senior Executives entitled to participate therein, Executive's benefits shall be reduced or terminated accordingly, but not below the level of medical benefits then provided by the Company to full-time employees. (c) 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 shall continue to pay the Base Salary to Executive during the period of such incapacity, but only in the amounts and 4 to the extent that disability benefits payable to Executive under Company-sponsored insurance policies are less than Executive's Base Salary. (d) 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 shall 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. (e) Reimbursement of Business Expenses. The Company shall, 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. (f) Vacations. Executive shall be entitled to 22 business days, excluding Company holidays, of paid vacation during each year of employment hereunder. Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next, not to exceed 25 days in the aggregate. Prior to the date hereof, Executive has accrued 98 days of unused vacation ("Previously Accrued Vacation"), which shall not be subject to such 25-day limit. Executive shall be entitled to ten (10) business days, excluding Company holidays, of Previously Accrued Vacation each year hereunder, which shall be applied against and reduce the aggregate Previously Accrued Vacation, provided that, even if Executive does not use such ten (10) additional vacation days in any year hereunder, the aggregate number of days of Previously Accrued Vacation shall be reduced by at least eight (8) days for each year of employment hereunder. Prior to or contemporaneously therewith, Executive shall in a written notice to the Company designate as such any vacation days to be taken as Previously Accrued Vacation. (g) Registration Rights. Executive shall have the rights to registration under the Securities Act of 1933, as amended (the "Securities Act"), of his shares of Common Stock as set forth in Exhibit C hereto, the provisions of which are incorporated as a part hereof, subject to the terms and conditions of Section 4.3(j) and Article VI hereof. ARTICLE III TERMINATION OF EMPLOYMENT 3.1. Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 7.1) of Executive. 3.2. By Executive. Executive shall be entitled to terminate his employment under this Agreement by giving Notice of Termination (as defined in Section 7.1) to the Company: 5 (a) for Good Reason (as defined in Section 7.1); (b) at any time commencing with the date six (6) months following the date of a Change in Control (as defined in Section 7.1) and ending with the date twelve months after the date of such Change in Control (a "Change in Control Resignation"); and (c) at any time without Good Reason. 3.3. By Company. The Company shall 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 7.1); (b) for Cause (as defined in Section 7.1); 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 hereof: 4.1. Upon Termination for Death or Disability. If Executive's employment is terminated hereunder by reason of his death or Total Disability, the Company shall: (a) pay Executive (or his Estate (as defined in Section 4.3(k) hereof)) or beneficiaries any Base Salary which 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") plus the Previously Accrued Vacation (less days deducted in accordance with the provisions of Section 2.4(f)) (together, the "Adjusted Previously Accrued Vacation)"; (c) reimburse Executive (or his Estate) or beneficiaries for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses"); 6 (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; and in addition; (f) Executive (or his Estate) or beneficiaries shall 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; and further (g) in the event of Executive's death while he is employed by the Company under this Agreement, his Designated Beneficiaries shall have the Termination Put rights provided pursuant to and in accordance with the provisions of Section 4.3(k) which may be exercised within 180 days of the date of Executive's death. 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 of Control Resignation (as defined in Section 3.2(b)), the Company shall: (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 any Annual Incentive Bonus with respect to a prior fiscal year which has accrued but has not been paid (together, such bonus payments are referred to herein as the "Accrued Annual Bonus Payments"); and in addition (f) Executive shall 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 of Control. 7 If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment and the Adjusted Previously Accrued Vacation; (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 the Accrued Annual Bonus Payments; (f) pay Executive on or prior to the thirtieth day following the termination date a lump sum payment equal to the product of three (3) times the sum of (1) Executive's Base Salary in effect immediately prior to the time such termination occurs, plus (2) the average of the Annual Incentive Bonuses paid to Executive for the three (3) fiscal years immediately preceding the fiscal year in which the termination occurs (or if less than three, the average of the two and if less than two, the amount of his single Annual Bonus, if any); (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) 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 termination 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 shall 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 in addition (h) Executive shall have the right to exercise all vested unexercised stock options and warrants in accordance with Section 4.1(f); (i) the Company shall, subject to applicable law, including, without limitation, federal or state laws proscribing impairment of the Company's capital, and any financing agreements with lenders to which the Company is bound, if at the termination date of his employment hereunder Executive holds stock options or warrants for shares of the Common Stock which are not then vested or exercisable, pay to Executive in a lump sum on or prior to the thirtieth day following the termination date of his employment an amount equal to the excess, if any, above the option price of each such option or warrant of the fair market value of the shares 8 subject to such options or warrants (the "Cash Option Payment"). In the event that the Company is prohibited under applicable law or its financing agreements from making the Cash Option Payment to Executive at such time, it shall make payment only to the extent permitted by law or its financing agreements, provided that the Company shall remain liable for the unpaid balance and shall pay the same when legally permitted. For purposes of this subparagraph (i), "fair market value" shall mean the weighted average of the last sale prices of the Common Stock during the ten (10) trading days immediately preceding the termination date of his employment as quoted on the Automated Quotation System of the National Association of Securities Dealers (or any successor hereto or any national securities exchange upon which the Common Stock may then be traded); (j) if during the two-year period following termination of his employment under this Agreement, Executive exercises his demand registration rights under Section 2.4(g) hereof in accordance with the provisions thereof, and the Company fails to cause the registration statement to become effective under the Securities Act within 120 days after the Company's obligation to file the same in accordance with the provisions of paragraph (a)(i)(B) of Exhibit C (provided that any delay is not caused directly or indirectly by any act or omission of Executive), and the price per share at which Executive is able to sell his shares of Common Stock in such offering is less than the fair market value (determined in accordance with subparagraph (k) of this Section 4.3) of a share of Common Stock on the date of his request for registration under Section 2.4(g) hereof in accordance with the provisions of Exhibit C, the Company shall pay to Executive an amount in cash equal to the difference between the fair market value per share as so determined and the net price per share of Common Stock in the offering for all shares sold by Executive in the offering. Notwithstanding the foregoing, the Company shall have the option to purchase all of such shares of Common Stock at any time prior to the effective date of the registration statement pursuant to which such shares are registered at the fair market value per share determined in accordance with subparagraph (k) of this Section 4.3 and in accordance with the provisions of Article VI; and (k) (i) in the event of Executive's death during a period of six (6) months from the termination date of Executive's employment hereunder, his estate (the "Estate"), his spouse at the date of his death and his children and trusts for the benefit of his spouse and children all as listed on Exhibit D hereto (collectively, the Estate, such spouse and the other persons and entities so listed being referred to herein as the "Designated Beneficiaries") shall have the option (the "Termination Put") to sell to the Company within 180 days of the date of Executive's death, subject to the terms and conditions of this subparagraph (k), the shares of Common Stock owned by such Designated Beneficiaries respectively on the date of Executive's death (or, in the case of the Estate, the shares of Common Stock owned by Executive at the date of his death or which may be acquired by the Estate upon exercise of outstanding options or warrants in accordance with Section 4.1(i) hereof). No Designated Beneficiary shall be entitled to the benefits of this subparagraph (k) unless such Designated Beneficiary (together with the other Designated Beneficiaries) at such time owns beneficially or of record at least 50,000 shares of the Common Stock and delivers to the Company a written undertaking in form and substance satisfactory to the Company agreeing to be bound by all of the terms and conditions hereof as though a party hereto. 9 (ii) The Termination Put may be exercised by any Designated Beneficiary by a notice in writing (the "Termination Put Notice") to the Company delivered no later than the date 180 days from and after Executive's death indicating the number of shares of the Common Stock to be repurchased. Within five (5) business days of receipt of the first such Termination Put Notice by the Company, the Company shall transmit by first class U.S. mail a copy thereof to each person or entity named as a Designated Beneficiary on Exhibit D hereto at the address set forth in Exhibit D for such person or entity. Such list may be amended by Executive by written notice to the Company from time to time, and as so amended, is referred to herein as the "Designated Beneficiaries List". The Company shall be entitled to rely on such Designated Beneficiaries List for all purposes of this subparagraph (k). Within fifteen (15) business days after the date of the Company's mailing, each Designated Beneficiary wishing to exercise its or his Termination Put rights, shall deliver to the Company its Termination Put Notice. Any two or more Designated Beneficiaries may join in a Termination Put Notice. (iii) The price at which such shares of Common Stock shall be purchased by the Company from the Designated Beneficiaries who have given timely notice in accordance with the provisions hereof shall be the fair market value of the Common Stock as of the date of the Termination Put Notice first received by the Company from a Designated Beneficiary in connection with any one exercise of the Termination Put. For purposes of this subparagraph (k), the "fair market value" of the Common Stock shall be the weighted average of the last sale price of the Common Stock during the ten (10) trading days immediately preceding and the ten (10) trading days immediately following the date of such Termination Put Notice, as quoted on the Automated Quotation System of the National Association of Securities Dealers (or any successor thereto or any national securities exchange upon which the Common Stock may then be traded). (iv) Each Termination Put Notice shall be accompanied by the certificates representing the shares of Common Stock covered by the Notice, which shall be endorsed to the order of the Company, signature guaranteed. Each Designated Beneficiary giving a Termination Put Notice shall represent and warrant that the shares of Common Stock to be sold by such Designated Beneficiary are, and shall transfer the same, free and clear of all liens, claims and encumbrances. (v) Payment for all shares of Common Stock to be purchased by the Company pursuant to the Designated Beneficiaries' exercise of the Termination Put shall be made only from and up to the extent of the aggregate proceeds available for such purchase from up to $5,000,000 in key man insurance maintained by the Company as provided in this subparagraph (k), such amount to be pro rated among the Designated Beneficiaries that have delivered a timely Termination Put Notice in accordance with the number of shares offered for sale to the Company by each such Designated Beneficiary respectively. 10 (vi) The Company shall acquire key man life insurance on the life of the Executive in such amount as it believes will be reasonable to satisfy its obligations in the event the Termination Put is exercised, but in no event will the Company be obligated to acquire more than $5,000,000 in key man life insurance for this purpose or shall the Company be obligated to repurchase more shares of Common Stock from all Designated Beneficiaries than can be acquired at the price provided for herein from the aggregate amount of such proceeds. Anything in this subparagraph (k) to the contrary notwithstanding, the Company's obligation hereunder to purchase any Common Stock pursuant to the exercise of the Termination Put shall be in compliance with, subject to and limited by the following: (A) applicable federal and state securities laws and regulations; (B) loan or financing agreements with banks or other lenders to which the Company is a party or by which the Company is bound and the Company's outstanding obligations under its stock option plans for franchisees and its obligation to maintain in effect a registration statement with respect to shares of Common Stock held by the trustee of the Company's Employee Stock Purchase Plan; (C) applicable federal and state laws with respect to solvency, including, without limitation, state corporate law and/or any state law proscribing impairment of the Company's capital; (D) the face amount of key man life insurance purchased by the Company pursuant to its obligation under this subparagraph (k). The Company shall make payment in cash to the Designated Beneficiaries that have delivered to the Company a timely Termination Put Notice in accordance with the provisions hereof of their pro rata amounts for shares of Common Stock surrendered to the Company pursuant to the respective Termination Put Notices, except that if the Company is prohibited from purchasing such shares of Common Stock because payment would constitute a violation of federal law or state corporate or other law or its financing agreements or the other agreements referred to above, the Company shall make payment only to the extent permitted by law or its financing agreements or the other agreements referred to above; provided, however, that the Company shall remain liable for the unpaid balance and shall pay the same when legally permitted and shall purchase the maximum amount permissible under such laws or loan or financing agreements, but, in any event, subject to the limitations under paragraph (D) above. If the Company shall purchase less than all shares of Common Stock tendered by a Designated Beneficiary, the Company shall return the certificates representing the unbought shares to the respective Designated Beneficiary. In no event shall the Company be liable to any Designated Beneficiaries to repurchase shares of the Common Stock over and above the aggregate amount of the key man insurance maintained for this purpose. If upon exercise of the Termination Put on any one occasion as described above, any amount of proceeds of the key-man life insurance remain available for additional such purchases, any 11 Designated Beneficiary may give a Termination Put Notice as provided above within the 180-day period. 4.4. Upon Termination by the Company Without Cause Following a Change of Control or by Executive for Good Reason Following a Change of Control or Pursuant to a Change of Control Resignation. If following a Change of Control, Executive's employment is terminated by the Company Without Cause or by Executive for Good Reason or pursuant to a Change of 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 the lesser of (i) 300% of the sum of Executive's aggregate total compensation under Sections 2.1 and 2.2(b) hereof for the fiscal year immediately prior to the fiscal year in which the Change of Control occurs, and (ii) an amount, the present value of which (determined in the manner set forth herein) shall 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 (the "Code"), and the regulations promulgated thereunder (the "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. 4.5. Certain Additional Payments by Company. (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4.5 (a "Payment") would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive, in addition to the Payment, a payment (a "Gross-Up Payment") in an amount such that, after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any federal or state income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive will have received the Gross-Up Payment in an amount equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 4.5(c), all determinations required to be made under this subparagraph, including whether and when a Gross-Up Payment is required 12 and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm retained by the Company as its auditor at the time such determinations are required (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from the Company that there has been a Payment, or such earlier time as is required by the Company. If at such time the Accounting Firm either is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, or is retained by the Company following a Change in Control, Executive may, in his sole discretion, appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4.5, shall be paid by the Company to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. (c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but in no event later than ten business days after Executive has been informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such 30-day period that the Company desires to contest such claim, Executive shall: (i) give the Company any information reasonably required by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, but not limited to, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, 13 (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relation to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless for (A) any Excise Tax or federal or state income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses, and (B) any federal, state and local income tax imposed with respect to the payment of amounts pursuant to clause (A) above and this clause (B), based on the highest marginal income tax rate applicable to Executive for the tax year such payments are includible in his taxable income. Without limitation on the foregoing provisions of this Section 4.5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless from (X) any Excise Tax or federal or state income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, and (Y) any federal, state and local income tax imposed with respect to the payment of amounts pursuant to clause (X) above and this clause (Y), based on the highest marginal income tax rate applicable to Executive for the tax year such payments are includible in his taxable income; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues within respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.5(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 4.5(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) and, as and when received, an amount equal to any savings in federal and state income taxes realized by Executive by reason of the payment to the Company of such refunds and interest plus the amounts in this clause. If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim 14 and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 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. (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. 15 (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), 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. 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. 16 (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 of 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 shall: (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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 17 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit E, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit E shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 copy right protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention shall 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit F attached hereto. 5.9. Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of 24 months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the two (2) year period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. 18 (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology products and services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least 24 months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; 19 (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10. Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall 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 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. 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit H hereto. 5.12. Consulting Agreement. Effective upon expiration or termination of Executive's employment hereunder for any reason other than death or Total Disability (if such Total Disability continues in effect), the Company may request at its option that Executive enter into a consulting agreement substantially in the form annexed as Exhibit G hereto, which incorporates by reference therein the provisions of Sections 5.1 through 5.11 hereof (the "Consulting Agreement"), for a period of two years from the date of expiration or termination and Executive agrees to enter into such Consulting Agreement effective as of the date of expiration or termination of his employment hereunder. Exhibit G is incorporated as a part hereof. The Company agrees to provide the following benefits to Executive thereunder: (i) the Company shall pay to Executive (A) in semi-monthly installments supplementary severance and consulting compensation at a rate equal to Executive's Base Salary in effect immediately prior to expiration or termination of his employment 20 under this Agreement and (B) the Annual Fixed Cash Bonus, and (ii) the Company shall continue to provide to Executive health and disability insurance coverage substantially of the type provided by the Company and in effect immediately prior to termination of his employment under this Agreement, provided that, such health and disability benefits will only be provided to the extent not duplicative of benefits the Company is otherwise required to provide Executive pursuant to Article IV of this Agreement. 5.13. 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 COMPANY'S RIGHT OF FIRST REFUSAL 6.1. The Company's Right of First Refusal. Other than as permitted in Section 6.2, in the event that Executive (or any Designated Beneficiary) desires to sell or transfer any shares of Common Stock, whether or not pursuant to exercise of the registration rights under Section 2.4(g), in any transaction during the period that commences on the expiration date hereof or other termination date of Executive's employment hereunder and which ends twenty-four (24) months after such termination date or expiration date, Executive (or any of his Designated Beneficiaries, as the case may be) shall first deliver a notice in writing (the "Notice") to the Company which shall specify (i) the number of shares of Common Stock which the Executive or such Designated Beneficiary desires to sell or transfer, the name(s) of the proposed purchasers or transferees (except in the case of a request for registration pursuant to Section 2.4(g)), (ii) the price per share (the "Transfer Price") at which the Executive or such Designated Beneficiary proposes to sell or transfer the shares to a third party pursuant to a bona fide offer, (iii) whether such price represents a control premium price ("Control Premium Price") and (iv) the other material terms upon which such sale or transfer is proposed to be made. The Company shall have the right to purchase all (but not less than all) of such shares at the fair market value thereof (determined as provided in Section 4.3(k) hereof) on the date of Executive's (or the Designated Beneficiary's) Notice hereunder; provided, however, that if the Transfer Price represents a Control Premium Price, the Company shall, if it wishes to exercise its right of first refusal hereunder, have the right to purchase the shares at the Control Premium Price. In the event that the shares are to be sold in a registered offering pursuant to a demand for registration under Section 2.4(g), the Company's right of first refusal may be exercised at any time prior to the effective date of the registration statement under which the shares are to be registered. Unless the Notice is given in conjunction with the exercise of registration rights hereunder, the Company shall, by written notice given by the Company to Executive or Designated Beneficiary within ten (10) business days after receipt of the Notice, indicate its intention to purchase the shares specified in the Notice, for cash at the fair market value per share as provided above or at the Control Premium Price, as the case may be. Within 30 calendar days after written notice of exercise by the Company, the Company shall provide the Executive with evidence reasonably satisfactory to Executive of its ability to finance the purchase of the shares (by a written commitment letter subject only to customary 21 representations, diligence and documentation, letter of credit or otherwise). If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Common Stock with respect to which such right has been exercised will take place within 60 calendar days after the Company gives notice of such exercise, which period of time shall be extended in order to comply with applicable laws and regulations. Upon exercise of the right of first refusal, the Company and the Executive or Designated Beneficiary shall each be legally obligated to consummate the purchase contemplated thereby and the Company shall use its best efforts to secure any approvals required in connection therewith. If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise, Executive or Designated Beneficiary shall be free to sell the Common Stock at the Transfer Price specified in the Notice on terms no less favorable to Executive or the Designated Beneficiary than the terms specified in the Notice. In the event Executive or the Designated Beneficiary does not sell the Common Stock specified in the Notice within 180 days after the date of the Notice, Executive or the Designated Beneficiary shall not thereafter sell such Common Stock without first offering the Common Stock to the Company pursuant to this Article VI. The Company's right of first refusal with respect to the Executive's and the Designated Beneficiaries' shares of Common Stock shall terminate if Executive and his Designated Beneficiaries own beneficially and/or record less than an aggregate 50,000 shares of the Common Stock. In any twelve month period during the term of the Company's right of first refusal, Executive may, without regard to the Company's right of first refusal in this Article VI, sell or transfer up to an aggregate 25,000 shares of Common Stock pursuant to a transaction in compliance with Rule 144, provided that Executive gives prior or contemporaneous notice to the Company in writing of such sale or disposition. 6.2. Exceptions. Nothing in Section 6.1 shall preclude Executive from pledging his shares of Common Stock to a financial institution pursuant to the terms of a bona fide pledge or from transferring shares of the Common Stock by way of gift to his spouse and/or children or trusts for their benefit, provided that such pledgee or donee delivers to the Company a written undertaking in form and substance satisfactory to the Company agreeing to the terms and conditions of this Agreement as though a party hereto, and the transfer is made subject thereto. ARTICLE VII MISCELLANEOUS 7.1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Accounting Firm" - as defined in Section 4.5(b); (b) "Accrued Base Salary" - as defined in Section 4.1(a); (c) "Accrued Benefits" - as defined in Section 4.1(d); (d) "Accrued Annual Bonus Payments" - as defined in Section 4.2(e); 22 (e) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (f) "Accrued Vacation Payment" - as defined in Section 4.1(b); (g) "Adjusted Previously Accrued Vacation" - as defined in Section 4.1(b). (h) "Annual Fixed Cash Bonus" - as defined in Section 2.2(a); (i) "Annual Incentive Bonus" - as defined in Section 2.2(b); (j) "Base Amount" - as defined in Section 4.4(b); (k) "Base Salary" - as defined in Section 2.1; (l) "Board" - as defined in Section 1.2; (m) "beneficial ownership" as defined in Section 7.1(p)(ii); (n) "Cash Option Payment" as defined in Section 4.3(i); (o) "Cause" shall mean the occurrence of any of the following: (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his duties under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (p) "Change of Control" shall mean and shall be deemed to have occurred if: 23 (i) After the date of this Agreement, any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto) shall become 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 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of the Company owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25% or more of the combined voting power of the Company'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% of the Board; provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than 60% 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% 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 24 such reorganization, merger consolidation or sale, or (B) a liquidation or dissolution of the Company. (q) "Change of Control Resignation" - as defined in Section 3.2(b). (r) "Code" - as defined in Section 4.4(b). (s) "Common Stock" - as defined in Section 1.2(b). (t) "Confidential Information" - as defined in Section 5.1. (u) "Consulting Agreement" - as defined in Section 5.13. (v) "Continued Benefits" - as defined in Section 4.3(g). (w) "Control Premium Price" - as defined in Section 6.1. (x) "Designated Beneficiaries" - as defined in Section 4.3(k)(i). (y) "Designated Beneficiaries List" - as defined in Section 4.3(k)(ii). (z) "Estate" - as defined in Section 4.3(k). (aa) "Excise Tax" - as defined in Section 4.5(a). (bb) "expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3. (cc) "fair market value" - as defined in Section 4.3(i) or 4.3(k), as the case may be. (dd) "Good Reason" shall mean the occurrence of any of the following: (i) 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 November 4, 1996 (provided that notwithstanding Executive's present title as Chairman, failure of Executive to be elected or reelected as a director of the Company shall not constitute "Good Reason"), 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, or failure by the Company to use its best efforts to nominate Executive for election as a director or to use all reasonable efforts to cause him to be elected as a director; 25 (ii) Material change by the Company in Executive's function, duties or responsibilities (including reporting 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 November 4, 1996, 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; (iii) 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 November 4, 1996 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Senior Executives); (iv) 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; (v) 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 (vi) 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. (ee) "Gross-Up Payment" as defined in Section 4.5(a). (ff) "Incumbent Board" as defined in Section 7.1(o)(iii). (gg) "1996 Executive Bonus Plan" - as defined in Section 2.2. (hh) "Non-Competition Period" - as defined in Section 5.9(a). (ii) "Notice" - as defined in Section 6.1. (jj) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least thirty (30) days prior to the effective date of termination. 26 (kk) "Payment" - as defined in Section 4.5(a). (ll) "Previously Accrued Vacation" - as defined in Section 2.4(f). (mm) "Proprietary Information" - as defined in Section 5.1(b); (nn) "Regulations" - as defined in Section 4.5(b). (oo) "Retirement" shall mean normal retirement at age 65 or in accordance with the provisions of the SERP or following ten years of service as defined in any other retirement plan established with Executive's consent with respect to Executive. (pp) "Securities Act" - as defined in Section 2.4(g); (qq) "Senior Executives" shall mean the chief executive officer and the four most highly compensated executive officers of the Company determined in accordance with the rules and regulations of the Securities and Exchange Commission under the Exchange Act. (rr) "SERP" - as defined in Section 2.4(a)(i); (ss) "termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3. (tt) "Termination Put" - as defined in Section 4.3(k)(i). (uu) "Termination Put Notice" as defined in Section 4.3(k)(ii). (vv) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physicians may request, and the determination of the physicians as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. (ww) "Transfer Price" - as defined in Section 6.1. 27 (xx) "Underpayment" - as defined in Section 4.5(b). 7.2. Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive in addition to the key man insurance acquired pursuant to Section 4.3(k) hereof. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall take such physical examinations and supply such information as may be reasonably requested by the insurer. 7.3. Mitigation of Damages; No Set-Off; Dispute Resolution. (a) Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of his employment hereunder or otherwise. The Company's obligation to make the payments provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim or action which the Company may have against Executive. (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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit H hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided, however, that (1) either party may seek preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit H shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 H, the Company shall 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 shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 28 counter-claims(s)), if any, which shall have been 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 SECTION 5.11 AND THIS SECTION 7.3(b), TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY, CONSEQUENTIAL AND ANY DAMAGES OTHER THAN COMPENSATORY DAMAGES. 7.4. Successors; Binding Agreement. This Agreement shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, beneficiaries, designees, executors, administrators, heirs, distributees, devisees and legatees. 7.5. 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any other term or condition. 7.6. 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 7.7. Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: If to the Company, to it at: MicroAge, Inc. 2400 South MicroAge Way Tempe, Arizona 85282-1896 ATTN: Board of Directors With a copy to: 29 Matthew P. Feeney Snell & Wilmer, L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: Jeffrey D. McKeever 5660 North Saquaro Road Paradise Valley, Arizona 85253 7.8. Assignment. This Agreement and any rights hereunder shall not be assignable by either party without the prior written consent of the other party except as otherwise specifically provided for herein or in the Exhibits that are incorporated as a part hereof. 7.9. Entire Understanding. This Agreement (together with the Exhibits incorporated as a part hereof) constitutes 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. 7.10. 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. 7.11. Liability of Company with Respect to Insurance Policies. Executive has selected the insurer and policy referred to in Section 2.4(a)(ii) hereof, and the Company shall 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. 7.12. Governing Law. This Agreement shall 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. Company: MICROAGE, INC. 30 By:/s/Jeffrey D. McKeever ---------------------------------- Name:Jeffrey D. McKeever -------------------------------- Title:Chairman and CEO ------------------------------- Executive: /s/Jeffrey D. McKeever ------------------------------------- ------------------------------------- 31 EXHIBIT A --------- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- 32 EXHIBIT B --------- SPLIT DOLLAR INSURANCE AGREEMENT -------------------------------- 33 EXHIBIT C --------- AMENDED AND RESTATED RIGHTS AGREEMENT ------------------------------------- 34 EXHIBIT D --------- LIST OF DESIGNATED BENEFICIARIES -------------------------------- 35 EXHIBIT E --------- EXECUTIVE'S RIGHTS ------------------ None 36 EXHIBIT F --------- EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None 37 EXHIBIT G --------- CONSULTING AGREEMENT -------------------- 38 EXHIBIT H --------- DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 7.3 of Article VII, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. 39 G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least fifteen (15) years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30-day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than five depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in 40 reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 7.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. 41 EX-10.5.2 8 AWARD AGREEMENT WITH JEFFREY D. MCKEEVER MICROAGE, INC. 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT December 9, 1993 Dear Jeff: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1994 Management Equity Program (the "1994 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1994 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive (1) all or a portion of your 1993 fiscal year bonus (the "1993 Bonus"), and (2) a portion of your base salary and any bonuses you may receive for the 1994, 1995, and 1996 calendar years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1994 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1994 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO CRAIG CANTONI BY 12:00 P.M. NOON ON TUESDAY, DECEMBER 14, 1993. 1. EFFECTIVE DATE. The effective date of your participation in the 1994 MEP is December 14, 1993. 2. STOCKHOLDER APPROVAL. The 1994 MEP is subject to stockholder approval of the Plan, which will be sought at the 1994 Annual Meeting of Stockholders. If stockholder approval is not obtained at such meeting, the 1994 MEP will be deemed to have never been implemented and the options thereunder will be deemed to have never been granted. 3. 1993 BONUS WAIVER. You hereby elect to waive all or a portion of your 1993 Bonus in the amount specified in the table below, subject to the limitation described in footnote 6 below. 1993 BONUS WAIVER(1) ================================================================================ 1993 Bonus Waived 1994 Salary Credit Amount(2) Bonus Credit Amount(3) - -------------------------------------------------------------------------------- $75,000 $75,000 $0 ================================================================================ - ----------------- 1 You are not required to waive any of your 1993 Bonus as a condition to participate in the 1994 MEP. Any part of your 1993 Bonus that you elect to waive will be credited against your 1994 salary waiver amount (up to the amount of the Salary Credit Amount) and your 1994 bonus waiver amount, in that order. This "credit" can be carried forward beyond 1994. See Example A attached to this Award Agreement. 2 You may insert any amount from $0 to $75,000 (15% of your Current Base Salary). 3 Computed by subtracting the Salary Credit Amount from the 1993 Bonus Waived. 4. 1994-1996 WAIVER. You hereby elect to waive a portion of your salary and bonuses for the 1994, 1995, and 1996 calendar years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 5)): 1994-1996 WAIVER TABLE ================================================================================ Year Salary(4) Bonus(5) Total - -------------------------------------------------------------------------------- 1994 $75,000 $125,000 $200,000(6) - -------------------------------------------------------------------------------- 1995 $75,000 $125,000 $200,000 - -------------------------------------------------------------------------------- 1996 $75,000 $125,000 $200,000 - -------------------------------------------------------------------------------- 1993-1996 $225,000 $375,000 $600,000(7) ======== ================================================================================ 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge): (1) Total Compensation Waived (1994-1996): $600,000 -------- (2) $600,000 (Total Compensation Waived) Multiplied by Ten (10): $6,000,000 ---------- (3) Common Stock Closing Price Effective Date (December 14, 1993) (the "Common Stock Price"): $24.83 ------ (4) Total Options Granted (2) / (3) (rounded up): 241,611 (See Example C attached to this Award Agreement) ------- - ------------------------- 4 The minimum annual salary waiver amount is $25,000 (5% of your Current Base Salary). The maximum annual salary waiver amount is $75,000 (15% of your Current Base Salary). 5 There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $125,000 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year (and you do not have a Bonus Credit Amount to apply to the deficit), the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until December 14, 2002. See Example B attached to this Award Agreement. 6 The amount of your 1993 Bonus that you may waive cannot exceed this number. See Example A attached to this Award Agreement. 7 The minimum waiver amount (salary and bonuses combined) for the three-year period (1994-1996) is $250,000 (50% of your Current Base Salary). -2- 6. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the January 1 which is three years following the January 1 of the calendar year for each year you elect to waive base salary and/or bonus amounts. Any amount of your 1993 Bonus that you elect to waive will be used as a credit against future waiver amounts and will be deemed to be waived in the year that such credit is taken. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. FOR EXAMPLE, the options to be purchased with the compensation you waive in 1994 will vest in 1/3 increments beginning on January 1, 1997 and will be 100% vested on January 1, 1999. Correspondingly, the options to be purchased with the compensation you waive in 1995 will vest in 1/3 increments beginning on January 1, 1998 and will be 100% vested on January 1, 2000, and so on. If you elect to waive a specific amount of your bonuses for the next three years, but do not receive bonuses for the next three years sufficient to cover the amount you agreed to waive (and you do not have a Bonus Credit Amount to apply against the deficit), the bonuses you may be otherwise entitled to receive in later years (up through December 13, 2002) will be used to make up any shortfall on a "first-in, first-out" theory. See Example D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of December 14, 2002, unless you otherwise terminate employment before such date. 7. EXPIRATION OF OPTIONS. Subject to Section 8 and 9 of this Award Agreement, your options will expire, unless sooner exercised, on December 14, 2003. 8. TERMINATION OF EMPLOYMENT Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1994 MEP. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. -3- 9. TERMINATION OF 1994 MEP. If the Committee decides to terminate the 1994 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 10. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1994 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of the Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 11. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the "1993 10-K"), and that you were given an opportunity to ask questions of any of the Company's executive officers (as disclosed on page 7 of the 1993 10-K) regarding the 1993 10-K or any other matter regarding the Company. 12. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1994 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1994 MEP. I hereby elect to participate in the 1994 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1994 MEP. ACCEPTED: MICROAGE, INC. SIGNATURE /s/Jeffrey D. McKeever BY /s/Jeffrey D. McKeever -------------------------- ------------------------------------ DATE 12/14/93 ITS Chairman and CEO -------------------------- ------------------------------------ SSN ###-##-#### -------------------------- -4- EX-10.5.3 9 FIRST AMENDMENT TO 1994 MEP-J.D. MCKEEVER FIRST AMENDMENT TO THE MICROAGE 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT FOR JEFFREY D. McKEEVER THIS FIRST AMENDMENT to the Award Agreement dated December 14, 1993 ("Award Agreement"), is entered into by MicroAge, Inc. ("Company"), and Jeffrey D. McKeever ("Executive") pursuant to the Management Equity Plan ("MEP") under the MicroAge, Inc. Long- Term Incentive Plan ("Plan"), as of December 14, 1995. WHEREAS, the Company and the Executive entered into the Award Agreement effective December 14, 1993, to enable the Executive to acquire an option to purchase Company stock by making salary deferrals; and WHEREAS, the exercise price of the option to purchase Company common stock, $.01 par value ("Common Stock"), under the Award Agreement is $24.83 per share, after giving effect to a 3-for-2 stock split that was payable on January 13, 1994; and WHEREAS, the closing price of the Common Stock on the Nasdaq National Market on December 13, 1995, was $8.75 per share; and WHEREAS, in order to provide a meaningful incentive for the Executive under the MEP, the Compensation Committee of the Company's Board of Directors has reduced the exercise price under the Award Agreement to the current fair market value of the Common Stock. NOW THEREFORE, the Executive and the Company agree as follows: 1. Paragraph 5 of the Award Agreement is hereby amended and restated in its entirety as follows: 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below: (1) TOTAL COMPENSATION WAIVED (1994-1996) $600,000 (2) $600,000 (TOTAL COMPENSATION WAIVED) MULTIPLIED BY 3.5234933 (THE "LEVERAGING FACTOR") $2,114,096 (3) COMMON STOCK CLOSING PRICE ON DECEMBER 13, 1995 (THE "COMMON STOCK PRICE") $8.75 (4) TOTAL OPTIONS GRANTED (2) / (3) 241,611 2. Paragraphs 8, 9, and 10 of the Award Agreement shall be amended by deleting the references to the number "ten" and replacing such reference with the phrase "the Leveraging Factor." 3. This First Amendment shall be effective as of December 14, 1995. MICROAGE, INC. By: /s/Alan P. Hald --------------------------------------- Its: Vice Chairman and Secretary -------------------------------------- /s/Jeffrey D. McKeever --------------------------------------- Jeffrey D. McKeever 2 EX-10.6 10 AMEND AND RESTATE EMPLOY AGREE WITH A. HALD AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and Alan Hald TABLE OF CONTENTS Page ---- ARTICLE I - DUTIES AND TERM.................................................. 1 Section 1.1 Continued Employment....................................... 1 Section 1.2 Position and Responsibilities.............................. 1 Section 1.3 Term....................................................... 2 Section 1.4 Location................................................... 2 ARTICLE II - COMPENSATION.................................................... 3 Section 2.1 Base Salary................................................ 3 Section 2.2 Bonus Payments............................................. 3 Section 2.3 Stock Options.............................................. 3 Section 2.4 Additional Benefits........................................ 4 ARTICLE III - TERMINATION OF EMPLOYMENT...................................... 6 Section 3.1 Death or Retirement of Executive........................... 6 Section 3.2 By Executive............................................... 6 Section 3.3 By Company................................................. 6 ARTICLE IV - COMPENSATION UPON TERMINATION OF EMPLOYMENT..................... 6 Section 4.1 Upon Termination for Death or Disability................... 6 Section 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason........................... 7 Section 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason Prior to a Change of Control..................................... 8 Section 4.4 Upon Termination by the Company Without Cause or by Executive for Good Reason Following a Change of Control or Pursuant to a Change of Control Resignation......................... 12 Section 4.5 Certain Additional Payments by Company..................... 12 ARTICLE V - RESTRICTIVE COVENANTS............................................ 15 Section 5.1 Confidential Information and Materials..................... 15 Section 5.2 General Knowledge.......................................... 16 Section 5.3 Executive Obligations as to Confidential Information and Materials.................................. 17 Section 5.4 Inform Subsequent Employers................................ 17 Section 5.5 Ideas and Inventions....................................... 17 Section 5.6 Inventions and Patents..................................... 18 Section 5.7 Copyrights................................................. 18 Section 5.8 Conflicting Obligations and Rights......................... 18 Section 5.9 Non-Competition............................................ 19 - ii - Section 5.10 Non-Disparagement.......................................... 20 Section 5.11 Remedies................................................... 20 Section 5.12 Consulting Agreement....................................... 21 Section 5.13 Scope of Article........................................... 21 ARTICLE VI - COMPANY'S RIGHT OF FIRST REFUSAL................................ 21 Section 6.1 The Company's Right of First Refusal....................... 21 Section 6.2 Exceptions................................................. 22 ARTICLE VII - MISCELLANEOUS.................................................. 23 Section 7.1 Definitions................................................ 23 Section 7.2 Key Man Insurance.......................................... 28 Section 7.3 Mitigation of Damages; No Set-Off; Dispute Resolution...... 28 Section 7.4 Successors; Binding Agreement.............................. 29 Section 7.5 Modification; No Waiver.................................... 29 Section 7.6 Severability............................................... 30 Section 7.7 Notices.................................................... 30 Section 7.8 Assignment................................................. 30 Section 7.9 Entire Understanding....................................... 30 Section 7.10 Executive's Representations................................ 30 Section 7.11 Liability of Company with Respect to Insurance Policies.... 31 Section 7.12 Governing Law.............................................. 31 EXHIBIT A - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT B - SPLIT DOLLAR INSURANCE AGREEMENT EXHIBIT C - REGISTRATION RIGHTS EXHIBIT D - LIST OF DESIGNATED BENEFICIARIES EXHIBIT E - EXECUTIVE'S RIGHTS EXHIBIT F - EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT G - CONSULTING AGREEMENT EXHIBIT H - DISPUTE RESOLUTION PROCEDURES - ii - AMENDED AND RESTATED -------------------- EMPLOYMENT AGREEMENT -------------------- Amended and Restated EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of November 4, 1996 by and between MICROAGE, INC., a Delaware corporation (the "Company"), and ALAN HALD ("Executive"). R E C I T A L S : - - - - - - - - - WHEREAS, the Company and Executive entered into an Employment Agreement on October 1, 1992 and the First Amendment to Employment Agreement dated on October 1, 1995 (the "Employment Agreement"); and WHEREAS, pursuant to Section 7.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company and Executive desire to amend and restate the Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T : - - - - - - - - - - ARTICLE I DUTIES AND TERM 1.1. Continued 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 continue Executive in its employ, 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 shall serve as President of MicroAge Enterprises, Inc. (or in a capacity and with a title of at least substantially equivalent quality) reporting directly to the Chief Executive Officer of the Company. Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chief Executive Officer. 1 (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. Executive currently serves as Vice Chairman and Secretary of the Company, and Executive's current term as a member of the Company's Board of Directors will expire at the 1997 Annual Meeting of Stockholders. The Company is under no obligation to cause Executive to be nominated for reelection to the Board or for reelection as Secretary. (c) During the period of his employment hereunder, Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, that Executive may serve or continue to serve on the board of directors (or equivalent governing body) of, or hold other offices or positions with, companies or organizations if they involve no conflict of interest with the interests of the Company and may engage in customary professional activities which in the judgment of the Board will not adversely affect the performance by Executive of his duties hereunder. Executive has disclosed to the Board all material business ventures in which he is currently involved, and, subject to approval by the Board (after written notice to it), may in the future have other business investments and participate in other business ventures which may, from time to time, require portions of his time, but shall not interfere with his duties hereunder. Executive shall be deemed to be in compliance with the provisions of this Section 1.2(c) if the professional activities and business investments and ventures in which he engages are similar in nature and time commitment to those in which he was engaged during the twelve-month period ended November 3, 1996. 1.3. Term. The term of Executive's employment under this Agreement shall commence on the date first above written and shall continue, unless sooner terminated, until October 31, 1999; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the 36 month period commencing on each such day. 1.4. Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2 2.1. Base Salary. The Company shall pay to Executive an annual base salary of not less than $325,000 (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 $9,249 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 $9,249 (the "Annual Fixed Cash Bonus"). (b) Executive shall, in addition, be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1996 (the "1996 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1996 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1996 Executive Bonus Plan or any such subsequent plan less any bonus waivers under the 1994 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus." 2.3. Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Senior Executives (as such term is defined in Section 7.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4. Additional Benefits. Executive shall 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 disability benefits, travel or accident insurance plans) and to receive fringe benefits, such as club dues and fees of professional organizations and associations, which are from time to time available to the Company's executive personnel; provided, however, that there shall be no duplication of termination or severance or disability 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 shall be reduced by any benefit amounts paid 3 under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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, provided that in no event shall the Company have any obligation to acquire and maintain in effect during the term of Executive's employment hereunder a long-term disability insurance policy on Executive (except that Executive may participate in any group disability plan in which other executive officers of the Company may participate). Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to all Senior Executives entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Retirement and Death Benefits. Not later than the date of execution of this Agreement, (i) Executive shall be designated as a participant in, and entitled to receive retirement benefits in accordance with, the Company's Supplemental Executive Retirement Plan dated October 1, 1992, as amended (the "SERP"), a copy of which is annexed as Exhibit A hereto and which is incorporated as a part hereof; and (ii) Not later than the date of execution of this Agreement, the Company and Executive shall execute and deliver the agreement annexed as Exhibit B hereto, and in accordance therewith, the Company shall implement and maintain in effect during the period of Executive's employment hereunder a "split dollar" life insurance policy on Executive's life issued by Northwestern Mutual Life Insurance Company in such amount and in accordance with such terms and conditions as are set forth in Exhibit B which is incorporated as a part hereof. (b) Medical Expenses. Executive shall during the term of his employment hereunder continue to be provided with medical, dental, hospitalization and other health benefits at a level and of a kind substantially equivalent to the benefits provided to Executive by the Company immediately prior to the effective date of this Agreement; provided, however, that if the Company terminates or reduces any such benefits with respect to all Senior Executives entitled to participate therein, Executive's benefits shall be reduced or terminated accordingly, but not below the level of medical benefits then provided by the Company to full-time employees. (c) 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 shall 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. 4 (d) 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 shall 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. (e) Reimbursement of Business Expenses. The Company shall, 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. (f) Vacations. Executive shall be entitled to 22 business days, excluding Company holidays, of paid vacation during each year of employment hereunder. Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next, not to exceed 25 days in the aggregate. Prior to the date hereof, Executive has accrued 98 days of unused vacation ("Previously Accrued Vacation"), which shall not be subject to such 25-day limit. Executive shall be entitled to ten (10) business days, excluding Company holidays, of Previously Accrued Vacation each year hereunder, which shall be applied against and reduce the aggregate Previously Accrued Vacation, provided that, even if Executive does not use such ten (10) additional vacation days in any year hereunder, the aggregate number of days of Previously Accrued Vacation shall be reduced by at least eight (8) days for each year of employment hereunder. Prior to or contemporaneously therewith, Executive shall in a written notice to the Company designate as such any vacation days to be taken as Previously Accrued Vacation. (g) Registration Rights. Executive shall have the rights to registration under the Securities Act of 1933, as amended (the "Securities Act"), of his shares of Common Stock as set forth in Exhibit C hereto, the provisions of which are incorporated as a part hereof, subject to the terms and conditions of Section 4.3(j) and Article VI hereof. ARTICLE III TERMINATION OF EMPLOYMENT 3.1. Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 7.1) of Executive. 3.2. By Executive. Executive shall be entitled to terminate his employment under this Agreement by giving Notice of Termination (as defined in Section 7.1) to the Company: (a) for Good Reason (as defined in Section 7.1); 5 (b) at any time commencing with the date six (6) months following the date of a Change in Control (as defined in Section 7.1) and ending with the date twelve months after the date of such Change in Control (a "Change in Control Resignation"); and (c) at any time without Good Reason. 3.3. By Company. The Company shall 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 7.1); (b) for Cause (as defined in Section 7.1); 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 hereof: 4.1. Upon Termination for Death or Disability. If Executive's employment is terminated hereunder by reason of his death or Total Disability, the Company shall: (a) pay Executive (or his Estate (as defined in Section 4.3(k) hereof)) or beneficiaries any Base Salary which 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") plus the Previously Accrued Vacation (less days deducted in accordance with the provisions of Section 2.4(f)) (together, the "Adjusted Previously Accrued Vacation)"; (c) reimburse Executive (or his Estate) or beneficiaries for expenses incurred by him prior to the date of termination which 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 6 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; and in addition; (f) Executive (or his Estate) or beneficiaries shall 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; and further (g) in the event of Executive's death while he is employed by the Company under this Agreement, his Designated Beneficiaries shall have the Termination Put rights provided pursuant to and in accordance with Section 4.3(k) which may be exercised within 180 days of the date of Executive's death. 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 of Control Resignation (as defined in Section 3.2(b)), the Company shall: (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 any Annual Incentive Bonus with respect to a prior fiscal year which has accrued but has not been paid (together, such bonus payments are referred to herein as the "Accrued Annual Bonus Payments"); and in addition (f) Executive shall 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 of Control. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall: 7 (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment and the Adjusted Previously Accrued Vacation; (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 the Accrued Annual Bonus Payments; (f) pay Executive on or prior to the thirtieth day following the termination date a lump sum payment equal to the product of three (3) times the sum of (1) Executive's Base Salary in effect immediately prior to the time such termination occurs, plus (2) the average of the Annual Bonuses paid to Executive for the three (3) fiscal years immediately preceding the fiscal year in which the termination occurs (or if less than three, the average of the two and if less than two, the amount of his single Annual Bonus, if any); (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) 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 termination 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 shall 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 in addition (h) Executive shall have the right to exercise all vested unexercised stock options and warrants in accordance with Section 4.1(f); (i) the Company shall, subject to applicable law, including, without limitation, federal or state laws proscribing impairment of the Company's capital, and any financing agreements with lenders to which the Company is bound, if at the termination date of his employment hereunder Executive holds stock options or warrants for shares of the Common Stock which are not then vested or exercisable, pay to Executive in a lump sum on or prior to the thirtieth day following the termination date of his employment an amount equal to the excess, if any, above the option price of each such option or warrant of the fair market value of the shares subject to such options or warrants (the "Cash Option Payment"). In the event that the Company is prohibited under applicable law or its financing agreements from making the Cash Option Payment to Executive at such time, it shall make payment only to the extent permitted by law or its financing agreements, provided that the Company shall remain liable for the unpaid balance and shall pay the same when 8 legally permitted. For purposes of this subparagraph (i), "fair market value" shall mean the weighted average of the last sale prices of the Common Stock during the ten (10) trading days immediately preceding the termination date of his employment as quoted on the Automated Quotation System of the National Association of Securities Dealers (or any successor hereto or any national securities exchange upon which the Common Stock may then be traded); (j) if during the two-year period following termination of his employment under this Agreement, Executive exercises his demand registration rights under Section 2.4(g) hereof in accordance with the provisions thereof, and the Company fails to cause the registration statement to become effective under the Securities Act within 120 days after the Company's obligation to file the same in accordance with the provisions of paragraph (a)(i)(B) of Exhibit C (provided that any delay is not caused directly or indirectly by any act or omission of Executive), and the price per share at which Executive is able to sell his shares of Common Stock in such offering is less than the fair market value (determined in accordance with subparagraph (k) of this Section 4.3) of a share of Common Stock on the date he makes his demand under Section 2.4(g) hereof the Company shall pay to Executive an amount in cash equal to the difference between the fair market value per share as so determined and the net price per share of Common Stock in the offering for all shares sold by Executive in the offering. Notwithstanding the foregoing, the Company shall have the option to purchase all of such shares of Common Stock at any time prior to the effective date of the registration statement pursuant to which such shares are registered at the fair market value per share determined in accordance with subparagraph (k) of this Section 4.3 and in accordance with the provisions of Article VI; and (k) (i) in the event of Executive's death during a period of six (6) months from the termination date of Executive's employment hereunder, his estate (the "Estate"), his spouse at the date of his death and his children and trusts for the benefit of his spouse and children all as listed on Exhibit D hereto (collectively, the Estate, such spouse and the other persons and entities so listed being referred to herein as the "Designated Beneficiaries") shall have the option (the "Termination Put") to sell to the Company within 180 days of the date of Executive's death, subject to the terms and conditions of this subparagraph (k), the shares of Common Stock owned by such Designated Beneficiaries respectively on the date of Executive's death (or, in the case of the Estate, the shares of Common Stock owned by Executive at the date of his death or which may be acquired by the Estate upon exercise of outstanding options or warrants in accordance with Section 4.1(i) hereof). No Designated Beneficiary shall be entitled to the benefits of this subparagraph (k) unless such Designated Beneficiary (together with the other Designated Beneficiaries) at such time owns beneficially or of record at least 50,000 shares of the Common Stock and delivers to the Company a written undertaking in form and substance satisfactory to the Company agreeing to be bound by all of the terms and conditions hereof as though a party hereto. (ii) The Termination Put may be exercised by any Designated Beneficiary by a notice in writing (the "Termination Put Notice") to the Company delivered no later than the date 180 days from and after Executive's death indicating the number of shares of the Common Stock to be repurchased. Within five (5) business days of receipt of the first such Termination Put Notice by the Company, the Company shall transmit by first class U.S. mail a copy thereof to each person or entity named as a Designated Beneficiary 9 on Exhibit D hereto at the address set forth in Exhibit D for such person or entity. Such list may be amended by Executive by written notice to the Company from time to time, and as so amended, is referred to herein as the "Designated Beneficiaries List". The Company shall be entitled to rely on such Designated Beneficiaries List for all purposes of this subparagraph (k). Within fifteen (15) business days after the date of the Company's mailing, each Designated Beneficiary wishing to exercise its or his Termination Put rights, shall deliver to the Company its Termination Put Notice. Any two or more Designated Beneficiaries may join in a Termination Put Notice. (iii) The price at which such shares of Common Stock shall be purchased by the Company from the Designated Beneficiaries who have given timely notice in accordance with the provisions hereof shall be the fair market value of the Common Stock as of the date of the Termination Put Notice first received by the Company from a Designated Beneficiary in connection with any one exercise of the Termination Put. For purposes of this subparagraph (k), the "fair market value" of the Common Stock shall be the weighted average of the last sale price of the Common Stock during the ten (10) trading days immediately preceding and the ten (10) trading days immediately following the date of such Termination Put Notice, as quoted on the Automated Quotation System of the National Association of Securities Dealers (or any successor thereto or any national securities exchange upon which the Common Stock may then be traded). (iv) Each Termination Put Notice shall be accompanied by the certificates representing the shares of Common Stock covered by the Notice, which shall be endorsed to the order of the Company, signature guaranteed. Each Designated Beneficiary giving a Termination Put Notice shall represent and warrant that the shares of Common Stock to be sold by such Designated Beneficiary are, and shall transfer the same, free and clear of all liens, claims and encumbrances. (v) Payment for all shares of Common Stock to be purchased by the Company pursuant to the Designated Beneficiaries' exercise of the Termination Put shall be made only from and up to the extent of the aggregate proceeds available for such purchase from up to $5,000,000 in key man insurance maintained by the Company as provided in this subparagraph (k), such amount to be pro rated among the Designated Beneficiaries that have delivered a timely Termination Put Notice in accordance with the number of shares offered for sale to the Company by each such Designated Beneficiary respectively. (vi) The Company shall acquire key man life insurance on the life of the Executive in such amount as it believes will be reasonable to satisfy its obligations in the event the Termination Put is exercised, but in no event will the Company be obligated to acquire more than $5,000,000 in key man life insurance for this purpose or shall the Company be obligated to repurchase more shares of Common Stock from all Designated Beneficiaries than can be acquired at the price provided for herein from the aggregate amount of such proceeds. 10 Anything in this subparagraph (k) to the contrary notwithstanding, the Company's obligation hereunder to purchase any Common Stock pursuant to the exercise of the Termination Put shall be in compliance with, subject to and limited by the following: (A) applicable federal and state securities laws and regulations; (B) loan or financing agreements with banks or other lenders to which the Company is a party or by which the Company is bound and the Company's outstanding obligations under its stock option plans for franchisees and its obligation to maintain in effect a registration statement with respect to shares of Common Stock held by the trustee of the Company's Employee Stock Purchase Plan; (C) applicable federal and state laws with respect to solvency, including, without limitation, state corporate law and/or any state law proscribing impairment of the Company's capital; (D) the face amount of key man life insurance purchased by the Company pursuant to its obligation under this subparagraph (k). The Company shall make payment in cash to the Designated Beneficiaries that have delivered to the Company a timely Termination Put Notice in accordance with the provisions hereof of their pro rata amounts for shares of Common Stock surrendered to the Company pursuant to the respective Termination Put Notices, except that if the Company is prohibited from purchasing such shares of Common Stock because payment would constitute a violation of federal law or state corporate or other law or its financing agreements or the other agreements referred to above, the Company shall make payment only to the extent permitted by law or its financing agreements or the other agreements referred to above; provided, however, that the Company shall remain liable for the unpaid balance and shall pay the same when legally permitted and shall purchase the maximum amount permissible under such laws or loan or financing agreements, but, in any event, subject to the limitations under paragraph (D) above. If the Company shall purchase less than all shares of Common Stock tendered by a Designated Beneficiary, the Company shall return the certificates representing the unbought shares to the respective Designated Beneficiary. In no event shall the Company be liable to any Designated Beneficiaries to repurchase shares of the Common Stock over and above the aggregate amount of the key man insurance maintained for this purpose. If upon exercise of the Termination Put on any one occasion as described above, any amount of proceeds of the key-man life insurance remain available for additional such purchases, any Designated Beneficiary may give a Termination Put Notice as provided above within the 180-day period. 4.4. Upon Termination by the Company Without Cause or by Executive for Good Reason Following a Change of Control or Pursuant to a Change of Control Resignation. If following a Change of Control, Executive's employment is terminated by the Company Without Cause or by Executive for Good Reason or pursuant to a Change of Control Resignation, the Company shall: 11 (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 the lesser of (i) 300% of the sum of Executive's aggregate total compensation under Sections 2.1 and 2.2(b) hereof for the fiscal year immediately prior to the fiscal year in which the Change of Control occurs, and (ii) an amount, the present value of which (determined in the manner set forth herein) shall 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 (the "Code"), and the regulations promulgated thereunder (the "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. 4.5. Certain Additional Payments by Company. (a) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4.5 (a "Payment") would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive, in addition to the Payment, a payment (a "Gross-Up Payment") in an amount such that, after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any federal or state income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive will have received the Gross-Up Payment in an amount equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 4.5(c), all determinations required to be made under this subparagraph, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm retained by the Company as its auditor at the time such determinations are required (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from the Company that there has been a Payment, or such earlier time as is required by the Company. If at such time the Accounting Firm either is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, or is retained by the Company following a Change in Control, Executive may, in his sole discretion, appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4.5, shall be paid by the Company to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no 12 Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. (c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but in no event later than ten business days after Executive has been informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such 30-day period that the Company desires to contest such claim, Executive shall: (i) give the Company any information reasonably required by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, but not limited to, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relation to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless for (A) any Excise Tax or federal or state income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses, and (B) any federal, state and local income tax imposed with respect to the payment of amounts pursuant to clause (A) above and this clause (B), based on the highest marginal income tax rate applicable to Executive for the tax year such payments are includible in his taxable income. Without limitation on the foregoing provisions of this Section 4.5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the 13 taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless from (X) any Excise Tax or federal or state income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, and (Y) any federal, state and local income tax imposed with respect to the payment of amounts pursuant to clause (X) above and this clause (Y), based on the highest marginal income tax rate applicable to Executive for the tax year such payments are includible in his taxable income; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues within respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.5(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 4.5(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) and, as and when received, an amount equal to any savings in federal and state income taxes realized by Executive by reason of the payment to the Company of such refunds and interest plus the amounts in this clause. If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 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: 14 (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. (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. 15 (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), 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. 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 of 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 shall: (a) inform any such subsequent employer in writing that this Agreement exists; and (b) provide the Company with a copy of such writing. 16 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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit E, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit E shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 copy right protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention shall 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 17 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit F attached hereto. 5.9. Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of 24 months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the two (2) year period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity 18 or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology products and services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least 24 months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10. Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither the Company nor Executive shall disparage the other, and neither shall 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 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. 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 19 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit H hereto. 5.12. Consulting Agreement. Effective upon expiration or termination of Executive's employment hereunder for any reason other than death or Total Disability (if such Total Disability continues in effect), the Company may request at its option that Executive enter into a consulting agreement substantially in the form annexed as Exhibit G hereto, which incorporates by reference therein the provisions of Sections 5.1 through 5.11 hereof (the "Consulting Agreement"), for a period of two years from the date of expiration or termination and Executive agrees to enter into such Consulting Agreement effective as of the date of expiration or termination of his employment hereunder. Exhibit G is incorporated as a part hereof. The Company agrees to provide the following benefits to Executive thereunder: (i) the Company shall pay to Executive (A) in semi-monthly installments supplementary severance and consulting compensation at a rate equal to Executive's Base Salary in effect immediately prior to expiration or termination of his employment under this Agreement and (B) the Annual Fixed Cash Bonus, and (ii) the Company shall continue to provide to Executive health and disability insurance coverage substantially of the type provided by the Company and in effect immediately prior to termination of his employment under this Agreement, provided that, such health and disability benefits will only be provided to the extent not duplicative of benefits the Company is otherwise required to provide Executive pursuant to Article IV of this Agreement. 5.13. 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 COMPANY'S RIGHT OF FIRST REFUSAL 6.1. The Company's Right of First Refusal. Other than as permitted in Section 6.2, in the event that Executive (or any Designated Beneficiary) desires to sell or transfer any shares of Common Stock, whether or not pursuant to exercise of the registration rights under Section 2.4(g), in any transaction during the period that commences on the expiration date hereof or other termination date of Executive's employment hereunder and which ends twenty-four (24) months after such termination date or expiration date, Executive (or any of his Designated Beneficiaries, as the 20 case may be) shall first deliver a notice in writing (the "Notice") to the Company which shall specify (i) the number of shares of Common Stock which the Executive or such Designated Beneficiary desires to sell or transfer, the name(s) of the proposed purchasers or transferees (except in the case of a request for registration pursuant to Section 2.4(g)), (ii) the price per share (the "Transfer Price") at which the Executive or such Designated Beneficiary proposes to sell or transfer the shares to a third party pursuant to a bona fide offer, (iii) whether such price represents a control premium price ("Control Premium Price") and (iv) the other material terms upon which such sale or transfer is proposed to be made. The Company shall have the right to purchase all (but not less than all) of such shares at the fair market value thereof (determined as provided in Section 4.3(k) hereof) on the date of Executive's (or the Designated Beneficiary's) Notice hereunder; provided, however, that if the Transfer Price represents a Control Premium Price, the Company shall, if it wishes to exercise its right of first refusal hereunder, have the right to purchase the shares at the Control Premium Price. In the event that the shares are to be sold in a registered offering pursuant to a demand for registration under Section 2.4(g), the Company's right of first refusal may be exercised at any time prior to the effective date of the registration statement under which the shares are to be registered. Unless the Notice is given in conjunction with the exercise of registration rights hereunder, the Company shall, by written notice given by the Company to Executive or Designated Beneficiary within ten (10) business days after receipt of the Notice, indicate its intention to purchase the shares specified in the Notice, for cash at the fair market value per share as provided above or at the Control Premium Price, as the case may be. Within 30 calendar days after written notice of exercise by the Company, the Company shall provide the Executive with evidence reasonably satisfactory to Executive of its ability to finance the purchase of the shares (by a written commitment letter subject only to customary representations, diligence and documentation, letter of credit or otherwise). If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Common Stock with respect to which such right has been exercised will take place within 60 calendar days after the Company gives notice of such exercise, which period of time shall be extended in order to comply with applicable laws and regulations. Upon exercise of the right of first refusal, the Company and the Executive or Designated Beneficiary shall each be legally obligated to consummate the purchase contemplated thereby and the Company shall use its best efforts to secure any approvals required in connection therewith. If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise, Executive or Designated Beneficiary shall be free to sell the Common Stock at the Transfer Price specified in the Notice on terms no less favorable to Executive or the Designated Beneficiary than the terms specified in the Notice. In the event Executive or the Designated Beneficiary does not sell the Common Stock specified in the Notice within 180 days after the date of the Notice, Executive or the Designated Beneficiary shall not thereafter sell such Common Stock without first offering the Common Stock to the Company pursuant to this Article VI. The Company's right of first refusal with respect to the Executive's and the Designated Beneficiaries' shares of Common Stock shall terminate if Executive and his Designated Beneficiaries own beneficially and/or record less than an aggregate 50,000 shares of the Common Stock. In any twelve month period during the term of the Company's right of first refusal, Executive may, without regard to the Company's right of first refusal in this Article VI, sell or transfer up to an aggregate 25,000 shares of Common Stock pursuant to a transaction in compliance with Rule 144, provided that Executive gives prior or contemporaneous notice to the Company in writing of such sale or disposition. 21 6.2. Exceptions. Nothing in Section 6.1 shall preclude Executive from pledging his shares of Common Stock to a financial institution pursuant to the terms of a bona fide pledge or from transferring shares of the Common Stock by way of gift to his spouse and/or children or trusts for their benefit, provided that such pledgee or donee delivers to the Company a written undertaking in form and substance satisfactory to the Company agreeing to the terms and conditions of this Agreement as though a party hereto, and the transfer is made subject thereto. In any twelve month period during the period of the Company's right of first refusal, Executive may without regard to the Company's right of first refusal in this Article VI sell or transfer up to an aggregate 25,000 shares of Common Stock pursuant to a transaction in compliance with Rule 144, provided that in each case Executive gives prior or contemporaneous notice to the Company in writing of such sale or disposition. ARTICLE VII MISCELLANEOUS 7.1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Accounting Firm" - as defined in Section 4.5(b); (b) "Accrued Base Salary" - as defined in Section 4.1(a); (c) "Accrued Benefits" - as defined in Section 4.1(d); (d) "Accrued Annual Bonus Payments" - as defined in Section 4.2(e); (e) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (f) "Accrued Vacation Payment" - as defined in Section 4.1(b); (g) "Adjusted Previously Accrued Vacation" - as defined in Section 4.1(b). (h) "Annual Fixed Cash Bonus" - as defined in Section 2.2(a); (i) "Annual Incentive Bonus" - as defined in Section 2.2(b); (j) "Base Amount" - as defined in Section 4.4(b); (k) "Base Salary" - as defined in Section 2.1; (l) "Board" - as defined in Section 1.2; (m) "beneficial ownership" as defined in Section 7.1(p)(ii); 22 (n) "Cash Option Payment" as defined in Section 4.3(i); (o) "Cause" shall mean the occurrence of any of the following: (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his duties under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (p) "Change of Control" shall mean and shall be deemed to have occurred if: (i) After the date of this Agreement, any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto) shall become 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 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or 23 (ii) Any stockholder of the Company owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25% or more of the combined voting power of the Company'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% of the Board; provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than 60% 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% 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 the Company. (q) "Change of Control Resignation" - as defined in Section 3.2(b). (r) "Code" - as defined in Section 4.4(b). (s) "Common Stock" - as defined in Section 1.2(b). (t) "Confidential Information" - as defined in Section 5.1. (u) "Consulting Agreement" - as defined in Section 5.13. (v) "Continued Benefits" - as defined in Section 4.3(g). (w) "Control Premium Price" - as defined in Section 6.1. (x) "Designated Beneficiaries" - as defined in Section 4.3(k)(i). (y) "Designated Beneficiaries List" - as defined in Section 4.3(k)(ii). (z) "Estate" - as defined in Section 4.3(k). (aa) "Excise Tax" - as defined in Section 4.5(a). 24 (bb) "expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3. (cc) "fair market value" - as defined in Section 4.3(i) or 4.3(k), as the case may be. (dd) "Good Reason" shall mean the occurrence of any of the following: (i) 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 November 4, 1996 (provided that notwithstanding Executive's present title as Vice Chairman and Secretary, failure of Executive to be elected or reelected as a director or Secretary of the Company shall not constitute "Good Reason"), 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; (ii) Material change by the Company in Executive's function, duties or responsibilities (including reporting 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 November 4, 1996 (provided that notwithstanding Executive's present title as Vice Chairman and Secretary, failure of Executive to be elected or reelected as a director or Secretary of the Company shall not constitute "Good Reason"), 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; (iii) 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 November 4, 1996 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Senior Executives); (iv) 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; (v) 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 25 (vi) 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. (ee) "Gross-Up Payment" as defined in Section 4.5(a). (ff) "Incumbent Board" as defined in Section 7.1(o)(iii). (gg) "1996 Executive Bonus Plan" - as defined in Section 2.2. (hh) "Non-Competition Period" - as defined in Section 5.9(a). (ii) "Notice" - as defined in Section 6.1. (jj) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least thirty (30) days prior to the effective date of termination. (kk) "Payment" - as defined in Section 4.5(a). (ll) "Previously Accrued Vacation" - as defined in Section 2.4(f). (mm) "Proprietary Information" - as defined in Section 5.1(b); (nn) "Regulations" - as defined in Section 4.5(b). (oo) "Retirement" shall mean normal retirement at age 65 or in accordance with the provisions of the SERP or following ten years of service as defined in any other retirement plan established with Executive's consent with respect to Executive. (pp) "Securities Act" - as defined in Section 2.4(g); (qq) "Senior Executives" shall mean the chief executive officer and the four most highly compensated executive officers of the Company determined in accordance with the rules and regulations of the Securities and Exchange Commission under the Exchange Act. (rr) "SERP" - as defined in Section 2.4(a)(i); (ss) "termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3. (tt) "Termination Put" - as defined in Section 4.3(k)(i). 26 (uu) "Termination Put Notice" as defined in Section 4.3(k)(ii). (vv) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physicians may request, and the determination of the physicians as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. (ww) "Transfer Price" - as defined in Section 6.1. (xx) "Underpayment" - as defined in Section 4.5(b). 7.2. Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive in addition to the key man insurance acquired pursuant to Section 4.3(k) hereof. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall take such physical examinations and supply such information as may be reasonably requested by the insurer. 7.3. Mitigation of Damages; No Set-Off; Dispute Resolution. (a) Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of his employment hereunder or otherwise. The Company's obligation to make the payments provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim or action which the Company may have against Executive. (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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit H hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided, however, that (1) either party may seek preliminary judicial relief if, 27 in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit H shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 H, the Company shall 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 shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 shall have been 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 SECTION 5.11 AND THIS SECTION 7.3(b), TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY, CONSEQUENTIAL AND ANY DAMAGES OTHER THAN COMPENSATORY DAMAGES. 7.4. Successors; Binding Agreement. This Agreement shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, beneficiaries, designees, executors, administrators, heirs, distributees, devisees and legatees. 7.5. 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any other term or condition. 7.6. 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants 28 or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 7.7. Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: If to the Company, to it at: MicroAge, Inc. 2400 South MicroAge Way Tempe, Arizona 85282-1896 ATTN: Chief Executive Officers With a copy to: Matthew P. Feeney Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: Alan P. Hald 5350 East Calle del Medio Phoenix, Arizona 85018 7.8. Assignment. This Agreement and any rights hereunder shall not be assignable by either party without the prior written consent of the other party except as otherwise specifically provided for herein or in the Exhibits that are incorporated as a part hereof. 7.9. Entire Understanding. This Agreement (together with the Exhibits incorporated as a part hereof) constitutes 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. 7.10. 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. 7.11. Liability of Company with Respect to Insurance Policies. Executive has selected the insurer and policy referred to in Section 2.4(a)(ii) hereof, and the Company shall not have any liability to Executive (or his beneficiaries) should the insurance company which issues 29 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. 7.12. Governing Law. This Agreement shall 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. Company: MICROAGE, INC. By:/s/Jeffrey D. McKeever ---------------------------------- Name:Jeffrey D. McKeever -------------------------------- Title:Chairman and CEO ------------------------------- Executive: /s/Alan P. Hald ------------------------------------- Alan P. Hald ------------------------------------- EXHIBIT A --------- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- EXHIBIT B --------- SPLIT DOLLAR INSURANCE AGREEMENT -------------------------------- EXHIBIT C --------- AMENDED AND RESTATED RIGHTS AGREEMENT ------------------------------------- EXHIBIT D --------- LIST OF DESIGNATED BENEFICIARIES -------------------------------- EXHIBIT E --------- EXECUTIVE'S RIGHTS ------------------ None EXHIBIT F --------- EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None EXHIBIT G --------- CONSULTING AGREEMENT -------------------- EXHIBIT H --------- DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 7.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least fifteen (15) years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30-day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than five depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 7.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. EX-10.6.1 11 SPLIT-DOLLAR INSURANCE AGREEMENT SPLIT-DOLLAR INSURANCE AGREEMENT -------------------------------- THIS AGREEMENT is made as of this 29th day of January, 1997, by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "Corporation"), and ALAN P. HALD (hereinafter referred to as "Insured"). WHEREAS, Insured plans to acquire insurance on his life of under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"); and WHEREAS, Corporation wants to assist Insured by paying all premiums due on the policy; and WHEREAS, Insured will be the owner of the insurance policy and the policy will be assigned to Corporation as security for the repayment of the premiums which Corporation will pay when due on the policy; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: ARTICLE I Insured plans to acquire from the Insurer a policy on the life of the Insured in the face amount of One Million Two Hundred Eighty Six Thousand Seven Dollars ($1,286,007) (hereinafter referred to as the "Policy"). The policy number, face amount and plan of insurance will be recorded on Schedule A attached to this Agreement and the Policy will then be subject to the terms of this Agreement. During the term of this Agreement, Corporation will not exercise nor withhold its consent to the exercise by Insured of any rights, privileges or options conferred by the terms of the Policy, except as otherwise provided in Article V, paragraph C hereof. ARTICLE II All premiums due on the Policy which shall be Fifty-Six Thousand Five Hundred Fifty Dollars and One Cent ($56,550.01) per year, shall be paid by Corporation until the first to occur of (i) the death of the Insured, (ii) Insured's termination of employment with Corporation, or (iii) Corporation has paid fifteen (15) premium payments. ARTICLE III A. Insured shall execute and deliver a collateral assignment of the Policy to Corporation on a form approved by Insurer, as a security interest for the amounts paid by Corporation towards its share of the premiums to be paid on the Policy in accordance with Article II of this Agreement. In the event of the death of Insured pursuant to Article IV hereof, or in the event of the surrender or acquisition of the Policy pursuant to Article V hereof, such security interest shall be for an amount equal to the total premiums paid by the Corporation (less any outstanding loans to Corporation pursuant to Article III, paragraph B hereof). B. Corporation may not borrow against the Policy's loan value, without the prior written approval of Insured. C. Corporation shall pay all interest with respect to loans made pursuant to subparagraph B; provided, however, that no payment of interest shall constitute a premium payment under this Agreement. 2 D. The term "net cash surrender value" when used in this Agreement shall mean the gross value as determined by Insurer less any outstanding loans made to Corporation and interest then due on such loans. ARTICLE IV In the event of the death of Insured, the proceeds of the Policy shall be divided into two parts and paid by Insurer as follows: Part A - This part shall be paid to Corporation in an amount equal to the Corporation's security interest in the Policy as determined pursuant to Article III, paragraph A hereof. Corporation shall supply Insurer with any information necessary for Insurer to determine such amount. Part B - The balance of the death benefit shall be paid to the beneficiary designated by the Insured. ARTICLE V A. The Insured may, at any time with the Corporation's prior written consent, surrender the Policy and receive the net cash surrender value thereof. Insured shall pay to Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof, or may authorize and instruct Insurer to pay such amount directly to Corporation. B. The Insured may acquire Corporation's interest in the Policy for an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof upon the Insured's termination of employment with Corporation. 3 C. Except as provided in the collateral assignment or as necessary to protect Corporation's security interest, Insured shall be entitled to exercise all of the rights available under the terms of the Policy, except the Insured may not assign or borrow on the Policy as long as a collateral assignment is in effect on the Policy. ARTICLE VI A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. 4. The termination of Insured's employment with the Corporation. 5. The death of Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3. above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, Corporation shall thereupon execute and deliver to Insured a release of the collateral assignment of the Policy. C. If this Agreement is terminated pursuant to Article VI, paragraph A.4 above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A above. 4 D. If Insured does not remit the amounts described in paragraph B and C above, within thirty (30) days of the event described in Article VI, paragraph A.2, 3. or 4., then all obligations of Corporation under this Agreement shall be terminated and Insured shall transfer the ownership of the Policy to Corporation. ARTICLE VII Insurer is not a party to this Agreement and the obligations of Insurer are those set forth in the Policy. ARTICLE VIII This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. ARTICLE IX This Agreement may be altered, amended or modified only by written instrument signed by Corporation and the Insured. ARTICLE X This Agreement shall be construed according to the laws of the State of Arizona. ARTICLE XI Insured may add a rider to the Policy for the benefit of his beneficiaries. Upon written request by Corporation, Insured will add a rider to the Policy for the benefit of Corporation. The additional premium for any rider which is added to the Policy will be paid by the party entitled to receive the proceeds of the rider. 5 ARTICLE XII A. The party designated as the "named fiduciary" for the Split-Dollar Plan established by this Agreement shall have the authority to control and manage the operation and administration of such plan; provided, however, the Insurer shall be the fiduciary of the plan solely with regard to the review and final decision on a claim for benefits under its Policy as provided in Article XIII Claims Procedure, set forth below. B. The Fiduciary may allocate his responsibilities for the operation and administration of the Split-Dollar Plan, including the designation of persons to carry out fiduciary responsibilities under any such plan. He shall effect such allocation of his responsibilities by delivering to the Corporation a written instrument signed by him that specifies the nature and extent of the responsibilities allocated, including, the persons who are designated to carry out these fiduciary responsibilities under the Split-Dollar Plan, together with a signed acknowledgment of their acceptance. ARTICLE XIII The following claims procedure shall apply to the Split-Dollar Plan: A. The beneficiary of such Policy shall make a claim for the benefits provided under the Policy in the manner provided in the Policy. B. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials. 6 C. If a claim is wholly or partially denied, notice of the decision, meeting the requirements of paragraph D below, shall be furnished to the claimant within a reasonable period of time after the claim has been filed. D. The Insurer shall provide to any claimant who is denied a claim for benefits, written notice setting forth in a manner calculated to be understood by the claimant, the following: 1. The specific reasons for the denial; 2. Specific reference to the pertinent Policy or plan provisions on which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; 4. An explanation of the plan's claim review procedure, as set forth in paragraph E and F below. E. The purpose of the review procedure set forth in this paragraph and in paragraph F below, is to provide a procedure by which a claimant under the Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a claim for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: 1. May request a review upon written application to the Insurer; 2. May review pertinent plan documents or agreements; and 3. May submit issues and comments in writing. 7 A claimant (or his duly authorized representative) shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. F. A decision on review of a denial of a claim shall be made in the following manner: 1. The decision on review shall be made by the Insurer, which may in its discretion hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. 2. The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Policy or plan provision on which the decision is based. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICROAGE, INC., a Delaware Corporation By /s/Jeffrey D. McKeever ---------------------------------- Its Chairman and CEO -------------------------------- By /s/Alan P. Hald ---------------------------------- ALAN P. HALD 8 SCHEDULE A Face Amount $1,286,007 Policy Number 13929759 Plan of Insurance The Northwestern Mutual Life Insurance Company 9 COLLATERAL ASSIGNMENT FORM Appln. No., Contract No. Date this form is signed: or Policy No.: 13929759 January 29, 1997 Insured: ALAN P. HALD Insurance Company: The Northwestern Mutual Life Insurance Company The undersigned request and direct the Insurance Company to make the provisions of this form a part of the policy. All previous designations of payees are hereby revoked. It is hereby requested and directed that: BENEFICIARIES (1) In the event of the death of the Insured, MicroAge, Inc., a Delaware corporation, or its successors ("Corporation"), will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of Corporation's cessation of business, bankruptcy, receivership or dissolution, Corporation will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of termination of Insured's employment or the surrender or the acquisition of the Policy, Corporation will be the direct beneficiary of the premiums paid to the Insurance Company by Corporation for the Policy. Any indebtedness by Corporation to the Insurance Company will be deducted first from the share of the proceeds payable to said Corporation as direct beneficiary. It is understood and agreed that the Insurance Company will have the right to rely on any statement signed by said Corporation setting forth said Corporation's share of the premium payments referred to above, and any decision made by Insurance Company in reliance upon such statement will be conclusive and will fully protect the Insurance Company. (2) KATHLEEN T. HALD if living and married to the Insured on his date of death will be the direct beneficiary of any remaining proceeds, and if she is either not married to Insured or living on Insured's date of death, the proceeds will be payable to Insured's estate. The Insurance Company will be fully discharged of liability for any action taken by the Insured and for all amounts paid to, or at the direction of, the insured and will have no obligation as to the use of the amounts. In all dealings with the Insured, the Insurance Company will be fully protected against the claims of every other person. The Insurance Company will not be charged with notice of a change of beneficiary unless written evidence of the change is received at the Insurance Company's Home Office. OWNERSHIP (3) The owner of the Policy shall be the Insured. The Insured alone may exercise all the rights and privileges specified in the Policy, except the Insured may not assign or borrow on the Policy as long as this Collateral Assignment is in effect. Corporation may assign or borrow against the Policy loan value only with the prior written approval of the Insured. MODIFICATION OF ASSIGNMENT PROVISIONS Upon death of the Insured, the interest of any collateral assignee of Corporation will be limited to the portion of the proceeds described in (1) above. MICROAGE, INC., a Delaware corporation By /s/Jeffrey D. McKeever ---------------------------------- Officer /s/ Alan P. Hald ---------------------------------- ALAN P. HALD EX-10.6.2 12 AWARD AGREEMENT WITH ALAN P. HALD MICROAGE, INC. 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT December 9, 1993 Dear Alan: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1994 Management Equity Program (the "1994 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1994 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive (1) all or a portion of your 1993 fiscal year bonus (the "1993 Bonus"), and (2) a portion of your base salary and any bonuses you may receive for the 1994, 1995, and 1996 calendar years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1994 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1994 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO CRAIG CANTONI BY 12:00 P.M. NOON ON TUESDAY, DECEMBER 14, 1993. 1. EFFECTIVE DATE. The effective date of your participation in the 1994 MEP is December 14, 1993. 2. STOCKHOLDER APPROVAL. The 1994 MEP is subject to stockholder approval of the Plan, which will be sought at the 1994 Annual Meeting of Stockholders. If stockholder approval is not obtained at such meeting, the 1994 MEP will be deemed to have never been implemented and the options thereunder will be deemed to have never been granted. 3. 1993 BONUS WAIVER. You hereby elect to waive all or a portion of your 1993 Bonus in the amount specified in the table below, subject to the limitation described in footnote 6 below. 1993 BONUS WAIVER1 1993 BONUS WAIVER(1) ================================================================================ 1993 Bonus Waived 1994 Salary Credit Amount(2) Bonus Credit Amount(3) - -------------------------------------------------------------------------------- $75,000 $75,000 $0 ================================================================================ - -------- 1 You are not required to waive any of your 1993 Bonus as a condition to participate in the 1994 MEP. Any part of your 1993 Bonus that you elect to waive will be credited against your 1994 salary waiver amount (up to the amount of the Salary Credit Amount) and your 1994 bonus waiver amount, in that order. This "credit" can be carried forward beyond 1994. See Example A attached to this Award Agreement. 2 You may insert any amount from $0 to $39,000 (15% of your Current Base Salary). 3 Computed by subtracting the Salary Credit Amount from the 1993 Bonus Waived. -1- 4. 1994-1996 WAIVER. You hereby elect to waive a portion of your salary and bonuses for the 1994, 1995, and 1996 calendar years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 5)): 1994-1996 WAIVER TABLE ================================================================================ Year Salary(4) Bonus(5) Total - -------------------------------------------------------------------------------- 1994 $39,000 $65,000 $104,0006 - -------------------------------------------------------------------------------- 1995 $39,000 $65,000 $104,000 - -------------------------------------------------------------------------------- 1996 $39,000 $65,000 $104,000 - -------------------------------------------------------------------------------- 1993-1996 $156,000 $260,000 $416,000(7) ========= ================================================================================ 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge): (1) Total Compensation Waived (1994-1996): $312,000 ------- (2) $312,000 (Total Compensation Waived) Multiplied by Ten (10): $3,120,000 ---------- (3) Common Stock Closing Price Effective Date (December 14, 1993) (the "Common Stock Price"): $24.83 ------ (4) Total Options Granted (2) / (3) (rounded up): 125,638 ------- - -------------------- 4 The minimum annual salary waiver amount is $13,000 (5% of your Current Base Salary). The maximum annual salary waiver amount is $39,000 (15% of your Current Base Salary). 5 There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $65,000 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year (and you do not have a Bonus Credit Amount to apply to the deficit), the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until December 14, 2002. See Example B attached to this Award Agreement. 6 The amount of your 1993 Bonus that you may waive cannot exceed this number. See Example A attached to this Award Agreement. 7 The minimum waiver amount (salary and bonuses combined) for the three-year period (1994-1996) is $130,000 (50% of your Current Base Salary). -2- (See Example C attached to this Award Agreement) 6. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the January 1 which is three years following the January 1 of the calendar year for each year you elect to waive base salary and/or bonus amounts. Any amount of your 1993 Bonus that you elect to waive will be used as a credit against future waiver amounts and will be deemed to be waived in the year that such credit is taken. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. FOR EXAMPLE, the options to be purchased with the compensation you waive in 1994 will vest in 1/3 increments beginning on January 1, 1997 and will be 100% vested on January 1, 1999. Correspondingly, the options to be purchased with the compensation you waive in 1995 will vest in 1/3 increments beginning on January 1, 1998 and will be 100% vested on January 1, 2000, and so on. If you elect to waive a specific amount of your bonuses for the next three years, but do not receive bonuses for the next three years sufficient to cover the amount you agreed to waive (and you do not have a Bonus Credit Amount to apply against the deficit), the bonuses you may be otherwise entitled to receive in later years (up through December 13, 2002) will be used to make up any shortfall on a "first-in, first-out" theory. See Example D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of December 14, 2002, unless you otherwise terminate employment before such date. 7. EXPIRATION OF OPTIONS. Subject to Section 8 and 9 of this Award Agreement, your options will expire, unless sooner exercised, on December 14, 2003. 8. TERMINATION OF EMPLOYMENT Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1994 MEP. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. -3- 9. TERMINATION OF 1994 MEP. If the Committee decides to terminate the 1994 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 10. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1994 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of the Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 11. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the "1993 10-K"), and that you were given an opportunity to ask questions of any of the Company's executive officers (as disclosed on page 7 of the 1993 10-K) regarding the 1993 10-K or any other matter regarding the Company. 12. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1994 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1994 MEP. I hereby elect to participate in the 1994 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1994 MEP. ACCEPTED: MICROAGE, INC. SIGNATURE /s/Alan P. Hald BY /s/Jeffrey D. McKeever ------------------------ ---------------------- DATE 12/14/93 ITS Chairman and CEO ------------------------ ----------------------- SSN ###-##-#### ------------------------ -4- EX-10.6.3 13 FIRST AMENDMENT TO 1994 MGT EQUITY PROGRAM - HALD FIRST AMENDMENT TO THE MICROAGE 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT FOR ALAN P. HALD THIS FIRST AMENDMENT to the Award Agreement dated December 14, 1993 ("Award Agreement"), is entered into by MicroAge, Inc. ("Company"), and Alan P. Hald ("Executive") pursuant to the Management Equity Plan ("MEP") under the MicroAge, Inc. Long-Term Incentive Plan ("Plan"), as of December 14, 1995. WHEREAS, the Company and the Executive entered into the Award Agreement effective December 14, 1993, to enable the Executive to acquire an option to purchase Company stock by making salary deferrals; and WHEREAS, the exercise price of the option to purchase Company common stock, $.01 par value ("Common Stock"), under the Award Agreement is $24.83 per share, after giving effect to a 3-for-2 stock split that was payable on January 13, 1994; and WHEREAS, the closing price of the Common Stock on the Nasdaq National Market on December 13, 1995, was $8.75 per share; and WHEREAS, in order to provide a meaningful incentive for the Executive under the MEP, the Compensation Committee of the Company's Board of Directors has reduced the exercise price under the Award Agreement to the current fair market value of the Common Stock. NOW THEREFORE, the Executive and the Company agree as follows: 1. Paragraph 5 of the Award Agreement is hereby amended and restated in its entirety as follows: 1 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below: (1) TOTAL COMPENSATION WAIVED (1994-1996) $312,000 (2) $312,000 (TOTAL COMPENSATION WAIVED) MULTIPLIED BY 3.5235 (THE "LEVERAGING FACTOR") $1,099,332 (3) COMMON STOCK CLOSING PRICE ON DECEMBER 13, 1995 (THE "COMMON STOCK PRICE") $8.75 (4) TOTAL OPTIONS GRANTED (2) / (3) 125,638 2. Paragraphs 8, 9, and 10 of the Award Agreement shall be amended by deleting the references to the number "ten" and replacing such reference with the phrase "the Leveraging Factor." 3. This First Amendment shall be effective as of December 14, 1995. MICROAGE, INC. By: /s/Jeffrey D. McKeever ---------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer /s/ Alan P. Hald ---------------------------------- Alan P. Hald 2 EX-10.7 14 EMPLOYMENT AGREEMENT 11/04/96 AMENDED and RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and JAMES R. DANIEL TABLE OF CONTENTS ARTICLE I--DUTIES AND TERM................................................... 1 1.1 Employment................................................. 1 1.2 Position and Responsibilities.............................. 1 1.3 Term....................................................... 2 1.4 Location................................................... 2 ARTICLE II--COMPENSATION..................................................... 2 2.1 Base Salary................................................ 2 2.2 Bonus Payment.............................................. 3 2.3 Stock Options.............................................. 3 2.4 Additional Benefits........................................ 3 ARTICLE III--TERMINATION OF EMPLOYMENT....................................... 4 3.1 Death or Retirement of Executive........................... 4 3.2 By Executive............................................... 4 3.3 By Company................................................. 5 ARTICLE IV--COMPENSATION UPON TERMINATION OF EMPLOYMENT...................... 5 4.1 Upon Termination for Death or Disability................... 5 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason........................... 6 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason Prior to a Change in Control..................................... 6 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........................................ 7 ARTICLE V--RESTRICTIVE COVENANTS............................................. 8 5.1 Confidential Information and Materials..................... 8 5.2 General Knowledge.......................................... 9 5.3 Executive Obligations as to Confidential Information and Materials.................................. 9 5.4 Inform Subsequent Employers................................ 10 5.5 Ideas and Inventions....................................... 10 5.6 Inventions and Patents..................................... 10 5.7 Copyrights................................................. 11 5.8 Conflicting Obligations and Rights......................... 11 5.9 Non-Competition............................................ 11 5.10 Non-Disparagement.......................................... 13 5.11 Remedies.................................................. .13 5.12 Scope of Article........................................... 13 i ARTICLE VI--MISCELLANEOUS.................................................... 14 6.1 Definitions................................................ 14 6.2 Key Man Insurance.......................................... 18 6.3 Mitigation of Damages; No Set-Off; Dispute Resolution................................................. 18 6.4 Successors; Binding Agreement.............................. 19 6.5 Modification; No Waiver.................................... 19 6.6 Severability............................................... 19 6.7 Notices.................................................... 20 6.8 Assignment................................................. 20 6.9 Entire Understanding....................................... 20 6.10 Executive's Representations................................ 20 6.11 Liability of Company with Respect to Insurance Policy........................................... 20 6.12 Governing Law.............................................. 20 EXHIBIT A--SPLIT DOLLAR AGREEMENT EXHIBIT B--EXECUTIVE'S RIGHTS EXHIBIT C--EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT D--DISPUTE RESOLUTION PROCEDURES ii EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of November 4, 1996, by and between MICROAGE, INC., a Delaware corporation (the "Company"), and JAMES R. DANIEL ("Executive"). R E C I T A L S: - - - - - - - - WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement on October 1, 1993 and a First Amendment to the Amended and Restated Employment Agreement on October 1, 1995 (collectively, the "Employment Agreement"); and WHEREAS, pursuant to Section 6.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company and Executive desire to amend and restate the Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T: - - - - - - - - - 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 hire 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 shall serve as Senior Vice President, Chief Financial Officer and Treasurer of MicroAge, Inc. (or in a capacity and with a title of at least substantially equivalent quality) reporting directly to the Chief Executive Officer of the Company. Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chief Executive Officer. (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 shall 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 shall commence on the date first above written and shall continue, unless sooner terminated, until November 1, 1998; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the twenty-four (24) month period commencing on each such day. 1.4 Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2.1 Base Salary. The Company shall pay to Executive an annual base salary of not less that $325,000 (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 $8,938 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 $8,938 (the "Annual Fixed Cash Bonus"). 2 (b) During the period of Executive's employment under this Agreement, Executive shall, in addition to the Annual Fixed Cash Bonus, be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1996 (the "1996 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1996 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1996 Executive Bonus Plan or any such subsequent plan, less any bonus waivers under the 1994 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus." 2.3 Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Senior Executives (as such term is defined in Section 6.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4 Additional Benefits. Executive shall 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 personnel; provided, however, there shall 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 shall be reduced by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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 all Senior Executives entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Death Benefit. The Company and Executive have entered into a Split Dollar Insurance Agreement, dated as of September 1, 1995, a copy of which is attached hereto as Exhibit A. (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 shall continue to pay the Base Salary to Executive during the period of such incapacity, but only in the amounts and to the 3 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 shall 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 shall, 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 shall be entitled to 20 business days, excluding Company holidays, of paid vacation during each year of employment hereunder which he shall earn in arrears (i.e., Executive shall be entitled to no vacation days during his first year of employment). Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 6.1) of Executive. 3.2 By Executive. Executive shall 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 (c) at any time without Good Reason. 3.3 By Company. The Company shall 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. 4 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 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 shall: (a) pay Executive (or his estate) or beneficiaries any Base Salary which 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 which 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; and in addition, (f) Executive (or his estate) or beneficiaries shall 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 shall: (a) pay Executive the Accrued Base Salary; 5 (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 in addition (f) Executive shall 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 shall: (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 the Accrued Annual Bonus Payments; (f) pay Executive commencing on the thirtieth day following the termination date twenty-four monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary in effect immediately prior to the time such termination occurs, plus (2) if Executive is employed with Company for more than twelve (12) months prior to his termination by the Company without Cause or by Executive for Good Reason prior to a Change in Control, the Annual Incentive Bonus paid to Executive for the fiscal year (or if more than one Annual Incentive Bonus has been paid to Executive, 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; provided, however, should Executive attain alternative employment during the twenty-four 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 $27,083 per month for twenty-four (24) months under this Section 4.3(f), and eight (8) months following his termination date he finds alternative employment that pays him $25,000 per month, the Company would be obligated to pay Executive seven (7) monthly payments of $27,083, and seventeen (17) monthly payments of $2,083 under this Section 4.3(f). 6 (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 shall 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 in addition (h) Executive shall have the right to exercise all vested unexercised stock options and warrants in accordance with Section 4.1(f). 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 7 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. (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 8 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), 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. 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. 9 5.4 Inform Subsequent Employers. Executive covenants and agrees that, for a period of 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 shall: (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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit B, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit B shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 10 protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention shall 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit C attached hereto. 5.9 Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of twenty-four (24) months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the two (2) year period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any 11 entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology products and services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least twenty-four (24) months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10 Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall 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. 12 5.11 Remedies. Executive expressly agrees and acknowledges that the covenants set forth in Section 5.1 through 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. 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit D hereto. 5.12 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 shall have the following meanings: (a) "Accrued Base Salary" - as defined in Section 4.1(a); (b) "Accrued Benefits" - as defined in Section 4.1(d); (c) "Accrued Annual Bonus Payment" - as defined in Section 4.2(e); (d) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (e) "Accrued Vacation Payment" - as defined in Section 4.1(b); (f) "Annual Fixed Cash Bonus" - as defined in Section 2.2(a); (g) "Annual Incentive Bonus" - as defined in Section 2.2(b); (h) "Base Amount" - as defined in Section 4.4(b); (i) "Base Salary" - as defined in Section 2.1; 13 (j) "Board" - shall mean the Board of Directors of the Company; (k) "Cause" shall mean the occurrence of any of the following: (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his obligation under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (l) "Change in Control" shall mean and shall be deemed to have occurred if: (i) After the date of this Agreement, any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto) shall become 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 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of the Company owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; or 14 (iii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least 80% of the Board; provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than 60% 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% 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 the Company. (m) "Change in Control Resignation" - as defined in Section 3.2(b); (n) "Code" - as defined in Section 4.4(b); (o) "Common Stock" - shall mean shares of the common stock, par value $.01 per share, of the Company; (p) "Confidential Information" - as defined in Section 5.1; (q) "Continued Benefits" - as defined in Section 4.3(g); (r) "Expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3; (s) "Good Reason" shall mean the occurrence of any of the following: (i) 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 November 4, 1996 or in the case of a Change in Control, involving duties of a scope comparable to those of 15 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; (ii) 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 November 4, 1996, 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; (iii) 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 November 4, 1996 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Senior Executives); (iv) 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; (v) 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 (vi) 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. (t) "Incumbent Board" - as defined in Section 6.1(k)(iii); (u) "1996 Executive Bonus Plan" - as defined in Section 2.2. (v) "Non-Competition Period" - as defined in Section 5.9(a); (w) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least 30 days prior to the effective date of termination; (x) "Retirement" shall mean normal retirement at age 65; 16 (y) "Senior Executives" shall mean the chief executive officer and the four most highly compensated executive officers of the Company determined in accordance with the rules and regulations of the Securities and Exchange Commission under the Exchange Act; (z) "Termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3; (aa) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. 6.2 Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall take such physical examinations and supply such information as may be reasonably requested by the insurer. 6.3 Mitigation of Damages; No Set-Off; Dispute Resolution. (a) Executive shall 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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit D hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided, however, that (1) either party may seek preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit D shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 17 Exhibit D, the Company shall 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 shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 shall have been 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 SECTION 5.11 AND THIS SECTION 6.3(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 shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.7 Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: 18 If to the Company, to it at: MicroAge, Inc. 2308 South 55th Street Tempe, Arizona 85282 Attn: Chief Executive Officer With a copy to: Matthew P. Feeney Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: James R. Daniel 3858 East Cholla Lane Phoenix, Arizona 85028 6.8 Assignment. This Agreement and any rights hereunder shall 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 the Exhibit incorporated as a part hereof) constitutes 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 shall 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 shall 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. 19 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Company: MICROAGE, INC. By: /s/ Jeffrey D. McKeever ---------------------------------- Name: Jeffrey D. McKeever -------------------------------- Title: Chairman and CEO ------------------------------- Executive: JAMES R. DANIEL /s/ James R. Daniel -------------------------------------- 20 EXHIBIT A --------- SPLIT DOLLAR AGREEMENT ---------------------- EXHIBIT B --------- EXECUTIVE'S RIGHTS ------------------ None EXHIBIT C --------- EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None EXHIBIT D --------- DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 6.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least 15 years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30 day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven (7) days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than 5 depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 6.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. EX-10.7.2 15 AWARD AGREEMENT WITH JAMES R. DANIEL MICROAGE, INC. 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT December 9, 1993 Dear Jim: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1994 Management Equity Program (the "1994 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1994 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive (1) all or a portion of your 1993 fiscal year bonus (the "1993 Bonus"), and (2) a portion of your base salary and any bonuses you may receive for the 1994, 1995, and 1996 calendar years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1994 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1994 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO CRAIG CANTONI BY 12:00 P.M. NOON ON TUESDAY, DECEMBER 14, 1993. 1. EFFECTIVE DATE. The effective date of your participation in the 1994 MEP is December 14, 1993. 2. STOCKHOLDER APPROVAL. The 1994 MEP is subject to stockholder approval of the Plan, which will be sought at the 1994 Annual Meeting of Stockholders. If stockholder approval is not obtained at such meeting, the 1994 MEP will be deemed to have never been implemented and the options thereunder will be deemed to have never been granted. 3. 1993 BONUS WAIVER. You hereby elect to waive all or a portion of your 1993 Bonus in the amount specified in the table below, subject to the limitation described in footnote 6 below. 1993 BONUS WAIVER(1) ================================================================================ 1993 Bonus Waived 1994 Salary Credit Amount(2) Bonus Credit Amount(3) - -------------------------------------------------------------------------------- $104,000 $39,000 $65,000 ================================================================================ - ------------------------ 1 You are not required to waive any of your 1993 Bonus as a condition to participate in the 1994 MEP. Any part of your 1993 Bonus that you elect to waive will be credited against your 1994 salary waiver amount (up to the amount of the Salary Credit Amount) and your 1994 bonus waiver amount, in that order. This "credit" can be carried forward beyond 1994. See Example A attached to this Award Agreement. 2 You may insert any amount from $0 to $39,000 (15% of your Current Base Salary). 3 Computed by subtracting the Salary Credit Amount from the 1993 Bonus Waived. 4. 1994-1996 WAIVER. You hereby elect to waive a portion of your salary and bonuses for the 1994, 1995, and 1996 calendar years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 5)): 1994-1996 WAIVER TABLE ================================================================================ Year Salary(4) Bonus(5) Total 1994 $39,000 $65,000 $104,000(6) 1995 $13,000 $65,000 $78,000 1996 $13,000 $65,000 $78,000 1993-1996 $65,000 $195,000 $260,000(7) ======== ================================================================================ 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge): (1) Total Compensation Waived (1994-1996): $260,000 ------- (2) $260,000 (Total Compensation Waived) Multiplied by Ten (10): $2,600,000 ---------- (3) Common Stock Closing Price Effective Date (December 14, 1993) (the "Common Stock Price"): $24.83 ------ (4) Total Options Granted (2) / (3) (rounded up): 104,698 (See Example C attached to this Award Agreement) ------- - ------------------------- 4 The minimum annual salary waiver amount is $13,000 (5% of your Current Base Salary). The maximum annual salary waiver amount is $39,000 (15% of your Current Base Salary). 5 There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $65,000 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year (and you do not have a Bonus Credit Amount to apply to the deficit), the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until December 14, 2002. See Example B attached to this Award Agreement. 6 The amount of your 1993 Bonus that you may waive cannot exceed this number. See Example A attached to this Award Agreement. 7 The minimum waiver amount (salary and bonuses combined) for the three-year period (1994-1996) is $130,000 (50% of your Current Base Salary). -2- 6. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the January 1 which is three years following the January 1 of the calendar year for each year you elect to waive base salary and/or bonus amounts. Any amount of your 1993 Bonus that you elect to waive will be used as a credit against future waiver amounts and will be deemed to be waived in the year that such credit is taken. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. FOR EXAMPLE, the options to be purchased with the compensation you waive in 1994 will vest in 1/3 increments beginning on January 1, 1997 and will be 100% vested on January 1, 1999. Correspondingly, the options to be purchased with the compensation you waive in 1995 will vest in 1/3 increments beginning on January 1, 1998 and will be 100% vested on January 1, 2000, and so on. If you elect to waive a specific amount of your bonuses for the next three years, but do not receive bonuses for the next three years sufficient to cover the amount you agreed to waive (and you do not have a Bonus Credit Amount to apply against the deficit), the bonuses you may be otherwise entitled to receive in later years (up through December 13, 2002) will be used to make up any shortfall on a "first-in, first-out" theory. See Example D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of December 14, 2002, unless you otherwise terminate employment before such date. 7. EXPIRATION OF OPTIONS. Subject to Section 8 and 9 of this Award Agreement, your options will expire, unless sooner exercised, on December 14, 2003. 8. TERMINATION OF EMPLOYMENT Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1994 MEP. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. -3- 9. TERMINATION OF 1994 MEP. If the Committee decides to terminate the 1994 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 10. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1994 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of the Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 11. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the "1993 10-K"), and that you were given an opportunity to ask questions of any of the Company's executive officers (as disclosed on page 7 of the 1993 10-K) regarding the 1993 10- K or any other matter regarding the Company. 12. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1994 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1994 MEP. I hereby elect to participate in the 1994 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1994 MEP. ACCEPTED: MICROAGE, INC. SIGNATURE /s/James R. Daniel BY /s/Jeffrey D. McKeever ------------------------- ------------------------- DATE 12/12/93 ITS Chairman and CEO ------------------------- ------------------------------ SSN ###-##-#### ------------------------- -4- EX-10.7.3 16 FIRST AMENDMENT TO 1994 MEP-JAMES R. DANIEL FIRST AMENDMENT TO THE MICROAGE 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT FOR JAMES R. DANIEL THIS FIRST AMENDMENT to the Award Agreement dated December 14, 1993 ("Award Agreement"), is entered into by MicroAge, Inc. ("Company"), and James R. Daniel ("Executive") pursuant to the Management Equity Plan ("MEP") under the MicroAge, Inc. Long-Term Incentive Plan ("Plan"), as of December 14, 1995. WHEREAS, the Company and the Executive entered into the Award Agreement effective December 14, 1993, to enable the Executive to acquire an option to purchase Company stock by making salary deferrals; and WHEREAS, the exercise price of the option to purchase Company common stock, $.01 par value ("Common Stock"), under the Award Agreement is $24.83 per share, after giving effect to a 3-for-2 stock split that was payable on January 13, 1994; and WHEREAS, the closing price of the Common Stock on the Nasdaq National Market on December 13, 1995, was $8.75 per share; and WHEREAS, in order to provide a meaningful incentive for the Executive under the MEP, the Compensation Committee of the Company's Board of Directors has reduced the exercise price under the Award Agreement to the current fair market value of the Common Stock. NOW THEREFORE, the Executive and the Company agree as follows: 1. Paragraph 5 of the Award Agreement is hereby amended and restated in its entirety as follows: 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below: (1) TOTAL COMPENSATION WAIVED (1994-1996) $260,000 (2) $260,000 (TOTAL COMPENSATION WAIVED) MULTIPLIED BY 3.5234903 (THE "LEVERAGING FACTOR") $916,107 (3) COMMON STOCK CLOSING PRICE ON DECEMBER 13, 1995 (THE "COMMON STOCK PRICE") $8.75 (4) TOTAL OPTIONS GRANTED (2) / (3) 104,698 2. Paragraphs 8, 9, and 10 of the Award Agreement shall be amended by deleting the references to the number "ten" and replacing such reference with the phrase "the Leveraging Factor." 3. This First Amendment shall be effective as December 14, 1995. MICROAGE, INC. By: /s/Jeffrey D. McKeever ---------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer /s/James R. Daniel ---------------------------------- James R. Daniel 2 EX-10.8 17 EMPLOYMENT AGREEMENT AMENDED and RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and ROBERT G. O'MALLEY TABLE OF CONTENTS ARTICLE I--DUTIES AND TERM................................................... 1 1.1 Employment................................................. 1 1.2 Position and Responsibilities.............................. 1 1.3 Term....................................................... 2 1.4 Location................................................... 2 ARTICLE II--COMPENSATION..................................................... 2 2.1 Base Salary................................................ 2 2.2 Bonus Payment.............................................. 3 2.3 Stock Options.............................................. 3 2.4 Additional Benefits........................................ 3 ARTICLE III--TERMINATION OF EMPLOYMENT....................................... 4 3.1 Death or Retirement of Executive........................... 4 3.2 By Executive............................................... 4 3.3 By Company................................................. 5 ARTICLE IV--COMPENSATION UPON TERMINATION OF EMPLOYMENT...................... 5 4.1 Upon Termination for Death or Disability................... 5 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason........................... 6 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason Prior to a Change in Control............................... 6 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..................................... 7 ARTICLE V--RESTRICTIVE COVENANTS............................................. 8 5.1 Confidential Information and Materials..................... 8 5.2 General Knowledge.......................................... 9 5.3 Executive Obligations as to Confidential Information and Materials.................................. 9 5.4 Inform Subsequent Employers................................ 10 5.5 Ideas and Inventions....................................... 10 5.6 Inventions and Patents..................................... 10 5.7 Copyrights................................................. 11 5.8 Conflicting Obligations and Rights......................... 11 5.9 Non-Competition............................................ 11 5.10 Non-Disparagement.......................................... 13 5.11 Remedies................................................... 13 5.12 Scope of Article........................................... 13 i ARTICLE VI--MISCELLANEOUS.................................................... 14 6.1 Definitions................................................ 14 6.2 Key Man Insurance.......................................... 18 6.3 Mitigation of Damages; No Set-Off; Dispute Resolution................................................. 18 6.4 Successors; Binding Agreement.............................. 19 6.5 Modification; No Waiver.................................... 19 6.6 Severability............................................... 19 6.7 Notices.................................................... 20 6.8 Assignment................................................. 20 6.9 Entire Understanding....................................... 20 6.10 Executive's Representations................................ 20 6.11 Liability of Company with Respect to Insurance Policy........................................... 20 6.12 Governing Law.............................................. 20 EXHIBIT A--SPLIT DOLLAR AGREEMENT EXHIBIT B--EXECUTIVE'S RIGHTS EXHIBIT C--EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT D--DISPUTE RESOLUTION PROCEDURES ii EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of November 4, 1996, by and between MICROAGE, INC., a Delaware corporation (the "Company"), and ROBERT G. O'MALLEY ("Executive"). R E C I T A L S: - - - - - - - - WHEREAS, the Company and Executive entered into an Employment Agreement on September 1, 1995 (the "Employment Agreement"); and WHEREAS, pursuant to Section 6.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company and Executive desire to amend and restate the Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T: - - - - - - - - - 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 hire 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 shall serve as President of MicroAge, Inc. (or in a capacity and with a title of at least substantially equivalent quality) reporting directly to the Chief Executive Officer of the Company. Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chief Executive Officer. (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 shall 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 shall commence on the date first above written and shall continue, unless sooner terminated, until November 1, 1998; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the twenty-four (24) month period commencing on each such day. 1.4 Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2.1 Base Salary. The Company shall pay to Executive an annual base salary of not less that $340,000 (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 $ 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 $ (the "Annual Fixed Cash Bonus"). 2 (b) During the period of Executive's employment under this Agreement, Executive shall, in addition to the Annual Fixed Cash Bonus, be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1996 (the "1996 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1996 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1996 Executive Bonus Plan or any such subsequent plan, less any bonus waivers under the 1994 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus." 2.3 Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Senior Executives (as such term is defined in Section 6.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4 Additional Benefits. Executive shall 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 personnel; provided, however, there shall 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 shall be reduced by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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 all Senior Executives entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Death Benefit. The Company and Executive have entered into a Split Dollar Insurance Agreement, dated as of September 1, 1995, a copy which is attached hereto as Exhibit A. (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 shall continue to pay the Base Salary to Executive during the period of such incapacity, but only in the amounts and to the 3 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 shall 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 shall, 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 shall be entitled to 20 business days, excluding Company holidays, of paid vacation during each year of employment hereunder which he shall earn in arrears (i.e., Executive shall be entitled to no vacation days during his first year of employment). Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 6.1) of Executive. 3.2 By Executive. Executive shall 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 (c) at any time without Good Reason. 3.3 By Company. The Company shall be entitled to terminate Executive's employment under this Agreement by giving Notice of Termination to Executive: I in the event of Executive's Total Disability (as defined in Section 6.1); (a) for Cause (as defined in Section 6.1); and 4 (b) 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 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 shall: (a) pay Executive (or his estate) or beneficiaries any Base Salary which 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 360 (the "Accrued Vacation Payment"); (c) reimburse Executive (or his estate) or beneficiaries for expenses incurred by him prior to the date of termination which 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; and in addition, (f) Executive (or his estate) or beneficiaries shall 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 shall: 5 (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 in addition (f) Executive shall 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 shall: (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 the Accrued Annual Bonus Payments; (f) pay Executive commencing on the thirtieth day following the termination date twenty-four monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary in effect immediately prior to the time such termination occurs, plus (2) if Executive is employed with Company for more than twelve (12) months prior to his termination by the Company without Cause or by Executive for Good Reason prior to a Change in Control, the Annual Incentive Bonus paid to Executive for the fiscal year (or if more than one Annual Incentive Bonus has been paid to Executive, 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; provided, however, should Executive attain alternative employment during the twenty-four 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 $____ per month for twenty-four (24) months under this Section 4.3(f), and eight (8) months following his termination date he finds alternative employment that pays him $____ per month, the Company 6 would be obligated to pay Executive seven (7) monthly payments of $ , and seventeen (17) monthly payments of $____ 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 termination 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 shall 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 in addition (h) Executive shall have the right to exercise all vested unexercised stock options and warrants in accordance with Section 4.1(f). 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 7 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. (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 8 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), 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. 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. 9 5.4 Inform Subsequent Employers. Executive covenants and agrees that, for a period of 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 shall: (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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit B, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit B shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 10 protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention shall 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit C attached hereto. 5.9 Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of twenty-four (24) months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the two (2) year period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any 11 entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology products and services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least twenty-four (24) months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10 Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall 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. 12 5.11 Remedies. Executive expressly agrees and acknowledges that the covenants set forth in Sections 5.1 through 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. 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit D hereto. 5.12 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 shall have the following meanings: (a) "Accrued Base Salary" - as defined in Section 4.1(a); (b) "Accrued Benefits" - as defined in Section 4.1(d); (c) "Accrued Annual Bonus Payment" - as defined in Section 4.2(e); (d) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (e) "Accrued Vacation Payment" - as defined in Section 4.1(b); (f) "Annual Fixed Cash Bonus" - as defined in Section 2.2(a); (g) "Annual Incentive Bonus" - as defined in Section 2.2(b); (h) "Base Amount" - as defined in Section 4.4(b); (i) "Base Salary" - as defined in Section 2.1; 13 (j) "Board" - shall mean the Board of Directors of the Company; (k) "Cause" shall mean the occurrence of any of the following: (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his obligation under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (l) "Change in Control" shall mean and shall be deemed to have occurred if: (i) After the date of this Agreement, any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto) shall become 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 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of the Company owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; or 14 (iii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least 80% of the Board; provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than 60% 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% 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 the Company. (m) "Change in Control Resignation" - as defined in Section 3.2(b); (n) "Code" - as defined in Section 4.4(b); (o) "Common Stock" - shall mean shares of the common stock, par value $.01 per share, of the Company; (p) "Confidential Information" - as defined in Section 5.1; (q) "Continued Benefits" - as defined in Section 4.3(g); (r) "Expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3; (s) "Good Reason" shall mean the occurrence of any of the following: (i) 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 November 4, 1996 or in the case of a Change in Control, involving duties of a scope comparable to those of 15 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; (ii) 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 November 4, 1996, 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; (iii) 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 November 4, 1996 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Senior Executives); (iv) 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; (v) 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 (vi) 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. (t) "Incumbent Board" - as defined in Section 6.1(k)(iii); (u) "1996 Executive Bonus Plan" - as defined in Section 2.2. (v) "Non-Competition Period" - as defined in Section 5.9(a); (w) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least 30 days prior to the effective date of termination; (x) "Retirement" shall mean normal retirement at age 65; 16 (y) "Senior Executives" shall mean the chief executive officer and the four most highly compensated executive officers of the Company determined in accordance with the rules and regulations of the Securities and Exchange Commission under the Exchange Act; (z) "Termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3; (aa) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. 6.2 Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall take such physical examinations and supply such information as may be reasonably requested by the insurer. 6.3 Mitigation of Damages; No Set-Off; Dispute Resolution. (a) Executive shall 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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit D hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided however, that (1) either party may seek preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit D shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 17 Exhibit D, the Company shall 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 shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 shall have been 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 SECTION 5.11 AND THIS SECTION 6.3(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 shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.7 Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: 18 If to the Company, to it at: MicroAge, Inc. 2308 South 55th Street Tempe, Arizona 85282 Attn: Chief Executive Officer With a copy to: Matthew P. Feeney Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: Robert O'Malley 6211 East Huntress Drive Paradise Valley, Arizona 85253 6.8 Assignment. This Agreement and any rights hereunder shall 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 the Exhibit incorporated as a part hereof) constitutes 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 shall 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 shall 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. 19 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Company: MICROAGE, INC. By: /s/ Jeffrey D. McKeever ---------------------------------- Name: Jeffrey D. McKeever -------------------------------- Title: Chairman and CEO ------------------------------- Executive: ROBERT G. O'MALLEY /s/ Robert G. O'Malley ------------------------------------ 20 EXHIBIT A --------- SPLIT DOLLAR AGREEMENT ---------------------- EXHIBIT B --------- EXECUTIVE'S RIGHTS ------------------ None EXHIBIT C --------- EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None EXHIBIT D --------- DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 6.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least 15 years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30 day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven (7) days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than 5 depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 6.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. EX-10.8.1 18 SPLIT DOLLAR INS AGREE WITH R. G. O'MALLEY SPLIT-DOLLAR INSURANCE AGREEMENT -------------------------------- THIS AGREEMENT is made as of this 1st day of September, 1995, by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "Corporation"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured"). WHEREAS, Insured plans to acquire insurance on his life of under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"); and WHEREAS, Corporation wants to assist Insured by paying all premiums due on the policy; and WHEREAS, Insured will be the owner of the insurance policy and the policy will be assigned to Corporation as security for the repayment of the premiums which Corporation will pay when due on the policy; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: ARTICLE I Insured plans to acquire from the Insurer a policy on the life of the Insured in the face amount of Seven Hundred Fifty Thousand Dollars ($750,000) (hereinafter referred to as the "Policy"). The policy number, face amount and plan of insurance will be recorded on Schedule A attached to this Agreement and the Policy will then be subject to the terms of this Agreement. During the term of this Agreement, Corporation will not exercise nor withhold its consent to the exercise by Insured of any rights, privileges or options conferred by the terms of the Policy, except as otherwise provided in Article V, paragraph C hereof. ARTICLE II All premiums due on the Policy which shall be Fifteen Thousand Six Hundred Twenty-Eight Dollars and Ninety-Eight Cents ($15,628.98) per year, shall be paid by Corporation until the first to occur of (i) the death of the Insured, (ii) Insured's termination of employment with Corporation, or (iii) Corporation has paid fifteen (15) premium payments. ARTICLE III A. Insured shall execute and deliver a collateral assignment of the Policy to Corporation on a form approved by Insurer, as a security interest for the amounts paid by Corporation towards its share of the premiums to be paid on the Policy in accordance with Article II of this Agreement. In the event of the death of Insured pursuant to Article IV hereof, or in the event of the surrender or acquisition of the Policy pursuant to Article V hereof, such security interest shall be for an amount equal to the total premiums paid by the Corporation (less any outstanding loans to Corporation pursuant to Article III, paragraph B hereof). B. Corporation may not borrow against the Policy's loan value, without the prior written approval of Insured. 2 C. Corporation shall pay all interest with respect to loans made pursuant to subparagraph B; provided, however, that no payment of interest shall constitute a premium payment under this Agreement. D. The term "net cash surrender value" when used in this Agreement shall mean the gross value as determined by Insurer less any outstanding loans made to Corporation and interest then due on such loans. ARTICLE IV In the event of the death of Insured, the proceeds of the Policy shall be divided into two parts and paid by Insurer as follows: Part A - This part shall be paid to Corporation in an amount equal to the Corporation's security interest in the Policy as determined pursuant to Article III, paragraph A hereof. Corporation shall supply Insurer with any information necessary for Insurer to determine such amount. Part B - The balance of the death benefit shall be paid to the beneficiary designated by the Insured. . . . . . . . . . 3 ARTICLE V A. The Insured may, at any time, with the Corporation's prior written consent, surrender the Policy and receive the net cash surrender value thereof. Insured shall pay to Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof, or may authorize and instruct Insurer to pay such amount directly to Corporation. B. The Insured may acquire Corporation's interest in the Policy for an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof upon the Insured's termination of employment with Corporation. C. Except as provided in the collateral assignment or as necessary to protect Corporation's security interest, Insured shall be entitled to exercise all of the rights available under the terms of the Policy, except the Insured may not assign or borrow on the Policy as long as a collateral assignment is in effect on the Policy. ARTICLE VI A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. . . . 4 4. The termination of Insured's employment with the Corporation. 5. The death of Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3. above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, Corporation shall thereupon execute and deliver to Insured a release of the collateral assignment of the Policy. C. If this Agreement is terminated pursuant to Article VI, paragraph A.4 above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A above. D. If Insured does not remit the amounts described in paragraph B and C above, within thirty (30) days of the event described in Article VI, paragraph A.2, 3. or 4., then all obligations of Corporation under this Agreement shall be terminated and Insured shall transfer the ownership of the Policy to Corporation. ARTICLE VII Insurer is not a party to this Agreement and the obligations of Insurer are those set forth in the Policy. ARTICLE VIII This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. 5 ARTICLE IX This Agreement may be altered, amended or modified only by written instrument signed by Corporation and the Insured. ARTICLE X This Agreement shall be construed according to the laws of the State of Arizona. ARTICLE XI Insured may add a rider to the Policy for the benefit of his beneficiaries. Upon written request by Corporation, Insured will add a rider to the Policy for the benefit of Corporation. The additional premium for any rider which is added to the Policy will be paid by the party entitled to receive the proceeds of the rider. ARTICLE XII A. The party designated as the "named fiduciary" for the Split-Dollar Plan established by this Agreement shall have the authority to control and manage the operation and administration of such plan; provided, however, the Insurer shall be the fiduciary of the plan solely with regard to the review and final decision on a claim for benefits under its Policy as provided in Article XIII Claims Procedure, set forth below. B. The Fiduciary may allocate his responsibilities for the operation and administration of the Split-Dollar Plan, including the designation of persons 6 to carry out fiduciary responsibilities under any such plan. He shall effect such allocation of his responsibilities by delivering to the Corporation a written instrument signed by him that specifies the nature and extent of the responsibilities allocated, including, the persons who are designated to carry out these fiduciary responsibilities under the Split-Dollar Plan, together with a signed acknowledgement of their acceptance. ARTICLE XIII The following claims procedure shall apply to the Split-Dollar Plan: A. The beneficiary of such Policy shall make a claim for the benefits provided under the Policy in the manner provided in the Policy. B. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials. C. If a claim is wholly or partially denied, notice of the decision, meeting the requirements of paragraph D below, shall be furnished to the claimant within a reasonable period of time after the claim has been filed. D. The Insurer shall provide to any claimant who is denied a claim for benefits, written notice setting forth in a manner calculated to be understood by the claimant, the following: 1. The specific reasons for the denial; 2. Specific reference to the pertinent Policy or plan provisions on which the denial is based; 7 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; 4. An explanation of the plan's claim review procedure, as set forth in paragraph E and F below. E. The purpose of the review procedure set forth in this paragraph and in paragraph F below, is to provide a procedure by which a claimant under the Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a claim for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: 1. May request a review upon written application to the Insurer; 2. May review pertinent plan documents or agreements; and 3. May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. F. A decision on review of a denial of a claim shall be made in the following manner: 1. The decision on review shall be made by the Insurer, which may in its discretion hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but 8 not later than one hundred twenty (120) days after receipt of the request for review. 2. The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Policy or plan provision on which the decision is based. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICROAGE, INC., a Delaware Corporation By /s/ James R. Daniel --------------------- Its Senior V.P. and CFO -------------------- By: /s/ Robert G. O'Malley ----------------------- ROBERT G. O'MALLEY 9 SCHEDULE A Face Amount $750,000 Policy Number 13453221 Plan of Insurance The Northwestern Mutual Life Insurance Company 10 COLLATERAL ASSIGNMENT FORM Appln. No., Contract No. Date this form is signed: or Policy No.: 13453221 September 1, 1995 Insured: ROBERT G. O'MALLEY Insurance Company: The Northwestern Mutual Life Insurance Company The undersigned request and direct the Insurance Company to make the provisions of this form a part of the policy. All previous designations of payees are hereby revoked. It is hereby requested and directed that: BENEFICIARIES (1) In the event of the death of the Insured, MicroAge, Inc., a Delaware corporation, or its successors ("Corporation"), will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of Corporation's cessation of business, bankruptcy, receivership or dissolution, Corporation will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of termination of Insured's employment, or the surrender or the acquisition of the Policy, Corporation will be the direct beneficiary of the premiums paid to the Insurance Company by Corporation for the Policy. Any indebtedness by Corporation to the Insurance Company will be deducted first from the share of the proceeds payable to said Corporation as direct beneficiary. It is understood and agreed that the Insurance Company will have the right to rely on any statement signed by said Corporation setting forth said Corporation's share of the premium payments referred to above, and any decision made by Insurance Company in reliance upon such statement will be conclusive and will fully protect the Insurance Company. (2) BARBARA O'MALLEY if living and married to the Insured on her date of death will be the direct beneficiary of any remaining proceeds, and if she is either not married to Insured or living on Insured's date of death, the proceeds will be payable to Insured's estate. The Insurance Company will be fully discharged of liability for any action taken by the Insured and for all amounts paid to, or at the direction of, the insured and will have no obligation as to the use of the amounts. In all dealings with the Insured, the Insurance Company will be fully protected against the claims of every other person. The Insurance Company will not be charged with notice of a change of beneficiary unless written evidence of the change is received at the Insurance Company's Home Office. OWNERSHIP (3) The owner of the Policy shall be the Insured. The Insured alone may exercise all the rights and privileges specified in the Policy, except the Insured may not assign or borrow on the Policy as long as this Collateral Assignment is in effect. Corporation may assign or borrow against the Policy loan value only with the prior written approval of the Insured. MODIFICATION OF ASSIGNMENT PROVISIONS Upon death of the Insured, the interest of any collateral assignee of Corporation will be limited to the portion of the proceeds described in (1) above. MICROAGE, INC., a Delaware corporation By/s/ James R. Daniel ----------------------------------------- Officer /s/ Robert G. O'Malley ------------------------------------------- ROBERT G. O'MALLEY EX-10.8.2 19 SPLIT-DOLLAR INSURANCE AGREEMENT SPLIT-DOLLAR INSURANCE AGREEMENT -------------------------------- THIS AGREEMENT is made as of this 27th day of January, 1997, by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "Corporation"), and ROBERT G. O'MALLEY (hereinafter referred to as "Insured"). WHEREAS, Insured plans to acquire insurance on his life of under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"); and WHEREAS, Corporation wants to assist Insured by paying all premiums due on the policy; and WHEREAS, Insured will be the owner of the insurance policy and the policy will be assigned to Corporation as security for the repayment of the premiums which Corporation will pay when due on the policy; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: ARTICLE I Insured plans to acquire from the Insurer a policy on the life of the Insured in the face amount of Two Hundred Fifty Thousand Dollars ($250,000) (hereinafter referred to as the "Policy"). The policy number, face amount and plan of insurance will be recorded on Schedule A attached to this Agreement and the Policy will then be subject to the terms of this Agreement. During the term of this Agreement, Corporation will not exercise nor withhold its consent to the exercise by Insured of any rights, privileges or options conferred by the terms of the Policy, except as otherwise provided in Article V, paragraph C hereof. ARTICLE II All premiums due on the Policy which shall be Ten Thousand Five Hundred Dollars ($10,500) per year, shall be paid by Corporation until the first to occur of (i) the death of the Insured, (ii) Insured's termination of employment with Corporation, or (iii) Corporation has paid thirteen (13) premium payments. ARTICLE III A. Insured shall execute and deliver a collateral assignment of the Policy to Corporation on a form approved by Insurer, as a security interest for the amounts paid by Corporation towards its share of the premiums to be paid on the Policy in accordance with Article II of this Agreement. In the event of the death of Insured pursuant to Article IV hereof, or in the event of the surrender or acquisition of the Policy pursuant to Article V hereof, such security interest shall be for an amount equal to the total premiums paid by the Corporation (less any outstanding loans to Corporation pursuant to Article III, paragraph B hereof). B. Corporation may not borrow against the Policy's loan value, without the prior written approval of Insured. C. Corporation shall pay all interest with respect to loans made pursuant to subparagraph B; provided, however, that no payment of interest shall constitute a premium payment under this Agreement. 2 D. The term "net cash surrender value" when used in this Agreement shall mean the gross value as determined by Insurer less any outstanding loans made to Corporation and interest then due on such loans. ARTICLE IV In the event of the death of Insured, the proceeds of the Policy shall be divided into two parts and paid by Insurer as follows: Part A - This part shall be paid to Corporation in an amount equal to the Corporation's security interest in the Policy as determined pursuant to Article III, paragraph A hereof. Corporation shall supply Insurer with any information necessary for Insurer to determine such amount. Part B - The balance of the death benefit shall be paid to the beneficiary designated by the Insured. ARTICLE V A. The Insured may, at any time with the Corporation's prior written consent, surrender the Policy and receive the net cash surrender value thereof. Insured shall pay to Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof, or may authorize and instruct Insurer to pay such amount directly to Corporation. B. The Insured may acquire Corporation's interest in the Policy for an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof upon the Insured's termination of employment with Corporation. C. Except as provided in the collateral assignment or as necessary to protect Corporation's security interest, Insured shall be entitled to exercise all of the rights 3 available under the terms of the Policy, except the Insured may not assign or borrow on the Policy as long as a collateral assignment is in effect on the Policy. ARTICLE VI A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. 4. The termination of Insured's employment with the Corporation. 5. The death of Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3. above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, Corporation shall thereupon execute and deliver to Insured a release of the collateral assignment of the Policy. C. If this Agreement is terminated pursuant to Article VI, paragraph A.4 above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A above. D. If Insured does not remit the amounts described in paragraph B and C above, within thirty (30) days of the event described in Article VI, paragraph A.2, 3. or 4., then all obligations of Corporation under this Agreement shall be terminated and Insured shall transfer the ownership of the Policy to Corporation. 4 ARTICLE VII Insurer is not a party to this Agreement and the obligations of Insurer are those set forth in the Policy. ARTICLE VIII This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. ARTICLE IX This Agreement may be altered, amended or modified only by written instrument signed by Corporation and the Insured. ARTICLE X This Agreement shall be construed according to the laws of the State of Arizona. ARTICLE XI Insured may add a rider to the Policy for the benefit of his beneficiaries. Upon written request by Corporation, Insured will add a rider to the Policy for the benefit of Corporation. The additional premium for any rider which is added to the Policy will be paid by the party entitled to receive the proceeds of the rider. ARTICLE XII A. The party designated as the "named fiduciary" for the Split-Dollar Plan established by this Agreement shall have the authority to control and manage the operation and administration of such plan; provided, however, the Insurer shall be the fiduciary of the plan solely with regard to the review 5 and final decision on a claim for benefits under its Policy as provided in Article XIII Claims Procedure, set forth below. B. The Fiduciary may allocate his responsibilities for the operation and administration of the Split-Dollar Plan, including the designation of persons to carry out fiduciary responsibilities under any such plan. He shall effect such allocation of his responsibilities by delivering to the Corporation a written instrument signed by him that specifies the nature and extent of the responsibilities allocated, including, the persons who are designated to carry out these fiduciary responsibilities under the Split-Dollar Plan, together with a signed acknowledgment of their acceptance. ARTICLE XIII The following claims procedure shall apply to the Split-Dollar Plan: A. The beneficiary of such Policy shall make a claim for the benefits provided under the Policy in the manner provided in the Policy. B. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials. C. If a claim is wholly or partially denied, notice of the decision, meeting the requirements of paragraph D below, shall be furnished to the claimant within a reasonable period of time after the claim has been filed. D. The Insurer shall provide to any claimant who is denied a claim for benefits, written notice setting forth in a manner calculated to be understood by the claimant, the following: 1. The specific reasons for the denial; 6 2. Specific reference to the pertinent Policy or plan provisions on which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; 4. An explanation of the plan's claim review procedure, as set forth in paragraph E and F below. E. The purpose of the review procedure set forth in this paragraph and in paragraph F below, is to provide a procedure by which a claimant under the Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a claim for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: 1. May request a review upon written application to the Insurer; 2. May review pertinent plan documents or agreements; and 3. May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. F. A decision on review of a denial of a claim shall be made in the following manner: 1. The decision on review shall be made by the Insurer, which may in its discretion hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need 7 to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. 2. The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Policy or plan provision on which the decision is based. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICROAGE, INC., a Delaware Corporation By /s/ James R. Daniel ------------------------------------ Its Senior V.P. and C.F.O. ------------------------------------ By /s/ Robert G. O'Malley ------------------------------------ ROBERT G. O'MALLEY 9 SCHEDULE A Face Amount $250,000 Policy Number 14016898 Plan of Insurance The Northwestern Mutual Life Insurance Company 10 COLLATERAL ASSIGNMENT FORM Appln. No., Contract No. Date this form is signed: or Policy No.: 14016898 January 27, 1997 Insured: ROBERT G. O'MALLEY Insurance Company: The Northwestern Mutual Life Insurance Company The undersigned request and direct the Insurance Company to make the provisions of this form a part of the policy. All previous designations of payees are hereby revoked. It is hereby requested and directed that: BENEFICIARIES (1) In the event of the death of the Insured, MicroAge, Inc., a Delaware corporation, or its successors ("Corporation"), will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of Corporation's cessation of business, bankruptcy, receivership or dissolution, Corporation will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of termination of Insured's employment or the surrender or the acquisition of the Policy, Corporation will be the direct beneficiary of the premiums paid to the Insurance Company by Corporation for the Policy. Any indebtedness by Corporation to the Insurance Company will be deducted first from the share of the proceeds payable to said Corporation as direct beneficiary. It is understood and agreed that the Insurance Company will have the right to rely on any statement signed by said Corporation setting forth said Corporation's share of the premium payments referred to above, and any decision made by Insurance Company in reliance upon such statement will be conclusive and will fully protect the Insurance Company. (2) BARBARA A. O'MALLEY if living and married to the Insured on his date of death will be the direct beneficiary of any remaining proceeds, and if he is either not married to Insured or living on Insured's date of death, the proceeds will be payable to Insured's estate. The Insurance Company will be fully discharged of liability for any action taken by the Insured and for all amounts paid to, or at the direction of, the insured and will have no obligation as to the use of the amounts. In all dealings with the Insured, the Insurance Company will be fully protected against the claims of every other person. The Insurance Company will not be charged with notice of a change of beneficiary unless written evidence of the change is received at the Insurance Company's Home Office. OWNERSHIP (3) The owner of the Policy shall be the Insured. The Insured alone may exercise all the rights and privileges specified in the Policy, except the Insured may not assign or borrow on the Policy as long as this Collateral Assignment is in effect. Corporation may assign or borrow against the Policy loan value only with the prior written approval of the Insured. MODIFICATION OF ASSIGNMENT PROVISIONS Upon death of the Insured, the interest of any collateral assignee of Corporation will be limited to the portion of the proceeds described in (1) above. MICROAGE, INC., a Delaware corporation By /s/ James R. Daniel -------------------------------------- Officer /s/ Robert G. O'Malley -------------------------------------- ROBERT G. O'MALLEY EX-10.8.3 20 AWARD AGREEMENT MICROAGE, INC. 1997 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT (ROBERT G. O'MALLEY) October 11, 1996 Dear Bob: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1997 Management Equity Program (the "1997 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1997 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive all or a portion of your base salary and any bonuses you may receive for the 1997, 1998, and 1999 fiscal years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1997 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT, AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1997 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO AL LYONS BY 12:00 P.M. NOON ON FRIDAY, OCTOBER 25, 1996. 1. EFFECTIVE DATE. The effective date of your participation in the 1997 MEP is November 4, 1996. 2. 1997-1999 WAIVER. You hereby elect to waive a portion of your salary and bonuses received for the Company's 1997, 1998, and 1999 fiscal years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 2 and Example A attached to this Award Agreement)): 1997-1999 WAIVER TABLE ----------------------
============================= ============================= =========================== =============================== Fiscal Year Salary1 Bonus2 Total - ----------------------------- ----------------------------- --------------------------- ------------------------------- 1997 $40,000 $70,000 $110,000 (11/4/96 - 11/2/97) - ----------------------------- ----------------------------- --------------------------- ------------------------------- 1998 $40,000 $70,000 $110,000 (11/3/97 - 11/1/98) - ----------------------------- ----------------------------- --------------------------- ------------------------------- 1999 $40,000 $80,000 $120,000 (11/2/98 - 10/31/99) - ----------------------------- ----------------------------- --------------------------- ------------------------------- 1997-1999 $120,000 $220,000 $340,000 3 ============================= ============================= =========================== ===============================
1. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1997-1999 Waiver Table in Paragraph 2, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge):
(1) Total Compensation Waived (1997-1999 fiscal years): $ 340,000 -------- (2) $ 340,000 (Total Compensation Waived) ------------------------ Multiplied by Seven (7) (the Leverage Factor"): $ 2,380,000 ---------- (3) Common Stock Closing Price on Effective Date (October 25, 1996) (the "Common Stock Price"): $ 17.625 ------- (4) Total Options Granted (2) , (3) (rounded up): (See Example B attached to this Award Agreement) $ 135,035 --------- --------
1. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the first day of the fiscal year which is three years following the first day of the fiscal year for each year you elect to waive base salary and/or bonus amounts. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. - ------------------- (1) The minimum annual salary waiver amount is $17,000 (5% of your Current Base Salary). The maximum annual salary waiver amount is $51,000 (15% of your Current Base Salary). (2) There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $85,000 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year, the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until October 25, 2005. See Example A attached to this Award Agreement. Note: The bonus waiver amounts are for bonuses relating to a given fiscal year, whether or not the bonus is paid during such fiscal year. For example, if a bonus for fiscal year 1997 is paid in December 1997 (during fiscal year 1998), any 1997 bonus waiver amount you have included in the Waiver Table would be deducted from your December 1997 bonus. (3) The minimum waiver amount (salary and bonuses combined) for the three-year period (1997-1999) is $170,000 (50% of your Current Base Salary). The maximum waiver amount (salary and bonuses combined) for the three-year period (1997-1999) is $340,000 (100% of your Current Base Salary). FOR EXAMPLE, the options to be purchased with the compensation you receive for fiscal year 1997 will vest in 1/3 increments beginning on November 1, 1999 (the first day of fiscal year 2000) and will be 100% vested on October 29, 2001 (the first day of fiscal year 2002). Correspondingly, the options to be purchased with the waived compensation you receive for fiscal year 1998 will vest in 1/3 increments beginning on October 30, 2000 (the first day of fiscal year 2001) and will be 100% vested on November 4, 2002 (the first day of fiscal year 2002), and so on. If you elect to waive a specific amount of your bonuses for the next three fiscal years, but do not receive bonuses for the next three fiscal years sufficient to cover the amount you agreed to waive, the bonuses you may be otherwise entitled to receive in later years (up through October 25, 2005) will be used to make up any shortfall on a "first-in, first-out" theory. See Examples C and D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of October 25, 2005, unless you otherwise terminate employment before such date. 1. EXPIRATION OF OPTIONS. Subject to Section 6 and 7 of this Award Agreement, your options will expire, unless sooner exercised, on October 25, 2006. 1. TERMINATION OF EMPLOYMENT. Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1997 MEP. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 1. TERMINATION OF 1997 MEP. If the Committee decides to terminate the 1997 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 1. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1997 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by the Leverage Factor and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1997 MEP. 1. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's (i) Annual Report on Form 10-K for the fiscal year ended October 29, 1995, and (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended January 28, April 28, and July 28, 1996 (the "SEC Reports"), and that you were given an opportunity to ask questions of any of the Company's executive officers regarding the SEC Reports or any other matter regarding the Company. 1. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1997 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1997 MEP. I hereby elect to participate in the 1997 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1997 MEP. ACCEPTED: MICROAGE, INC. SIGNATURE /s/ R. G. O'Malley BY /s/Jeffrey D. McKeever ------------------------- -------------------------- DATE 10/24/96 ITS Chairman and CEO ------------------------- ------------------------- SSN ###-##-#### ------------------------- EX-10.9 21 AMEND AND RESTATED EMPLOY AGREE WITH C. J. KOZOIL AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and CHRISTOPHER J. KOZIOL TABLE OF CONTENTS ARTICLE I--DUTIES AND TERM................................................... 1 1.1 Employment................................................. 1 1.2 Position and Responsibilities.............................. 1 1.3 Term....................................................... 2 1.4 Location................................................... 2 ARTICLE II--COMPENSATION..................................................... 2 2.1 Base Salary................................................ 2 2.2 Bonus Payment.............................................. 3 2.3 Stock Options.............................................. 3 2.4 Additional Benefits........................................ 3 ARTICLE III--TERMINATION OF EMPLOYMENT....................................... 4 3.1 Death or Retirement of Executive........................... 4 3.2 By Executive............................................... 4 3.3 By Company................................................. 4 ARTICLE IV--COMPENSATION UPON TERMINATION OF EMPLOYMENT...................... 5 4.1 Upon Termination for Death or Disability................... 5 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason........................................ 5 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason.................................. 6 4.4 Upon Termination by the Company Without Cause Following a Change of Control or byExecutive for Good Reason Following a Change of Control............................... 7 ARTICLE V--RESTRICTIVE COVENANTS............................................. 7 5.1 Confidential Information and Materials..................... 7 5.2 General Knowledge.......................................... 9 5.3 Executive Obligations as to Confidential Information and Materials.................................................. 9 5.4 Inform Subsequent Employers................................. 9 5.5 Ideas and Inventions....................................... 10 5.6 Inventions and Patents..................................... 10 5.7 Copyrights................................................. 10 5.8 Conflicting Obligations and Rights......................... 11 5.9 Non-Competition............................................ 11 5.10 Non-Disparagement.......................................... 12 5.11 Remedies................................................... 13 5.12 Scope of Article........................................... 13 i ARTICLE VI--MISCELLANEOUS.................................................... 13 6.1 Definitions................................................ 13 6.2 Key Man Insurance.......................................... 17 6.3 Mitigation of Damages; Set-Off; Dispute Resolution......... 17 6.4 Successors; Binding Agreement.............................. 18 6.5 Modification; No Waiver.................................... 18 6.6 Severability............................................... 18 6.7 Notices.................................................... 18 6.8 Assignment................................................. 19 6.9 Entire Understanding....................................... 19 6.10 Executive's Representations................................ 19 6.11 Liability of Company with Respect to Insurance Policy...... 19 6.12 Governing Law.............................................. 19 EXHIBIT A--SPLIT DOLLAR AGREEMENT EXHIBIT B--EXECUTIVE'S RIGHTS EXHIBIT C--EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT D--DISPUTE RESOLUTION PROCEDURES ii AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of November 4, 1996, by and between MICROAGE, INC., a Delaware corporation (the "Company"), and CHRISTOPHER J. KOZIOL ("Executive"). R E C I T A L S - - - - - - - - WHEREAS, the Company and Executive entered into an Employment Agreement on July 1, 1994 and a First Amendment to the Employment Agreement on October 1, 1995 (collectively, the "Employment Agreement"); and WHEREAS, pursuant to Section 6.5 of the Employment Agreement, the Employment Agreement may be amended only by a written document signed by each of the parties thereto; and WHEREAS, the Company and Executive desire to amend and restate the Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T: - - - - - - - - - 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 hire 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 shall serve as President, Distribution Group and Senior Vice President-Sales of MicroAge, Inc. (or in a capacity and with a title of at least substantially equivalent quality). Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chief Executive Officer or President of the Company. (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 shall 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 shall commence on the date first above written and shall continue, unless sooner terminated, until November 2, 1997; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the twelve (12) month period commencing on each such day. 1.4 Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2.1 Base Salary. The Company shall pay to Executive an annual base salary of not less that $210,000 (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 Payment. During the period of Executive's employment under this Agreement, Executive shall be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1996 (the "1996 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause 2 the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1996 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1996 Executive Bonus Plan or any such subsequent plan, less any bonus waivers under the 1994 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus". 2.3 Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Designated Members of the Executive Council (as such term is defined in Section 6.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4 Additional Benefits. Executive shall 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 personnel; provided, however, there shall 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 shall be reduced by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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 Designated Members of the Executive Council entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Death Benefit. The Company and Executive have entered into a Split Dollar Insurance Agreement, dated as of September 1, 1995, a copy of which is attached hereto as Exhibit A. (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 shall 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. 3 (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 shall 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 shall, 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 shall be entitled to 20 business days, excluding Company holidays, of paid vacation during each year of employment hereunder which he shall earn in arrears (i.e., Executive shall be entitled to no vacation days during his first year of employment). Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 6.1) of Executive. 3.2 By Executive. Executive shall 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 without Good Reason. 3.3 By Company. The Company shall 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. 4 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 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 shall: (a) pay Executive (or his estate) or beneficiaries any Base Salary which 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 which 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; and in addition, (f) Executive (or his estate) or beneficiaries shall 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 or (y) for Good Reason, the Company shall: (a) pay Executive the Accrued Base Salary; 5 (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 with respect to a prior year which has accrued but has not been paid; and in addition (f) Executive shall 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. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall: (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 Annual Incentive Bonus with respect to a prior year which has accrued but has not been paid; (f) pay Executive commencing on the thirtieth day following the termination date twelve monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary 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). For purposes of this subsection (f), no Annual Incentive Bonus received under the Company's Executive Bonus Plan prior to the 1993 Executive Bonus Plan shall be considered. Should Executive attain alternative employment during the twelve (12) 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 $17,500 per month for twelve (12) 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 $15,000 per month, the Company would be obligated to pay Executive six (6) monthly payments of $17,500, and six (6) monthly payments of $2,500 under this Section 4.3(f); 6 (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) 12 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 termination 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 shall 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 in addition (h) Executive shall have the right to exercise vested options and warrants in accordance with Section 4.1(f). 4.4 Upon Termination by the Company Without Cause Following a Change of Control or by Executive for Good Reason Following a Change of Control. If following a Change of Control, Executive's employment is terminated by the Company Without Cause or by Executive for Good Reason, 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 one hundred fifty percent (150%) of the sum of (1) Executive's Base Salary in effect for the fiscal year immediately prior to the fiscal year in which the Change of Control 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 Change of Control occurs (or if less than two, the amount of his/her single Annual Incentive Bonus, if any). For purposes of this subsection (b), no Annual Incentive Bonus received under the Company's Executive Bonus Plan prior to the 1996 Executive Bonus Plan shall be considered. 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: 7 (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. (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. 8 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), 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. 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 of 12 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, 9 Executive shall: (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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit B, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit B, shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 shall be a work made for hire. In the 10 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit C attached hereto. 5.9 Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of 12 months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the 12 month period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee 11 of any entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology product services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least twelve (12) months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10 Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall 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. 12 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. 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit D hereto. 5.12 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 shall have the following meanings: (a) "Accrued Base Salary" - as defined in Section 4.1(a); (b) "Accrued Benefits" - as defined in Section 4.1(d); (c) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (d) "Accrued Vacation Payment" - as defined in Section 4.1(b); (e) "Annual Incentive Bonus" - as defined in Section 2.2; (f) "Base Salary" - as defined in Section 2.1; (g) "Board" - shall mean the Board of Directors of the Company; (h) "Cause" shall mean the occurrence of any of the following: 13 (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his obligation under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (i) "Change of Control" shall mean and shall be deemed to have occurred if: (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) shall become 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 the Company representing 15 percent or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of the Company owning 15 percent or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25 percent or more of the combined voting power of the Company'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, 14 provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80 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 the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company 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 the Company. (j) "Confidential Information" - as defined in Section 5.1; (k) "Continued Benefits" - as defined in Section 4.3(g); (l) "Designated Members of the Executive Council" - shall mean the members of the Company's Executive Council other than the Chief Executive Officer, President, Vice Chairman of the Board and the Chief Financial Officer; (m) "Expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3; (n) "Good Reason" shall mean the occurrence of any of the following: (i) Material change by the Company in Executive's function, duties or 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 November 4, 1996; (ii) 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 15 there is a material reduction in the benefits that are in effect for the Executive on November 4, 1996 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Designated Members of the Executive Council); (iii) 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; or (iv) 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. (o) "1996 Executive Bonus Plan" - as defined in Section 2.2. (p) "Non-Competition Period" - as defined in Section 5.9(a); (q) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least thirty (30) days prior to the effective date of termination; (r) "Retirement" shall mean normal retirement at age 65; (s) "Termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3; (t) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. 16 6.2 Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall 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 shall 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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit D hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided, however, that (1) either party may seek preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit D shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 D, the Company shall 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 shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 shall have been 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 SECTION 5.11 AND THIS SECTION 6.3(b), TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY, CONSEQUENTIAL AND ANY DAMAGES, OTHER THAN COMPENSATORY DAMAGES. 17 6.4 Successors; Binding Agreement. This Agreement shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.7 Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: If to the Company, to it at: MicroAge, Inc. 2400 South MicroAge Way Tempe, Arizona 85282-1896 Attn: Chief Executive Officer 18 With a copy to: Matthew P. Feeney Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: Christopher J. Koziol 9654 East Ironwood Drive Scottsdale, Arizona 85258 6.8 Assignment. This Agreement and any rights hereunder shall 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 the Exhibit incorporated as a part hereof) constitutes 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 shall 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 shall 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. 19 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Company: MICROAGE, INC. By:/s/ Jeffrey D. McKeever ----------------------------------------- Name: Jeffrey D. McKeever --------------------------------------- Title: Chairman and CEO -------------------------------------- Executive: CHRISTOPHER J. KOZIOL /s/ Christopher J. Koziol ------------------------------------------- 20 EXHIBIT A SPLIT DOLLAR AGREEMENT ---------------------- EXHIBIT B EXECUTIVE'S RIGHTS ------------------ None EXHIBIT C EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None EXHIBIT D DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 6.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least 15 years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30 day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than 5 depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees D-2 and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 6.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. D-3 EX-10.9.1 22 SPLIT DOLLAR INS. AGREE WITH C. J. KOZIOL SPLIT-DOLLAR INSURANCE AGREEMENT -------------------------------- THIS AGREEMENT is made as of this 1st day of September, 1995, by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "Corporation"), and CHRISTOPHER J. KOZIOL (hereinafter referred to as "Insured"). WHEREAS, Insured plans to acquire insurance on his life of under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"); and WHEREAS, Corporation wants to assist Insured by paying all premiums due on the policy; and WHEREAS, Insured will be the owner of the insurance policy and the policy will be assigned to Corporation as security for the repayment of the premiums which Corporation will pay when due on the policy; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: ARTICLE I Insured plans to acquire from the Insurer a policy on the life of the Insured in the face amount of Seven Hundred Fifty Thousand Dollars ($750,000) (hereinafter referred to as the "Policy"). The policy number, face amount and plan of insurance will be recorded on Schedule A attached to this Agreement and the Policy will then be subject to the terms of this Agreement. During the term of this Agreement, Corporation will not exercise nor withhold its consent to the exercise by Insured of any rights, privileges or options conferred by the terms of the Policy, except as otherwise provided in Article V, paragraph C hereof. ARTICLE II All premiums due on the Policy which shall be Fifteen Thousand Three Hundred Eighty-Two Dollars and Fifty-Seven Cents ($15,382.57) per year, shall be paid by Corporation until the first to occur of (i) the death of the Insured, (ii) Insured's termination of employment with Corporation, or (iii) Corporation has paid twenty (20) premium payments. ARTICLE III A. Insured shall execute and deliver a collateral assignment of the Policy to Corporation on a form approved by Insurer, as a security interest for the amounts paid by Corporation towards its share of the premiums to be paid on the Policy in accordance with Article II of this Agreement. In the event of the death of Insured pursuant to Article IV hereof, or in the event of the surrender or acquisition of the Policy pursuant to Article V hereof, such security interest shall be for an amount equal to the total premiums paid by the Corporation (less any outstanding loans to Corporation pursuant to Article III, paragraph B hereof). B. Corporation may not borrow against the Policy's loan value, without the prior written approval of Insured. 2 C. Corporation shall pay all interest with respect to loans made pursuant to subparagraph B; provided, however, that no payment of interest shall constitute a premium payment under this Agreement. D. The term "net cash surrender value" when used in this Agreement shall mean the gross value as determined by Insurer less any outstanding loans made to Corporation and interest then due on such loans. ARTICLE IV In the event of the death of Insured, the proceeds of the Policy shall be divided into two parts and paid by Insurer as follows: Part A - This part shall be paid to Corporation in an amount equal to the Corporation's security interest in the Policy as determined pursuant to Article III, paragraph A hereof. Corporation shall supply Insurer with any information necessary for Insurer to determine such amount. Part B - The balance of the death benefit shall be paid to the beneficiary designated by the Insured. . . . . . . . . . 3 ARTICLE V A. The Insured may, at any time, with the Corporation's prior written consent, surrender the Policy and receive the net cash surrender value thereof. Insured shall pay to Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof, or may authorize and instruct Insurer to pay such amount directly to Corporation. B. The Insured may acquire Corporation's interest in the Policy for an amount equal to the Corporation's security interest in the Policy as determined in Article III, paragraph A hereof upon the Insured's termination of employment with Corporation. C. Except as provided in the collateral assignment or as necessary to protect Corporation's security interest, Insured shall be entitled to exercise all of the rights available under the terms of the Policy, except the Insured may not assign or borrow on the Policy as long as a collateral assignment is in effect on the Policy. ARTICLE VI A. Subject to Article VI, paragraph B below, this Agreement shall terminate upon the occurrence of any of the following: 1. Surrender or acquisition of the Policy by Insured, pursuant to Article V of this Agreement. 2. Cessation of the corporate business. 3. Bankruptcy, receivership or dissolution of Corporation. . . . 4 4. The termination of Insured's employment with the Corporation. 5. The death of Insured. B. If this Agreement is terminated pursuant to Article VI, paragraph A.2 or 3. above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A hereof. Upon receipt of such amounts, Corporation shall thereupon execute and deliver to Insured a release of the collateral assignment of the Policy. C. If this Agreement is terminated pursuant to Article VI, paragraph A.4 above, Insured shall pay Corporation an amount equal to Corporation's security interest in the Policy as determined in Article III, paragraph A above. D. If Insured does not remit the amounts described in paragraph B and C above, within thirty (30) days of the event described in Article VI, paragraph A.2, 3. or 4., then all obligations of Corporation under this Agreement shall be terminated and Insured shall transfer the ownership of the Policy to Corporation. ARTICLE VII Insurer is not a party to this Agreement and the obligations of Insurer are those set forth in the Policy. ARTICLE VIII This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. 5 ARTICLE IX This Agreement may be altered, amended or modified only by written instrument signed by Corporation and the Insured. ARTICLE X This Agreement shall be construed according to the laws of the State of Arizona. ARTICLE XI Insured may add a rider to the Policy for the benefit of his beneficiaries. Upon written request by Corporation, Insured will add a rider to the Policy for the benefit of Corporation. The additional premium for any rider which is added to the Policy will be paid by the party entitled to receive the proceeds of the rider. ARTICLE XII A. The party designated as the "named fiduciary" for the Split-Dollar Plan established by this Agreement shall have the authority to control and manage the operation and administration of such plan; provided, however, the Insurer shall be the fiduciary of the plan solely with regard to the review and final decision on a claim for benefits under its Policy as provided in Article XIII Claims Procedure, set forth below. B. The Fiduciary may allocate his responsibilities for the operation and administration of the Split-Dollar Plan, including the designation of persons to 6 carry out fiduciary responsibilities under any such plan. He shall effect such allocation of his responsibilities by delivering to the Corporation a written instrument signed by him that specifies the nature and extent of the responsibilities allocated, including, the persons who are designated to carry out these fiduciary responsibilities under the Split-Dollar Plan, together with a signed acknowledgement of their acceptance. ARTICLE XIII The following claims procedure shall apply to the Split-Dollar Plan: A. The beneficiary of such Policy shall make a claim for the benefits provided under the Policy in the manner provided in the Policy. B. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials. C. If a claim is wholly or partially denied, notice of the decision, meeting the requirements of paragraph D below, shall be furnished to the claimant within a reasonable period of time after the claim has been filed. D. The Insurer shall provide to any claimant who is denied a claim for benefits, written notice setting forth in a manner calculated to be understood by the claimant, the following: 1. The specific reasons for the denial; 7 2. Specific reference to the pertinent Policy or plan provisions on which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; 4. An explanation of the plan's claim review procedure, as set forth in paragraph E and F below. E. The purpose of the review procedure set forth in this paragraph and in paragraph F below, is to provide a procedure by which a claimant under the Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a claim for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: 1. May request a review upon written application to the Insurer; 2. May review pertinent plan documents or agreements; and 3. May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. F. A decision on review of a denial of a claim shall be made in the following manner: 1. The decision on review shall be made by the Insurer, which may in its discretion hold a hearing on the denied claim. The Insurer shall make 8 its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. 2. The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Policy or plan provision on which the decision is based. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICROAGE, INC., a Delaware Corporation By /s/ James R. Daniel ---------------------------------- Its Senior VP and CFO ------------------------------- By /s/ Christopher J. Koziol ---------------------------------- CHRISTOPHER J. KOZIOL 9 SCHEDULE A Face Amount $750,000 Policy Number 1354488 Plan of Insurance The Northwestern Mutual Life Insurance Company 10 COLLATERAL ASSIGNMENT FORM Appln. No., Contract No. Date this form is signed: or Policy No.:13454488 September 1 1995 Insured: CHRISTOPHER J. KOZIOL Insurance Company: The Northwestern Mutual Life Insurance Company The undersigned request and direct the Insurance Company to make the provisions of this form a part of the policy. All previous designations of payees are hereby revoked. It is hereby requested and directed that: BENEFICIARIES (1) In the event of the death of the Insured, MicroAge, Inc., a Delaware corporation, or its successors ("Corporation"), will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of Corporation's cessation of business, bankruptcy, receivership or dissolution, Corporation will be the direct beneficiary of an amount equal to the premiums paid to the Insurance Company by Corporation for the Policy. In the event of termination of Insured's employment, or the surrender or the acquisition of the Policy, Corporation will be the direct beneficiary of the premiums paid to the Insurance Company by Corporation for the Policy. Any indebtedness by Corporation to the Insurance Company will be deducted first from the share of the proceeds payable to said Corporation as direct beneficiary. It is understood and agreed that the Insurance Company will have the right to rely on any statement signed by said Corporation setting forth said Corporation's share of the premium payments referred to above, and any decision made by Insurance Company in reliance upon such statement will be conclusive and will fully protect the Insurance Company. (2) JAIME KOZIOL if living and married to the Insured on her date of death will be the direct beneficiary of any remaining proceeds, and if she is either not married to Insured or living on Insured's date of death, the proceeds will be payable to Insured's estate. The Insurance Company will be fully discharged of liability for any action taken by the Insured and for all amounts paid to, or at the direction of, the insured and will have no obligation as to the use of the amounts. In all dealings with the Insured, the Insurance Company will be fully protected against the claims of every other person. The Insurance Company will not be charged with notice of a change of beneficiary unless written evidence of the change is received at the Insurance Company's Home Office. OWNERSHIP (3) The owner of the Policy shall be the Insured. The Insured alone may exercise all the rights and privileges specified in the Policy, except the Insured may not assign or borrow on the Policy as long as this Collateral Assignment is in effect. Corporation may assign or borrow against the Policy loan value only with the prior written approval of the Insured. MODIFICATION OF ASSIGNMENT PROVISIONS Upon death of the Insured, the interest of any collateral assignee of Corporation will be limited to the portion of the proceeds described in (1) above. MICROAGE, INC., a Delaware corporation By /s/ James R. Daniel --------------------- Officer /s/ Christopher J. Koziol ------------------------- CHRISTOPHER J. KOZIOL EX-10.9.2 23 AWARD AGREEMENT WITH CHRISTOPHER J. KOZIOL MICROAGE, INC. 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT December 9, 1993 Dear Chris: Pursuant to the action taken by the Board of Directors of MicroAge, Inc. (the "Company") and the Compensation Committee of the Board of Directors, you are hereby offered participation in the 1994 Management Equity Program (the "1994 MEP") under the MicroAge, Inc. Long-Term Incentive Plan (the "Plan"). Under the 1994 MEP, you have the opportunity to receive options to restructure your compensation package to some extent. Essentially, you may elect to purchase shares of the common stock of the Company if you irrevocably elect to waive (1) all or a portion of your 1993 fiscal year bonus (the "1993 Bonus"), and (2) a portion of your base salary and any bonuses you may receive for the 1994, 1995, and 1996 calendar years, and later years if necessary, under the following terms and conditions. BEFORE YOU ELECT TO PARTICIPATE IN THE 1994 MEP, READ THIS AWARD AGREEMENT. YOU WILL BE REQUIRED TO SIGN THIS AWARD AGREEMENT AND YOUR SIGNATURE WILL EVIDENCE THAT YOU HAVE READ THIS AWARD AGREEMENT, UNDERSTAND IT, AND AGREE WITH ITS TERMS AND CONDITIONS. TO PARTICIPATE IN THE 1994 MEP, YOU MUST COMPLETE AND SIGN THIS AWARD AGREEMENT AND RETURN IT TO CRAIG CANTONI BY 12:00 P.M. NOON ON TUESDAY, DECEMBER 14, 1993. 1. EFFECTIVE DATE. The effective date of your participation in the 1994 MEP is December 14, 1993. 2. STOCKHOLDER APPROVAL. The 1994 MEP is subject to stockholder approval of the Plan, which will be sought at the 1994 Annual Meeting of Stockholders. If stockholder approval is not obtained at such meeting, the 1994 MEP will be deemed to have never been implemented and the options thereunder will be deemed to have never been granted. 3. 1993 BONUS WAIVER. You hereby elect to waive all or a portion of your 1993 Bonus in the amount specified in the table below, subject to the limitation described in footnote 6 below. 1993 BONUS WAIVER(1) ================================================================================ 1993 Bonus Waived 1994 Salary Credit Amount(2) Bonus Credit Amount(3) - -------------------------------------------------------------------------------- $49,500 $19,500 $30,000 ================================================================================ - -------- 1 You are not required to waive any of your 1993 Bonus as a condition to participate in the 1994 MEP. Any part of your 1993 Bonus that you elect to waive will be credited against your 1994 salary waiver amount (up to the amount of the Salary Credit Amount) and your 1994 bonus waiver amount, in that order. This "credit" can be carried forward beyond 1994. See Example A attached to this Award Agreement. 2 You may insert any amount from $0 to $19,500 (15% of your Current Base Salary). 3 Computed by subtracting the Salary Credit Amount from the 1993 Bonus Waived. 4. 1994-1996 WAIVER. You hereby elect to waive a portion of your salary and bonuses for the 1994, 1995, and 1996 calendar years in the amounts specified in the tables below (please understand that bonuses for later years may be automatically waived, as may be necessary to make up any deficit (see footnote 5)): 1994-1996 WAIVER TABLE ================================================================================ Year Salary(4) Bonus(5) Total - -------------------------------------------------------------------------------- 1994 $19,500 $30,000 $49,500(6) - -------------------------------------------------------------------------------- 1995 $7,000 $25,000 $32,000 - -------------------------------------------------------------------------------- 1996 $7,000 $20,000 $27,000 - -------------------------------------------------------------------------------- 1993-1996 $33,500 $75,000 $108,500(7) ======== ================================================================================ 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below (to be completed by MicroAge): (1) Total Compensation Waived (1994-1996): $108,500 ------- (2) $108,500 (Total Compensation Waived) Multiplied by Ten (10): $1,085,000 ---------- (3) Common Stock Closing Price Effective Date (December 14, 1993) (the "Common Stock Price"): $24.83 ------ (4) Total Options Granted (2) / (3) (rounded up): 43,692 (See Example C attached to this Award Agreement) ------ - --------------------------- 4 The minimum annual salary waiver amount is $6,500 (5% of your Current Base Salary). The maximum annual salary waiver amount is $19,500 (15% of your Current Base Salary). 5 There is no minimum annual bonus waiver amount. The maximum annual bonus waiver amount is $32,500 (25% of your Current Base Salary). If the bonus amount you elect to waive in any year is more than the bonus actually paid to you for that year (and you do not have a Bonus Credit Amount to apply to the deficit), the deficit amount will be added to your bonus waiver amount for the following year. Deficit amounts will continue to be carried forward until made up or until December 14, 2002. See Example B attached to this Award Agreement. 6 The amount of your 1993 Bonus that you may waive cannot exceed this number. See Example A attached to this Award Agreement. 7 The minimum waiver amount (salary and bonuses combined) for the three-year period (1994-1996) is $65,000 (50% of your Current Base Salary). -2- 6. VESTING OF OPTIONS. Your options will vest in one-third (1/3) increments beginning on the January 1 which is three years following the January 1 of the calendar year for each year you elect to waive base salary and/or bonus amounts. Any amount of your 1993 Bonus that you elect to waive will be used as a credit against future waiver amounts and will be deemed to be waived in the year that such credit is taken. HOWEVER, your options will not fully vest until you have actually waived all of the compensation you agreed to waive. FOR EXAMPLE, the options to be purchased with the compensation you waive in 1994 will vest in 1/3 increments beginning on January 1, 1997 and will be 100% vested on January 1, 1999. Correspondingly, the options to be purchased with the compensation you waive in 1995 will vest in 1/3 increments beginning on January 1, 1998 and will be 100% vested on January 1, 2000, and so on. If you elect to waive a specific amount of your bonuses for the next three years, but do not receive bonuses for the next three years sufficient to cover the amount you agreed to waive (and you do not have a Bonus Credit Amount to apply against the deficit), the bonuses you may be otherwise entitled to receive in later years (up through December 13, 2002) will be used to make up any shortfall on a "first-in, first-out" theory. See Example D attached to this Award Agreement. Notwithstanding the above, your options will become fully vested and exercisable as of December 14, 2002, unless you otherwise terminate employment before such date. 7. EXPIRATION OF OPTIONS. Subject to Section 8 and 9 of this Award Agreement, your options will expire, unless sooner exercised, on December 14, 2003. 8. TERMINATION OF EMPLOYMENT Death. Upon your death, your beneficiary will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your death by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your death will be considered. All options received by your beneficiary will be fully vested and immediately exercisable. Your beneficiary will have up to one year from the date of your death to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you or your beneficiary be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Disability. Upon your termination of employment due to a "Disability" (as that term is defined in the Plan) you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of your termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to one year from the date of termination of employment to exercise the options. After that one year period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. Voluntary or Involuntary. Upon your voluntary or involuntary termination of employment, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination of employment will be considered. Your options will continue to vest under the above vesting schedule as if you continued to be employed by the Company and continued participating in the 1994 MEP. Under no -3- circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 9. TERMINATION OF 1994 MEP. If the Committee decides to terminate the 1994 MEP, you will be entitled to receive a number of options determined by multiplying the sum of your compensation actually waived up to the date of your termination by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of termination will be considered. All options received will be fully vested and immediately exercisable. You will have up to thirty days from the date of such termination to exercise the options. After such thirty day period, the options will be cancelled. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 10. CHANGE OF CONTROL. Upon a "Change of Control" (as that term is defined in the Plan), the terms of Section 13.10 and 14.2 of the Plan will apply to all options issued under the 1994 MEP. Upon a Change of Control, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of the Change of Control by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of the Change of Control will be considered. All options will be fully vested and immediately exercisable. In the event of a dissolution or liquidation of the Company or a merger or consolidation in which the Company would not be the surviving or resulting corporation, you will be entitled to receive the number of options determined by multiplying the sum of your compensation actually waived up to the date of exercise by ten and dividing the product by the Common Stock Price; provided, however, that only the total compensation waived by you up to the date of exercise will be considered. All options will be fully vested and exercisable (a) in the case of a dissolution or liquidation, at anytime after the Company's Board of Directors takes action authorizing the dissolution or liquidation of the Company or (b) in the case of a merger or consolidation in which the Company would not be the resulting or surviving corporation, upon the Company's public announcement that a definitive agreement regarding such a merger or consolidation has been reached. Under no circumstances will you be entitled to receive cash equal to all or any portion of the compensation you elected to waive under the 1994 MEP. 11. COMPANY INFORMATION. By signing this Award Agreement, you acknowledge that you have been given, or were offered, a copy of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the "1993 10-K"), and that you were given an opportunity to ask questions of any of the Company's executive officers (as disclosed on page 7 of the 1993 10-K) regarding the 1993 10- K or any other matter regarding the Company. 12. RISK OF INVESTMENT. By signing this Award Agreement, you recognize that your participation in the 1994 MEP is a speculative investment in that the success or failure of your investment depends on the market value of the Company's Common Stock over a several year period. You further recognize that all or a portion of your investment (i.e., your salary and bonus waiver) may be lost. You also acknowledge that you were given the opportunity to consult with your personal advisor(s) regarding the 1994 MEP. I hereby elect to participate in the 1994 MEP under the terms and conditions set forth above and acknowledge that I have read and understood the terms and conditions of the 1994 MEP. ACCEPTED: MICROAGE, INC. SIGNATURE /s/Christopher J. Koziol BY /s/Jeffrey D. McKeever ------------------------ ------------------------------------ DATE 12/14/93 ITS Chairman and CEO ------------------------ ------------------------------------ SSN ###-##-#### ------------------------ -4- EX-10.9.3 24 FIRST AMENDMENT TO 1994 MEP-CHRISTOPHER J. KOZIOL FIRST AMENDMENT TO THE MICROAGE 1994 MANAGEMENT EQUITY PROGRAM AWARD AGREEMENT FOR CHRISTOPHER J. KOZIOL THIS FIRST AMENDMENT to the Award Agreement dated December 14, 1993 ("Award Agreement"), is entered into by MicroAge, Inc. ("Company"), and Christopher J. Koziol ("Executive") pursuant to the Management Equity Plan ("MEP") under the MicroAge, Inc. Long- Term Incentive Plan ("Plan"), as of December 14, 1995. WHEREAS, the Company and the Executive entered into the Award Agreement effective December 14, 1993, to enable the Executive to acquire an option to purchase Company stock by making salary deferrals; and WHEREAS, the exercise price of the option to purchase Company common stock, $.01 par value ("Common Stock"), under the Award Agreement is $24.83 per share, after giving effect to a 3-for-2 stock split that was payable on January 13, 1994; and WHEREAS, the closing price of the Common Stock on the Nasdaq National Market on December 13, 1995, was $8.75 per share; and WHEREAS, in order to provide a meaningful incentive for the Executive under the MEP, the Compensation Committee of the Company's Board of Directors has reduced the exercise price under the Award Agreement to the current fair market value of the Common Stock. NOW THEREFORE, the Executive and the Company agree as follows: 1. Paragraph 5 of the Award Agreement is hereby amended and restated in its entirety as follows: 1 5. NUMBER OF OPTIONS GRANTED. In exchange for electing to waive the amount of compensation specified in the 1994-1996 Waiver Table in Paragraph 4, above, you are hereby granted an option to purchase the number of shares of MicroAge, Inc. Common Stock calculated pursuant to the formula below: (1) TOTAL COMPENSATION WAIVED (1994-1996) $108,500 (2) $108,500 (TOTAL COMPENSATION WAIVED) MULTIPLIED BY 3.5235483 (THE "LEVERAGING FACTOR") $382,305 (3) COMMON STOCK CLOSING PRICE ON DECEMBER 13, 1995 (THE "COMMON STOCK PRICE") $8.75 (4) TOTAL OPTIONS GRANTED (2) / (3) 43,692 2. Paragraphs 8, 9, and 10 of the Award Agreement shall be amended by deleting the references to the number "ten" and replacing such reference with the phrase "the Leveraging Factor." 3. This First Amendment shall be effective as December 14, 1995. MICROAGE, INC. By: /s/Jeffrey D. McKeever ---------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer /s/Christopher J. Koziol ---------------------------------- Christopher J. Koziol 2 EX-10.11 25 EMPLOYMENT AGREEMENT FORM OF EMPLOYMENT AGREEMENT dated as of November 4, 1996 by and between MICROAGE, INC. and EXECUTIVE TABLE OF CONTENTS
ARTICLE I--DUTIES AND TERM....................................................................... 1 1.1 Employment..................................................................... 1 1.2 Position and Responsibilities.................................................. 1 1.3 Term........................................................................... 2 1.4 Location....................................................................... 2 ARTICLE II--COMPENSATION......................................................................... 2 2.1 Base Salary.................................................................... 2 2.2 Bonus Payment.................................................................. 2 2.3 Stock Options.................................................................. 3 2.4 Additional Benefits............................................................ 3 ARTICLE III--TERMINATION OF EMPLOYMENT........................................................... 4 3.1 Death or Retirement of Executive............................................... 4 3.2 By Executive................................................................... 4 3.3 By Company..................................................................... 4 ARTICLE IV--COMPENSATION UPON TERMINATION OF EMPLOYMENT.......................................... 5 4.1 Upon Termination for Death or Disability....................................... 5 4.2 Upon Termination by Company for Cause or by Executive Without Good Reason......................................................................... 5 4.3 Upon Termination by the Company Without Cause or by Executive for Good Reason......................................................................... 6 4.4 Upon Termination by the Company Without Cause Following a Change of Control or by Executive for Good Reason Following a Change of Control....... 7 ARTICLE V--RESTRICTIVE COVENANTS................................................................. 7 5.1 Confidential Information and Materials......................................... 7 5.2 General Knowledge.............................................................. 8 5.3 Executive Obligations as to Confidential Information and Materials............. 9 5.4 Inform Subsequent Employers.................................................... 9 5.5 Ideas and Inventions........................................................... 9 5.6 Inventions and Patents......................................................... 10 5.7 Copyrights..................................................................... 10 5.8 Conflicting Obligations and Rights............................................. 10 5.9 Non-Competition................................................................ 11 5.10 Non-Disparagement.............................................................. 12 5.11 Remedies....................................................................... 12 5.12 Scope of Article............................................................... 13
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ARTICLE VI--MISCELLANEOUS........................................................................ 13 6.1 Definitions.................................................................... 13 6.2 Key Man Insurance.............................................................. 16 6.3 Mitigation of Damages; Set-Off; Dispute Resolution............................. 17 6.4 Successors; Binding Agreement.................................................. 17 6.5 Modification; No Waiver........................................................ 18 6.6 Severability................................................................... 18 6.7 Notices........................................................................ 18 6.8 Assignment..................................................................... 19 6.9 Entire Understanding........................................................... 19 6.10 Executive's Representations.................................................... 19 6.11 Liability of Company with Respect to Insurance Policy.......................... 19 6.12 Governing Law.................................................................. 19
EXHIBIT A--SPLIT DOLLAR AGREEMENT EXHIBIT B--EXECUTIVE'S RIGHTS EXHIBIT C--EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS EXHIBIT D--DISPUTE RESOLUTION PROCEDURES ii AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of ________________, by and between MICROAGE, INC., a Delaware corporation (the "Company"), and _____________ ("Executive"). R E C I T A L S: - - - - - - - - WHEREAS, the Company and Executive desire to enter into an Employment Agreement. NOW, THEREFORE, in consideration of the premises, and for other valuable consideration, the sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereby agree as follows: A G R E E M E N T: 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 hire 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 shall serve as __________________ of MicroAge, Inc. (or in a capacity and with a title of at least substantially equivalent quality). Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chief Executive Officer or President of the Company. (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 shall 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 shall commence on the date first above written and shall continue, unless sooner terminated, until November 2, 1997; provided, however, that commencing on November 4, 1996 and on each subsequent day thereafter, the Executive's term of employment shall automatically be extended without further action by the Company or Executive for the twelve (12) month period commencing on each such day. 1.4 Location. During the period of his employment under this Agreement, Executive shall 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 shall 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. 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 shall compensate Executive as follows: 2.1 Base Salary. The Company shall pay to Executive an annual base salary of not less than $_______ (such amount, less any salary waivers under the 1994 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 Company 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 shall refer to Base Salary as so adjusted). Executive's Base Salary shall be paid in equal semi-monthly installments. The Base Salary shall 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 Payment. During the period of Executive's employment under this Agreement, Executive shall be entitled to bonus payments, if any shall be due, pursuant to the Executive Bonus Plan which has been established by resolution of the Board for fiscal year 1997 (the "1997 Executive Bonus Plan"). The Company shall use all reasonable efforts to cause the Board or a committee thereof to establish in each fiscal year during the term hereof an executive bonus plan that is similar to the 1997 Executive Bonus Plan in providing for incentive compensation to Executive based on a formula related to the Company's profits during such fiscal year. Any bonus under the 1997 Executive Bonus Plan or any such subsequent plan, less any bonus waivers under the 1997 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company, is referred to herein as the "Annual Incentive Bonus." 2 2.3 Stock Options. The Company shall use all reasonable efforts to establish and maintain one or more stock option plans in which Executive shall be entitled to participate to the same extent as other Designated Members of the Executive Council (as such term is defined in Section 6.1 hereof). The terms and conditions of such plan(s) shall be determined and administered by the Board or a committee thereof. 2.4 Additional Benefits. Executive shall 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 personnel; provided, however, there shall 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 shall be reduced by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue to be provided with benefits at a level which shall 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 Designated Members of the Executive Council entitled to participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive shall receive the following benefits: (a) Death Benefit. Within thirty (30) days of the date of execution of this Agreement, the Company and Executive shall enter into a Split Dollar Agreement. (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 shall 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 shall 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 (6) months. (d) Reimbursement of Business Expenses. The Company shall, 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. 3 (e) Vacations. Executive shall be entitled to 20 business days, excluding Company holidays, of paid vacation during each year of employment hereunder which he shall earn in arrears (i.e., Executive shall be entitled to no vacation days during his first year of employment). Executive may accrue and carry forward no more than five unused vacation days from any particular year of his employment under this Agreement to the next. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 Death or Retirement of Executive. Executive's employment under this Agreement shall automatically terminate upon the death or Retirement (as defined in Section 6.1) of Executive. 3.2 By Executive. Executive shall 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 without Good Reason. 3.3 By Company. The Company shall 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 shall be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.11 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 shall: (a) pay Executive (or his estate) or beneficiaries any Base Salary which has accrued but not been paid as of the termination date (the "Accrued Base Salary"); 4 (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 which 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; and in addition, (f) Executive (or his estate) or beneficiaries shall 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 or (y) for Good Reason, the Company shall: (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 with respect to a prior year which has accrued but has not been paid; and in addition (f) Executive shall 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. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall: 5 (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 Annual Incentive Bonus with respect to a prior year which has accrued but has not been paid; (f) pay Executive commencing on the thirtieth day following the termination date twelve monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary 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). For purposes of this subsection (f), no Annual Incentive Bonus received under the Company's Executive Bonus Plan prior to the 1997 Executive Bonus Plan shall be considered. Should Executive attain alternative employment during the twelve (12) 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 $19,583 per month for twelve (12) 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 $15,000 per month, the Company would be obligated to pay Executive six (6) monthly payments of $19,583, and six (6) monthly payments of $4,583 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) 12 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 termination 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 shall 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 in addition (h) Executive shall have the right to exercise vested options and warrants in accordance with Section 4.1(f). 4.4 Upon Termination by the Company Without Cause Following a Change of Control or by Executive for Good Reason Following a Change of Control. If following a Change of Control, 6 Executive's employment is terminated by the Company Without Cause or by Executive for Good Reason, 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 one hundred fifty percent (150%) of the sum of (1) Executive's Base Salary in effect for the fiscal year immediately prior to the fiscal year in which the Change of Control 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 Change of Control occurs (or if less than two, the amount of his single Annual Incentive Bonus, if any). For purposes of this subsection (b), no Annual Incentive Bonus received under the Company's Executive Bonus Plan prior to the 1997 Executive Bonus Plan shall be considered. 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. (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. 7 (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), 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. 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 8 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 of 12 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 shall: (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 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. Executive agrees that from this date until Executive leaves the Company's employment, Executive shall 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. 9 (a) Assertion of Rights. Executive shall, 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 shall be the property of the Company or its nominees, whether patented or not. Executive shall 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 shall include the right to sue for infringement. (b) Reserved Inventions. Descriptions of all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, innovations and improvements which Executive made, conceived or acquired prior to Executive's employment by the Company and all patents and patent applications relating thereto (collectively referred to as "Executive's Rights") are attached hereto in Exhibit B, and Executive's Rights shall be excluded from this Agreement. Executive represents that the absence of any Executive's Rights in Exhibit B, shall indicate that Executive owns no such Executive's Rights at the time of signing this Agreement. 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 shall 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 shall receive such disclosures in confidence. All such existing obligations and claims of Executive, if any, as of the date of this Agreement are listed on Exhibit C attached hereto. 5.9 Non-Competition. (a) Non-competition. By execution of this Agreement, Executive agrees that during his employment with the Company and for a period of twelve (12) months following the date of expiration or termination of his employment hereunder (the "Non-Competition Period") for any reason (whether such termination shall be voluntary or involuntary), Executive will not, within the United States (in which territory Executive acknowledges that the Company has sold or marketed its products or services and conducted its Business, as defined in Section 5.9(d) as of the date hereof), 10 directly or indirectly, compete with the Company by carrying on a business that is substantially similar to the Business. Executive agrees that the 12 month period referred to in the preceding sentence shall be extended by the number of days included in any period of time during which he is or was engaged in activities constituting a breach of this Section 5.9. (b) Definition of "Compete". For the purposes of this Section 5.9, the term "compete" shall mean with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; (ii) calling on, soliciting, taking away, accepting as a client or customer, or attempting to call on, solicit, take away, or accept as a client or customer, any individual partnership, corporation, company, association, or other entity that was a client or customer of the Company as of immediately prior to the date hereof; (iii) hiring, soliciting, taking away, or attempting to hire, solicit, or take away, either on Executive's behalf or on behalf of any other person or entity, any person serving immediately prior to the date hereof or during the term hereof as an employee in connection with the Business; or (iv) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any individual, partnership, corporation, company, association, or other entity. (c) Direct or Indirect Competition. For the purposes of this Section 5.9, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any entity or enterprise that is competing (as defined in Section 5.9(b) hereof) with the Business, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or stockholder (except as a stockholder holding less than a one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer of the Company or any entity having title to the goodwill of the Company with respect to the Business. (d) Business. For purposes of this Agreement, the term "Business" shall mean the delivery of systems integration services and master distribution of information technology product services, as conducted by the Company immediately prior to the date hereof and/or developed during the term of this Agreement. (e) Executive expressly agrees and acknowledges that: (i) it will require at least twelve (12) months for the Company to locate, hire and train an appropriate individual to perform the functions and duties that Executive is performing hereunder; (ii) the Company has protected business interests throughout the United States and that competition with and against such business interests would be harmful to the Company; 11 (iii) this covenant not to compete is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (iv) the general public will not be harmed as a result of enforcement of this covenant not to compete; (v) his personal legal counsel has reviewed this covenant not to compete; and (vi) he understands and hereby agrees to each and every term and condition of this covenant not to compete (including, without limitation, the provisions of Section 5.11). 5.10 Non-Disparagement. During the term of this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall 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. 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 shall, 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. 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. The remedies set forth in this Section 5.11 shall be included in any award in favor of the Company under Exhibit D hereto. 5.12 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. 12 ARTICLE VI MISCELLANEOUS 6.1 Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Accrued Base Salary" - as defined in Section 4.1(a); (b) "Accrued Benefits" - as defined in Section 4.1(d); (c) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (d) "Accrued Vacation Payment" - as defined in Section 4.1(b); (e) "Annual Incentive Bonus" - as defined in Section 2.2; (f) "Base Salary" - as defined in Section 2.1; (g) "Board" - shall mean the Board of Directors of the Company; (h) "Cause" shall mean the occurrence of any of the following: (i) Executive's gross and willful misconduct which is injurious to the Company; (ii) Executive's engaging in fraudulent conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's standing and reputation; (iii) the continued and unjustified 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 (A) receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, and (B) a reasonable opportunity for Executive to correct such deficiencies; (iv) Executive's use of drugs and/or alcohol in violation of then current Company policy; or (v) Executive's breach of his obligation under Section 1.2(c) hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive. (i) "Change of Control" shall mean and shall be deemed to have occurred if: 13 (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) shall become 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 the Company representing 15 percent or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that, for purposes of this subparagraph, "person" shall exclude the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored by the Company or from Executive or any stockholder owning 15% or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of the Company owning 15 percent or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing 25 percent or more of the combined voting power of the Company'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 the Company'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 the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of the Company and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of the Company 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 the Company. 14 (j) "Confidential Information" - as defined in Section 5.1; (k) "Continued Benefits" - as defined in Section 4.3(g); (l) "Designated Members of the Executive Council" - shall mean the members of the Company's Executive Council other than the Chief Executive Officer, President, Vice Chairman of the Board and the Chief Financial Officer; (m) "Expiration" shall mean the expiration of Executive's employment hereunder in accordance with Section 1.3; (n) "Good Reason" shall mean the occurrence of any of the following: (i) Material change by the Company in Executive's function, duties or 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 January 6, 1997; (ii) 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 January 6, 1997 in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all Designated Members of the Executive Council); (iii) 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; or (iv) 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. (o) "1997 Executive Bonus Plan" - as defined in Section 2.2. (p) "Non-Competition Period" - as defined in Section 5.9(a); (q) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall 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. Each Notice of Termination shall be delivered at least thirty (30) days prior to the effective date of termination; (r) "Retirement" shall mean normal retirement at age 65; 15 (s) "Termination" shall mean the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with Section 1.3; (t) "Total Disability" shall 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 shall be submitted for resolution to a licensed physician agreed upon by the Board and Executive, or if an agreement cannot be promptly reached, the Board and Executive shall promptly select a physician, and if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to Executive's physical or mental condition shall 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" shall mean total disability as defined therein. 6.2 Key Man Insurance. The Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall 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 shall 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 such termination was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise arising out of this Agreement, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit D hereto, the provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement; provided, however, that (1) either party may seek preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable injury during the pendency of such procedures, and (2) nothing in Exhibit D shall prevent either party from exercising the rights of termination set forth in this Agreement. 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 D, the Company shall 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 16 pay or provide hereunder as though such termination were by the Company without Cause or by Executive for Good Reason and shall pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company shall 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 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 shall have been 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 SECTION 5.11 AND THIS SECTION 6.3(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 shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable 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 shall be deemed to have been waived, nor shall 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 shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall 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, shall not affect the validity or enforceability of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.7 Notices. All the notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at the following addresses: 17 If to the Company, to it at: MicroAge, Inc. 2400 South MicroAge Way Tempe, Arizona 85282-1896 Attn: Chief Executive Officer With a copy to: Matthew P. Feeney Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 If Executive, to him at: ---------------------------- ---------------------------- ---------------------------- 6.8 Assignment. This Agreement and any rights hereunder shall 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 the Exhibit incorporated as a part hereof) constitutes 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 shall 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 shall 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. 18 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Company: MICROAGE, INC. By: --------------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Executive: ------------------------------------------ 19 EXHIBIT A SPLIT DOLLAR AGREEMENT ---------------------- EXHIBIT B EXECUTIVE'S RIGHTS ------------------ None EXHIBIT C EXECUTIVE'S EXISTING OBLIGATIONS AND CLAIMS ------------------------------------------- None EXHIBIT D DISPUTE RESOLUTION PROCEDURES ----------------------------- A. If a controversy should arise which is covered by Section 6.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in reasonably specific detail the grounds thereof ("Notice of Controversy"); provided that, in any event, the other party shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable. B. Following receipt of the Notice of Controversy (or the Notice of Counterclaim, as the case may be), there shall be a three week period during which the parties will make a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any action during the Period of Negotiation to initiate arbitration proceedings. C. If the parties should agree during the Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight weeks. D. If the parties agree to mediate the dispute but are thereafter unable to agree within a week on the format and procedures for the mediation, then the effort to mediate shall cease, and the Period of Negotiation shall terminate four weeks from the Notice of Controversy (or the Notice of Counterclaim, as the case may be). E. Following the termination of the Period of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. ("FAA"), and judgment upon the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below (referred to below as the "Arbitration Agreement"). F. A notice of intention to arbitrate ("Notice of Arbitration") shall be served within 45 days of the termination of the Period of Negotiation. If the Notice of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable. G. The arbitration, including the Notice of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association ("AAA") in effect on the date of the Notice of Arbitration, except that the terms of this Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration Agreement. H. The arbitrator shall reach a decision on the merits on the basis of applicable legal principles as embodied in the law of the State of Arizona. The arbitration hearing shall take place in Phoenix, Arizona. I. There shall be one arbitrator, regardless of the amount in controversy. The arbitrator selected, in order to be eligible to serve, shall be a lawyer in Phoenix, Arizona with at least 15 years specializing in either general commercial litigation or general corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, the AAA shall appoint the arbitrator who shall meet the foregoing criteria. J. At the time of appointment and as a condition thereto, the arbitrator will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations. K. During the 30 day period following appointment of the arbitrator, either party may serve on the other a request for limited numbers of documents directly related to the dispute. Such documents will be produced within seven days of the request. L. Following the thirty-day period of document production, there will be a forty-five day period during which limited depositions will be permissible. Neither party will take more than 5 depositions, and no deposition will exceed three hours of direct testimony. M. Disputes as to discovery or prehearing matters of a procedural nature shall be promptly submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference call) or within five business days thereafter. N. Following the period of depositions, the arbitration hearing shall promptly commence. The arbitrator will make every effort to commence the hearing within thirty days of the conclusion of the deposition period and, in addition, will make every effort to conduct the hearing on consecutive business days to conclusion. O. An award will be rendered, at the latest, within nine months of the date of the Notice of Arbitration and within thirty days of the close of the arbitration hearing. The award shall set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably specific detail and shall also specify whether any claim (or defense or counter-claim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section 6.3(b). The award shall be final and nonappealable except as provided in the FAA and except that a court of competent jurisdiction shall have the power to review whether, as a matter of law, D-2 based upon the findings of fact by the arbitrator, the award should be confirmed or should be modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial review shall be limited to issues of law, and the parties agree that the findings of fact made by the arbitrator shall be final and binding on the parties and shall serve as the facts to be relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. The award may only be made for compensatory damages, and if any other damages (whether exemplary, punitive, consequential, statutory or other) are included, the award shall be vacated and remanded, or modified or corrected, as appropriate to promote this damage limitation; provided, however, that an award in favor of the Company shall include the relief set forth in Section 5.11. D-3 EX-10.13 26 PROPOSED RESOLUTIONS OF COMPENSATION COMMITTEE PROPOSED RESOLUTIONS OF THE COMPENSATION COMMITTEE OF MICROAGE, INC. TO APPROVE FISCAL YEAR 1997 BONUS COMPENSATION FORMULA FOR CERTAIN EXECUTIVE OFFICERS DECEMBER 4, 1996 WHEREAS, Jeffrey D. McKeever, Robert G. O'Malley, James R. Daniel, and James G. Manton are Executives of the Company (the "Executives"); and WHEREAS, the Company desires to retain the Executives in the employ of the Company and affiliated companies and to encourage their incentive and personal interest in the success of the Company and to reward exceptional effort and performance. NOW, THEREFORE, BE IT RESOLVED, that if each Executive is employed by the Company for the entire Fiscal Year 1997 in the same position held by such Executive on December 4, 1996, or in a substantially equivalent line function, then, (a) in the event that the Company's Fiscal Year 1997 Plan Earnings (the "Plan") are less than FIFTY PERCENT (50%) achieved, such Executive would be awarded no bonus, and (b) in the event that the Plan is greater than FIFTY PERCENT (50%) achieved, such Executive would be awarded a bonus equal to ONE PERCENT (1%) of such Executive's Fiscal Year 1997 base salary (such Executive's "Base Salary") for each whole percentage point that the Company's Fiscal Year 1997 earnings exceed FIFTY PERCENT (50%) of Plan (e.g., (i) if the Plan is SEVENTY-FIVE PERCENT (75%) achieved, such Executive would be awarded a bonus that would be TWENTY-FIVE PERCENT (25%) of such Executive's Base Salary and (ii) if the Plan is ONE HUNDRED AND FIFTY PERCENT (150%) achieved, such Executive would be awarded a bonus that would be ONE HUNDRED PERCENT (100%) of such Executive's Base Salary); provided, however, that the Compensation Committee, in its sole discretion, and considering such factors as the Compensation Committee deems appropriate, including, without limitation, such Executive's contributions to the Company's Fiscal Year 1997 financial performance, may reduce or increase such Executive's bonus, as calculated pursuant to clause (b), in such amount as the Compensation Committee deems appropriate. ****** PROPOSED RESOLUTIONS OF THE COMPENSATION COMMITTEE OF MICROAGE, INC. TO APPROVE FISCAL YEAR 1997 BONUS COMPENSATION FORMULA FOR CERTAIN EXECUTIVE OFFICERS DECEMBER 4, 1996 WHEREAS, Alan P. Hald, John S. Lewis, Christopher J. Koziol, and John H. Andrews are Executives of the Company (the "Executives"); and WHEREAS, the Company desires to retain the Executives in the employ of the Company and affiliated companies and to encourage their incentive and personal interest in the success of the Company and to reward exceptional effort and performance. NOW THEREFORE, BE IT RESOLVED, that if each Executive is employed by the Company for the entire Fiscal Year 1997 (or, in the case of Mr. Lewis, from January 6, 1997 through the end of Fiscal Year 1997) in the same position held by such Executive on December 4, 1996 (or, in the case of Mr. Lewis, on January 6, 1997), or in a substantially equivalent line function, then, in the event that the Company's Fiscal Year 1997 Plan Earnings (the "Plan") are less than FIFTY PERCENT (50%) achieved, such Executive would be awarded no bonus (whether a MicroAge Bonus or a Business Group Bonus, as such terms are hereinafter defined); and further RESOLVED, that if each Executive is employed by the Company for the entire Fiscal Year 1997 (or, in the case of Mr. Lewis, from January 6, 1997) in the same position held by such Executive on December 4, 1996 (or, in the case of Mr. Lewis, on January 6, 1997) or in a substantially equivalent line function, then, in the event that the Plan is greater than FIFTY PERCENT (50%) achieved, such Executive would be awarded a bonus (the "MicroAge Bonus") equal to ONE-HALF PERCENT (1/2%) of such Executive's Fiscal Year 1997 base salary, or in the case of Mr. Lewis, 10/12 of Mr. Lewis' Fiscal Year 1997 base salary (such Executive's "Base Salary") for each whole percentage point that the Company's Fiscal Year 1997 earnings exceed FIFTY PERCENT (50%) of Plan (e.g., (i) if the Plan is EIGHTY PERCENT (80%) achieved, such Executive would be awarded a MicroAge Bonus that would be FIFTEEN PERCENT (15%) of such Executive's Base Salary and (ii) if the Plan is ONE HUNDRED AND FIFTY PERCENT (150%) achieved, such Executive would be awarded a MicroAge Bonus that would be FIFTY PERCENT (50%) of such Executive's Base Salary); provided, however, that the Compensation Committee, in its sole discretion, and considering such factors as the Compensation Committee deems appropriate, including, without limitation, such Executive's contributions to the Company's Fiscal Year financial performance, may reduce or increase such Executive's MicroAge Bonus, as calculated pursuant to clause (b) of this Resolution, in such amount as the Compensation Committee deems appropriate; and FUTHER RESOLVED, that if each Executive is employed by the Company for the entire Fiscal Year 1997 (or, in the case of Mr. Lewis, from January 6, 1997) in the same position held by such Executive on December 4, 1996 (or, in the case of Mr. Lewis, on January 6, 1997), or in a substantially equivalent line function, then, (a) in the event that the Target Goal of Income Before Taxes and Extraordinary Items of such Executive's Business Group (such Executive's "Business Group Goal") is less than FIFTY PERCENT (50%) achieved, such Executive would be awarded no Business Group Bonus (as hereinafter defined), and (b) in the event such Executive's Business Group Goal is greater than FIFTY PERCENT (50%) achieved, such Executive would be awarded a bonus (the "Business Group Bonus") equal to ONE-HALF PERCENT (1/2%) of such Executive's Base Salary for each whole percentage point that exceeds FIFTY PERCENT (50%) of such Executive's Business Group Goal (e.g., (i) if such Executive's Business Group Goal is EIGHTY PERCENT (80%) achieved, such Executive would be awarded a Business Group Bonus that would be FIFTEEN PERCENT (15%) of such Executive's Base Salary and (ii) if such Executive's Business Group Goal is ONE HUNDRED AND FIFTY PERCENT (150%) achieved, such Executive would be awarded a Business Group Bonus that would be FIFTY PERCENT (50%) of such Executive's Base Salary; provided, however, that the Compensation Committee, in its sole discretion, and considering such factors as the Compensation Committee deems appropriate, including, without limitation, such Executive's contributions to such Executive's Business Group Goal, may reduce or increase such Executive's Business Group Bonus, as calculated pursuant to clause (b), in such amount as the Compensation Committee deems appropriate; and FURTHER RESOLVED, that the Executives' Business Group Bonuses will be tied to the following Business Groups: Alan P. Hald (MicroAge Enterprises, Inc.); John S. Lewis (Integration Group); Christopher J. Koziol (Distribution Group); and John H. Andrews (Logistics Group). EX-10.22.3 27 THIRD AMENDMENT TO RETIREMENT PLAN THIRD AMENDMENT TO THE MICROAGE, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust (the "Plan"), as amended and restated by a document effective as of January 1, 1995 and as further amended by the First Amendment dated May 10, 1995 and the Second Amendment dated March 14, 1996, is hereby further amended as follows: 1. All of the changes made to the Plan by this Third Amendment are effective as of October 28, 1996. 2. A new Section 2.26A is added to Article 2. The new Section 2.26A shall read as follows: 2.26A Executive Supplemental Savings Plan or ESSP. The term "Executive Supplemental Savings Plan" or "ESSP" means the MicroAge, Inc. Executive Supplemental Savings Plan, as it may be amended from time to time. 3. A new Section 2.37A is added to Article 2. The new Section 2.37A shall read as follows: 2.37A Leadership Team. The term "Leadership Team" means the group of officers of the Employer who hold the positions and titles of Vice President and above. 4. Section 4.02 is hereby amended by adding the following paragraph (e) to the end thereof: (e) Special Rules for Leadership Team Members. No Participant who is a member of the Leadership Team shall be allowed to make Elective Deferrals directly to this Plan. Following the end of each Plan Year, however, Elective Deferrals may be made on behalf of such Participants by a direct transfer to the Trustee from the trustee of the ESSP. The amount of Elective Deferrals transferred to this Plan from the ESSP on behalf of each such Participant shall not exceed the lesser of (i) the dollar limitation imposed by Section 402(g) 1 of the Code for such year or (ii) the maximum amount that may be transferred to this Plan without causing this Plan to violate the ADP limitations described in Section 4.02(c) for the Plan Year. (i) For purposes of determining the amount referred to in clause (ii) of the preceding sentence, the Advisory Committee shall first calculate the ADP test referred to in Section 4.02(c) on the assumption that each Leadership Team member who also is a Participant in this Plan elected to make no Elective Deferrals. (ii) If, but only if, the calculation made pursuant to the preceding subparagraph (i) reveals that the Elective Deferrals of those Highly Compensated Employees who are not Leadership Team members are less than the maximum amount of Elective Deferrals that could be made by all Highly Compensated Employees (including Leadership Team members who are Participants in this Plan), Elective Deferrals shall then be transferred to this Plan from the ESSP on behalf of each Leadership Team member who is a Participant and who has elected to have such transfer made. (iii) The amount transferred to this Plan from the ESSP on behalf of each electing Participant who also is a Leadership Team member shall equal the lesser of (A) the amount available for transfer pursuant the ESSP for the relevant Plan Year or (B) an amount equal to the Participant's Compensation for the Plan Year multiplied by the "maximum ADP" for the group consisting of Leadership Team members who also are Participants in this Plan (calculated in accordance with the principles set forth in Section 4.02(c)(iii)(B)). For purposes of the preceding sentence, the "maximum ADP" is the highest ADP that could be contributed by Leadership Team members who also are Participants in the Plan without requiring the return of any Excess Contributions pursuant to Section 4.02(d). In making this determination, the Advisory Committee may increase the maximum ADP of the remaining Leadership Team members if others will not be transferring the maximum amount permitted. (iv) Prior to the first day of each Plan Year each Participant who also is a Leadership Team member shall file an irrevocable, written election with the Advisory Committee and the Plan Administrator of the ESSP to either (a) transfer the amount calculated pursuant to subparagraph (iii) to this Plan or (b) to receive a cash distribution of said amount from the ESSP. Such election shall continue to apply from year to year unless and until the Participant changes the election by filing a new election. A new election shall only be effective with respect to Plan Years beginning after the day on which 2 such election is received by the Advisory Committee and the Plan Administrator of the ESSP. (v) As soon as possible following the end of each Plan Year, the Advisory Committee will calculate the amount that may be transferred to this Plan from the ESSP and shall notify the Plan Administrator of the ESSP. Such transfers shall be accomplished no later that two and one-half (2 1/2) months following the end of the Plan Year and the amounts transferred shall be treated as Elective Deferrals for the preceding Plan Year for all purposes (including, but not limited to, Section 4.03). 5. Section 2.46 of the Plan is amended in its entirety to read as follows: 2.46 Plan Year. The term "Plan Year" shall mean the twelve (12) consecutive month period ending June 30; however, a "short Plan Year" will begin July 1, 1995 and end on October 29, 1995 (the last day of the company's fiscal year). After such short Plan Year, the Plan Year will end each year on the same day as the Company's fiscal year, i.e., the Sunday closest to October 31. The Plan Year shall constitute the Plan's "limitation year" for the purpose of measuring maximum allocations to participants under the Plan. 6. Except as otherwise amended above, the Plan, as amended by the First and Second Amendments, shall continue in full force and effect. To signify its adoption of this Third Amendment, MicroAge, Inc. has caused this Third Amendment to be executed by its duly authorized officer on this26th day ofSeptember, 1996. MicroAge, Inc. By: /s/ Jeffrey D. McKeever ----------------------------------- Its: Chairman and CEO ----------------------------------- 3 EX-10.23.4 28 FOURTH AMENDMENT TO RETIREMENT PLAN FOURTH AMENDMENT TO THE MICROAGE, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust (the "Plan"), as amended and restated by a document effective as of January 1, 1995 and amended by the First Amendment dated May 10, 1995, the Second Amendment dated March 14, 1996, and the Third Amendment dated November 4, 1996, is hereby further amended as follows: 1. All of the changes made to the Plan by this Fourth Amendment are effective for distributions made on or after the date of execution. 2. This Fourth Amendment replaces Section 6.11(b) of the Plan. The new Section 6.11(b) shall read as follows: (b) No withdrawal of Elective Deferrals shall be made prior to the Participant's disability, retirement, or severance of employment, except where the Participant evidences a financial hardship. Withdrawals shall be limited solely to Elective Deferrals for all Plan Years without regard to earnings on such Elective Deferrals and without regard to Qualified Matching Contribution and Qualified Nonelective Contributions. Notwithstanding the preceding sentence, if a Participant's December 31, 1988 account attributable to Elective Deferrals (the "frozen amount") suffers a loss subsequent to December 31, 1988 that brings the value of the account below the frozen amount, then the Qualified Matching Contributions, and Qualified Nonelective Contributions and earnings may be withdrawn due to financial hardship to the extent necessary to reach the frozen amount. All requests for a hardship withdrawal shall be made to the "Hardship Withdrawal Committee". The "Hardship Withdrawal Committee" shall consist of the Employer's Chief Financial Officer, its principal Human Resources executive and a third member who shall be selected by the previously named members. Amounts may be withdrawn pursuant to this Section 6.11(b) only if the Participant experiences an immediate and heavy financial need and the withdrawal is necessary to satisfy the financial need. 1 (i) Immediate and Heavy Financial Need. The Hardship Withdrawal Committee shall determine whether the Participant has an immediate and heavy financial need based on all of the relevant facts and circumstances. Generally, for example, the need to pay funeral expenses of a spouse or lineal ascendant or descendant of the Participant would constitute an "immediate and heavy financial need", but the need for funds for a totally discretionary expenditure (such as the purchase of a boat) would not. The following expenses or circumstances will be deemed to give rise to an immediate and heavy financial need for purposes of this Section 6.11(b) regardless of whether the general standards set out above are satisfied: (A) Medical expenses described in Code Section 213(d) necessary to obtain medical care for the Participant, his spouse or dependents; or (B) Purchase (excluding mortgage payments) of a principal residence for the Participant; or (C) Payment of the next twelve (12) months' tuition, room and board, and education-related expenses for a post-secondary education for the Participant, his spouse or dependents; or (D) Prevention of the eviction from or foreclosure on the Participant's principal residence; or (E) Any other circumstance or expense designated by the Commissioner of Internal Revenue as a deemed immediate and heavy financial need in any published revenue ruling, notice or other document of general applicability. (ii) Necessary to Satisfy an Immediate and Heavy Financial Need. The withdrawal request will be considered to be necessary to satisfy an immediate and heavy financial need of a Participant only if the need may not be satisfied from other resources that are reasonably available to the Participant, and the withdrawal does not exceed the amount needed to satisfy the need. The Hardship Withdrawal Committee shall consider all relevant facts and circumstances in determining whether a hardship withdrawal is necessary in order to satisfy an immediate and heavy financial need. Generally, a withdrawal shall be considered necessary if the Participant represents to the Hardship Withdrawal Committee that the need cannot be relieved through reimbursement or compensation by insurance or otherwise, by the reasonable liquidation of the Participant's assets (to the extent that such liquidation would not itself cause an immediate and heavy financial need), by 2 cessation of elective pre-tax contributions or after-tax contributions under this or any other plan sponsored by the Employer, or by other distributions or nontaxable loans under this or any other plan sponsored by the Employer. A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant if all of the following requirements are satisfied, regardless of whether the general standards set forth above are met: (A) The amount requested for distribution is not in excess of the amount of the immediate and heavy financial need of the Participant; (B) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (C) All plans sponsored by the Employer provide that the Participant's contributions (whether made on a pre-tax of after-tax basis) will be suspended for at least twelve (12) months after receipt of the distribution; and (D) All plans sponsored by the Employer provide that the Participant may not make elective pre-tax contributions for the calendar year immediately following the calendar year in which the distribution for the hardship withdrawal is made in excess of the applicable limit in effect for such year under Code Section 402(g) less the amount of the Participant's pre-tax elective contributions for the calendar year in which the hardship withdrawal is made. If the Hardship Withdrawal Committee determines that a Participant's request for a hardship withdrawal meets the requirements set forth in this Section 6.11(b), then the Hardship Withdrawal Committee shall direct the Trustee to pay such amounts to the Participant upon receipt from the Participant of such written request or form as may be required by the Hardship Withdrawal Committee. In determining the amount of the withdrawal, the Hardship Withdrawal Committee may include the amount of any taxes and penalties which the Participant must pay with respect to the distribution. The Hardship Withdrawal Committee may rely upon any representations made by the Participant concerning the Participant's intended use of funds distributed to the Participant pursuant to this Section 6.11(b) and the urgency of any intended expenses or any other matters relevant to the Hardship Withdrawal Committee's determinations of the Participant's request. 3 3. Except as otherwise amended above, the Plan, as amended by the previous three amendments, shall continue in full force and effect. To signify its adoption of this Fourth Amendment, MicroAge, Inc. has caused this Fourth Amendment to be executed by its duly authorized officer on this 4th day of December, 1996. MICROAGE, INC. By:/s/ Jeffrey D. McKeever --------------------------------- Jeffrey D. McKeever Its: Chairman of the Board and Chief Executive Officer 4 EX-10.38 29 FORM OF PURCHASING AGREEMENT FORM OF PURCHASING AGREEMENT TERMS & CONDITIONS 1. Agreement to Purchase. MICROAGE COMPUTER CENTERS, INC. (the "Company") distributes and sells to authorized customers, computer hardware and related products (collectively the "Products") supplied by various vendors ("Vendors"). The "Purchaser" (identified on the Application and below) agrees to purchase and resell the Products in accordance with the terms and conditions of this Agreement and the Company's general policies and procedures as outlined in the Price Guide and the Business Builder Resource Guide (collectively the "BBRG"), subject to, and contingent upon, availability of the Product and receipt by the Company of Vendor authorization if required. 2. Business Location and Name. The Company shall ship all Products to the address designated by the Purchaser. The Purchaser shall notify the Company of any change in Purchaser's business location or business name. Until a Vendor which requires authorization provides the Company with approval to do so, the Company shall not be obligated to ship to the new location or business name. 3. Product Ordering and Shipment Terms and Conditions. The Company's general policies and procedures as outlined in the BBRG shall contain the terms and conditions by which the Products shall be ordered and shipped. The Company shall have the right to allocate its available products among its customers in such manner as the Company deems equitable. The Purchaser shall comply with the terms of this Agreement, the general policies and procedures as outlined in the BBRG, and the standards and specifications established by its Vendors, as each may be modified from time to time. 4. Product Cost. The purchase price for the Products and other terms and conditions of sale shall be as set forth in the applicable BBRG. The Purchaser shall make payment to the Company as outlined in the BBRG. The Company may grant, modify, or revoke credit in the Company's sole discretion. Also, in its sole discretion, the Company may modify the purchase price for the Products or the time or manner of payment and/or invoicing procedures in accordance with policies and procedures announced periodically or as contained in the general policies and procedures as outlined in the BBRG. Delinquent payments shall be subject to a service charge, of the lesser of one and one-half percent (1-1/2%) or the highest applicable legal rate allowed, on the delinquent amount due per month, until paid. Should the Purchaser become delinquent in any payment due the Company or its affiliates, the Company may in its sole discretion (with or without notice) suspend acceptance of orders from, or shipments to, the Purchaser. 5. Independent Businessperson. The parties agree that each of them is an independent business and that their only relationship is by virtue of this Agreement. Neither party is liable or responsible for each other's debts or obligations. The Company and the Purchaser agree that neither of them will hold itself out to be the agent, partner, franchisee, joint venturer, employer or related party of the other. 6. Indemnification. The Purchaser shall indemnify and hold harmless the Company from all fines, suits, proceedings, claims, demands or action of any kind or nature, or from any third party whomsoever, arising or growing out of, or otherwise connected with, the Purchaser's business. 7. Price Guide. The BBRG may be published in one or more media, including printed and electronic. The Company reserves the right to change the policies and procedures outlined in the BBRG, which changes shall be effective when notice shall have been sent to the Purchaser. The master copy of the BBRG maintained by the Company at its principal office shall be controlling in the event of a dispute relative to the content of any provision therein. 8. Purchaser Criteria. The Purchaser acknowledges and represents that: (i) its execution of this Agreement does not violate the terms of any other dealer/distributor agreement it is a party to; (ii) at no time during discussions concerning this Agreement did the Company induce the Purchaser to terminate or impair any existing contract it may have; and (iii) the Purchaser represents that it possesses any authorization required by the Vendors for the sale of the Products. The Purchaser shall maintain said Vendor authorization(s) in good standing during the terms of this Agreement. 9. Proprietary Markets and Trademarks. The Purchaser acknowledges that the Company's trademarks, including without limitation, MICROAGE and ecAdvantage, are the Company's sole and exclusive property, and that the Purchaser is specifically prohibited from using the Company's trademarks in any manner or for any purpose. 10. Mutual Right to Terminate. Either party may terminate this Agreement at any time, with or without cause, and in its sole and absolute discretion, upon thirty (30) days' prior written notice to the other party. This Agreement shall terminate immediately upon the expiration or termination of the master vendor agreement between the Company and the Vendor(s). Upon any termination or expiration of the Agreement, each party shall pay to the other all amounts or accounts payable then owed and unpaid between the parties, if any, within fifteen (15) calendar days of the effective date of such termination or expiration. 11. Assignment. The Purchaser may not sell, transfer or assign this Agreement, in whole or in part, or any of the rights hereunder unless the Purchaser obtains the Company's prior written consent. 12. Confidentiality. The Purchaser shall maintain the confidentiality of all elements of the distribution system, the Agreement, the BBRG and the Company's methods of doing business. 13. Miscellaneous Provisions. 13.1 Applicable manufacturer's warranties are passed through to the Purchaser's end users. THE COMPANY HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF NON-INFRINGEMENT AND IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. TO THE GREATEST EXTENT ALLOWABLE UNDER LAW, THE COMPANY SHALL NOT BE LIABLE TO THE PURCHASER OR ANY THIRD PARTY FOR CONSEQUENTIAL, INDIRECT, SPECIAL, OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF DATA, TIME OR PROFITS EVEN IF THE COMPANY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 13.2 This Agreement may be modified only upon execution of a written agreement executed by the parties. No waiver of any condition or covenant contained in this Agreement, or failure to exercise a right or remedy of the Company or the Purchaser, shall be considered to imply or constitute a further waiver by the waiving party of the same or any other condition, covenant, right or remedy. 13.3 The validity and construction of this Agreement shall be governed by the internal laws of the State of Arizona. The 1980 U.N. Convention on Contracts for the International Sale of Goods is specifically rejected and does not apply to any transaction under this Agreement. If any of the terms of this Agreement are inconsistent with the applicable state statutes, then state statutes will supersede such terms. If a claim is asserted in any legal proceeding, the Purchaser and the Company agree to irrevocably submit to the jurisdiction of the Superior Court of the State of Arizona and the Federal District Court for the District of Arizona, and irrevocably agree that venue for any action or proceeding shall be in Maricopa County, Arizona. Both parties waive any objection to the jurisdiction of these courts or to venue in Maricopa County, Arizona. In the event an action is brought to enforce this Agreement, the prevailing party shall be entitled to its costs and reasonable attorneys' fees. 13.4 All notices required to be given under this Agreement shall be given in writing, by certified mail, return receipt requested, at the address of the parties contained in the Program Application, or to such other addresses as the Company or the Purchaser may designate in writing from time to time, and shall be effectively given five (5) business days after deposit in the United States mail, postage prepaid. 13.5 These terms and conditions contain the entire agreement between the parties and supersede any and all prior agreements, if any, between the parties concerning the subject matter hereof. The Purchaser agrees and understands that the Company shall not be liable or obligated for any verbal representations made. The Company does not authorize and will not be bound by any representation of any nature other than those expressed in this Agreement. 13.6 The undersigned certifies that the Federal Taxpayer Identification Number provided on the Application is correct and that the Purchaser is not subject to back-up withholding. 13.7 The statements provided in this Application and in the attached documents are true and complete to the best of the Purchaser's knowledge. The Company may contact any person or business outlined in this Application for the purpose of verifying the discreet information submitted; and the Purchaser agrees to authorize any such person or business to release any information to the Company which may be required to effect such verification. The individual signing this Agreement represents that the Purchaser (if applicable) is a valid corporation in good standing. By signing this Agreement, the Company and the Purchaser agree that a facsimile of the signed Agreement may be construed and accepted as valid, enforceable and binding on the parties hereto. PURCHASER (Complete name of corporation, partnership or sole proprietorship) By (Signature of Corporate Officer, Partner or Owner) Print Name Title Date MICROAGE COMPUTER CENTERS, INC. By Title Date EX-10.47 30 PURCHASE AND SALE AGREEMENT LAND PURCHASE AND SALE AGREEMENT SELLER: CMD SOUTHWEST INC. PURCHASER: MICROAGE COMPUTER CENTERS, INC. (Option Land Parcel) 07/26/86 PURCHASE AND SALE AGREEMENT This AGREEMENT is made on the 8th day of August, 1996, between CMD SOUTHWEST INC., an Arizona corporation ("Seller"), and MICROAGE COMPUTER CENTERS, INC., a Delaware corporation ("Purchaser"). The parties hereto hereby agree as follows: 1. Purchase and Sale. Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, that certain real property described on Exhibit A attached hereto and made a part hereof ("Property"), for a total purchase price equal to the product of (a) Five and 00/100 dollars ($5.00), and (b) the number of Net Square Feet (as hereinafter defined) of the Property ("Purchase Price"), subject and according to the terms and conditions set forth in this Agreement. 2. Earnest Money Deposit. Simultaneously with the execution and delivery of this Agreement by Seller and Purchaser, (a) Seller and Purchaser shall each execute and deliver to each other and Chicago Title Insurance Company ("Escrow Agent") a written escrow agreement between Seller, Purchaser and Escrow Agent identical in form and substance to Exhibit B hereto ("Earnest Money Escrow Agreement"), and (b) Purchaser shall deliver to Escrow Agent an amount equal to Fifty Thousand and 00/100 Dollars ($50,000.00) ("Earnest Money Deposit"). The Earnest Money Deposit, together with any interest thereon, shall be invested, maintained and disbursed pursuant to the terms of the Earnest Money Escrow Agreement and this Agreement. 3. Title. Seller shall deliver to Purchaser within fifteen (15) days of the latest of each of the dates set forth after the signatures of each of the parties hereto ("Effective Date") a commitment for an ALTA Form B Owner's Title Insurance Policy ("Title Commitment") for the Property issued by Chicago Title Insurance Company ("Title Insurer") in the amount of the Purchase Price covering title to the Property and showing Seller as owner of the Property in fee simple. 4. Survey. Seller shall deliver to Purchaser within twenty (20) days of the Effective Date an updated survey of the Property prepared in accordance with the 1992 "Minimum Standard Detail Requirements for Land Title Surveys" jointly established and adopted by ALTA and ACSM meeting the accuracy standards of an Urban Survey ("Survey") prepared and certified by a surveyor licensed by the State of Arizona and certified to Purchaser and Title Insurer which sets forth the legal description of the Property and depicts the Property and all improvements, encroachments, easements, building lines and other similar restrictions of record. The Survey shall include the net square feet of the Property ("Net Square Feet"), defined as the gross square feet of the Property, including fractional square feet, less the number of square feet falling within any public right of ways on the Property. 5. Environmental Report. Seller shall deliver to Purchaser within twenty (20) days of the Effective Date an updated "Phase I" environmental report ("Environmental Report") prepared by an engineer licensed by the State of Arizona setting forth a description of the environmental condition of the Property. 6. Representations and Warranties. (a) Representations and Warranties of Seller. In order to induce Purchaser to execute, deliver and perform the obligations of Purchaser hereunder, Seller hereby makes the representations and warranties set forth in this Section 6(a) to Purchaser on and as of the Effective Date. (i) Seller has full capacity, right, power and authority to execute, deliver and perform its obligations under this Agreement, and all required action and approvals therefor have been duly taken and obtained. (ii) The individuals signing this Agreement on behalf of Seller are duly authorized to sign the same on behalf of Seller and to bind Seller thereto. (iii) Seller has not received any written notice of any pending condemnation actions against the Property. (iv) Seller has not received any written notice of any violation of applicable laws regulating the use, storage, handling or disposal of substances (A) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act or listed pursuant to Section 307 of the Clean Water Act,(B) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, (C) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, or (D) subject to regulations as a hazardous chemical substance pursuant to Section 6 of the Toxic Substances Control Act. (b) Representations and Warranties of Purchaser. In order to induce Seller to execute, deliver and perform the obligations of Seller hereunder, Purchaser hereby makes the representations and warranties set forth in this Section 6(b) to Seller on and as of the Effective Date. (i) Purchaser has full capacity, right, power and authority to execute, deliver and perform its obligations under this Agreement, and all required action and approvals therefor have been duly taken and obtained. (ii) The individuals signing this Agreement on behalf of Purchaser are duly authorized to sign the same on behalf of Purchaser and to bind Purchaser thereto. (c) Survival. All of the representations and warranties contained in this Section 6 shall survive the Closing (as hereinafter defined) for a period of six months. 7. General Covenants. During the period beginning on the Effective Date and ending on the Closing Date or the earlier termination of this Agreement according to the terms hereof, Seller will comply with each of the covenants set forth in this Section 7 without cost or expense to Purchaser. (a) Liens and Encumbrances. Seller will not convey any interest in the Property to any person or entity, or intentionally encumber the Property, without the prior written consent of Purchaser. (b) Alterations. Seller will not make any improvements to the Property, without the prior written consent of Purchaser. 8. Conditions Precedent. The obligation of Purchaser to close the transaction contemplated under this Agreement is, unless waived in writing by Purchaser, subject to Purchaser's determination, in Purchasers sole and absolute discretion, that the Property is desirable for Purchasers intended purpose on or before the date which is forty five (45) days after the Effective Date ("Contingency Period"). Purchaser may, at its option, elect to terminate this Agreement by delivering written notice to Seller prior to the expiration of the Contingency Period, in which event the Earnest Money Deposit, together with all interest thereon shall forthwith be returned to Purchaser), all obligations of the parties under this Agreement shall cease and this Agreement shall be of no further force and effect. If Purchaser fails to deliver to Seller any written notice of such election to terminate prior to the expiration of the Contingency Period, Purchaser shall be deemed to have accepted the condition of the Property and to have waived any condition precedent to Closing. 9. Closing. (a) Closing Place. The consummation of the purchase and sale of the Property subject and according to the terms of this Agreement ("Closing") shall occur at the office of Title Insurer. (b) Closing Date. The Closing shall occur on the date which is thirty (30) days after the expiration of the Contingency Period, or on any other date prior to such date which is agreed upon by Seller and Purchaser in writing ("Closing Date"). (c) Delivery of Documents. On the Closing Date, Seller and Purchaser shall deliver the following documents and other items to the following parties: (i) Seller Documents. Seller shall deliver or cause to be delivered to Purchaser the items set forth in this subsection (i). (A) Deed. A special warranty deed to the Property in the form and substance shown on Exhibit "G" attached hereto and made a part hereof, duly executed by Seller. (B) Non-Foreign Certifications. A certificate duly executed by Seller setting forth the address and federal tax identification number of Seller and certifying that Seller is a ("United States Person") and not a "foreign person" in accordance with and for the purpose of the provisions of Sections 7701 and 1445 (as may be amended) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (C) Title Policy. A title policy or commitment to issue a title policy in the amount of the Purchase Price, covering title to the Property on the Closing Date, showing Purchaser as the sole owner of the Real Property in fee simple, subject only to the matters disclosed on the Title Commitment. (D) Resolution. A certified corporate resolution passes by the Board of Directors of Seller authorizing the transaction contemplated in this Agreement and confirming the authority of the person executing this Agreement on behalf of Seller. (ii) Purchaser Documents. Purchaser shall deliver or cause to be delivered to Seller the items set forth in this subsection (ii): (A) Cash. An amount by federally insured wire transfer or by certified check drawn on a bank acceptable to Seller equal to the Purchase Price, less the Earnest Money Deposit, as adjusted pursuant to Section 9(e) and Section 14 hereof ("Cash Payment"). (iii) Seller and Purchaser Documents. Seller and Purchaser shall each deliver or cause to be delivered to the Escrow Agent the items set forth in this subsection (iii): (A) Title Documents. ALTA statements and transfer tax declarations in forms required by the Title Insurer with respect to the sale of the Property according to the terms of this Agreement. (B) Direction. Joint written direction to the Escrow Agent to disburse to Seller the entire amount of the Earnest Money Deposit, together with all interest which has accrued thereon. (d) Deed and Money Escrow. At the option of Seller, the sale and purchase of the Property shall be closed through a deed and money escrow with Escrow Agent or Title Insurer ("Closing Escrow") in accordance with the general provisions in the usual form of deed and money escrow agreement then in use by Escrow Agent or Title Insurer ("Closing Escrow Agreement") with such special provisions inserted in the Closing Escrow Agreement as may be required to conform with this Agreement. Upon the creation of the Closing Escrow Agreement, anything herein to the contrary notwithstanding, payment of the Purchase Price and delivery of all documents to be delivered hereunder shall be made through the Closing Escrow and in accordance with the terms of the Closing Escrow Agreement. The parties agree to create the Closing Escrow at least approximately 10 days prior to the Closing Date and to direct Escrow Agent to transfer the Earnest Money Deposit, together with all interest thereon, to the Closing Escrow for return to Purchaser only in accordance with the terms of this Agreement. One half of the costs of the Closing Escrow shall be paid by Seller and one half of the costs of the Closing Escrow shall be paid by Purchaser. (e) Real Estate Taxes. (i) Definitions. The following terms shall have the following respective meanings for the purpose of this Section 9(e): (A) Base Year Tax Amount. The term "Base Year Tax Amount" means the amount of the real estate taxes for the Base Year. (B) Base Year. The term "Base Year" means the calendar year most recently before the Closing Year for which the final real estate taxes have been determined by the real estate taxing authority. (C) Adjustment Days. The term "Adjustment Days" means the number of days during the period beginning on and including January 1 of the calendar year in which the Closing occurs and ending on and including the date of the Closing. (D) Adjustment Amount. The term "Adjustment Amount" means the amount of the real estate taxes paid on or before the date of the Closing for the Base Year and any calendar year after the Base Year. (E) Closing Year. The term "Closing Year" means the calendar year in which the Closing occurs. (F) Closing Year Tax Amount. The term "Closing Year Tax Amount" means the amount of the real estate taxes paid or payable for the Closing Year. (G) Tax Proration Amount. The term "Tax Proration Amount" means the amount determined by the application of the following formula: Base Year Tax Amount x (365 + Adjustment Days) - Adjustment Amount ------------------------------------------------------------------ 365 (H) Real Estate Taxes. All references to real estate taxes for a particular calendar year means the real estate taxes for the Real Property assessed for such calendar year and payable in the next succeeding calendar year. (ii) Purchaser Credit. General real estate taxes with respect to the Property shall be prorated and there shall be a credit at the Closing in favor of Purchaser against the Purchase Price in an amount equal to the Tax Proration Amount. All prorations with respect to Real Estate Taxes shall be final. (f) Closing Charges. Seller shall pay all charges for title insurance furnished pursuant to Section 3 hereof, the Survey furnished pursuant to Section 4 hereof, the Environmental Report pursuant to Section 5 hereof, subject to the provisions of Section 8, and the release of all mortgages currently encumbering the Property. Purchaser shall pay for all title insurance in addition to that to be furnished by Seller under Section 3 hereof, all surveys in addition to that to be furnished by Seller under Section 4 hereof, any stamp or transfer taxes imposed by any state, county or other governmental agency on transfer of title, and all recordation and title insurance charges incurred in connection with any mortgage loans obtained by Purchaser. The parties shall each be solely responsible for the fees and disbursements of their respective counsel and other professional advisers. 10. Default. (a) Default by Seller. In the event that Seller fails to consummate the transactions contemplated by and according to the terms of this Agreement for any reason other than the termination of this Agreement pursuant to the terms hereof or the default by Purchaser under this Agreement, Purchaser shall have the right, as its sole and exclusive remedies hereunder, to either (i) terminate this Agreement in its entirety by written notice to Seller within 5 days after the Closing Date, in which event the Earnest Money Deposit, together with all interest thereon, shall forthwith be returned to Purchaser, all obligations of the parties hereto shall thereupon cease and this Agreement shall thereafter be of no further force and effect, or (ii) seek specific performance of the obligations of Seller under this Agreement. (b) Default by Purchaser. In the event that Purchaser fails to consummate the transactions contemplated by and according to the terms of this Agreement for any reason other than the termination of this Agreement pursuant to the terms hereof or the default by Seller under this Agreement, Seller shall have the right, as its sole and exclusive remedy hereunder, to retain the Earnest Money Deposit, together with all interest earned thereon, as liquidated damages, it being acknowledged that actual damages to Seller would be difficult or impossible to ascertain. 11. Brokerage. (a) Seller Brokerage. Seller hereby represents to Purchaser that Seller has not dealt with any broker or finder in respect to the transaction contemplated by this Agreement other than CB Commercial Real Estate ("Broker"). Seller hereby agrees to indemnify Purchaser for any claim for brokerage commission or finder's fee asserted by a person, firm or corporation claiming to have been engaged by Seller with respect thereto. (b) Purchaser Brokerage. Purchaser hereby represents and warrants to Seller that Purchaser has not dealt with any broker or finder in respect to the transaction contemplated by this Agreement other than Broker. Purchaser hereby agrees to indemnify Seller for any claim for brokerage commission or finder's fee asserted by a person, firm or corporation other than Broker claiming to have been engaged by Purchaser with respect thereto. Seller will pay all commissions due to Broker with respect to the transactions contemplated by this Agreement pursuant to separate agreement and hereby agrees to indemnify Purchaser for any claim for a brokerage commission or finder's fee asserted by Broker. 12. Condemnation. If, after the Effective Date and prior to the Closing Date, any material portion of the Property is taken by exercise of the power of eminent domain, Purchaser may, within 10 days after such taking, elect to (a) terminate this Agreement, in which event the Earnest Money Deposit, together with all interest thereon, shall be returned to Purchaser, all obligations of the parties under this Agreement shall cease, and this Agreement shall have no further force and effect, or (b) close the transaction contemplated by this Agreement as scheduled (except that if the Closing Date is less than 10 days following such taking, the Closing Date shall be delayed until Purchaser makes such election), in which event all monies that are paid as a result of such condemnation prior to the Closing Date shall be paid to Seller and applied to the Purchase Price to the extent of the Purchase Price at the Closing, and any monies that are paid as a result of such condemnation after the Closing Date shall be paid to Purchaser. 13. Notices. Any notice, request, demand, instruction or other document to be given or served hereunder or under any document or instrument executed pursuant hereto shall be in writing and shall be delivered personally or by cable or telex, or sent by a nationally-recognized overnight delivery service, or sent by United States registered or certified mail, return receipt requested, postage prepaid and addressed to the parties at their respective addresses set forth below, and the same shall be effective upon receipt. A party may change its address for receipt of notices by service of a notice of such change in accordance herewith. All notices by cable or telex shall be subsequently confirmed by U.S. certified or registered mail. If to Seller: CMD Southwest Inc. 9785 Maroon Circle, Suite 350 Englewood, CO 80112 Attn: Vice President with a copy to: CMD Corporation 227 West Monroe Street Suite 3900 Chicago, Illinois 60606 Attention: General Counsel If to Purchaser: MicroAge Computer Centers 2400 South MicroAge Way Tempe, AZ 85282-1896 Attn: Vice President Administration 14. Nomination of Buyer. At any time prior to the Closing Date, Purchaser may nominate and assign this Agreement or any of its rights hereunder to any person, partnership, corporation, trust or other entity, in which case such assignee shall be fully substituted as Purchaser herein. Upon written assumption by Assignee of this Agreement and all of its obligations contained herein, such assignment shall relieve Purchaser of further obligations under this Agreement with the exception of Purchaser's indemnification as defined in to Section 6 of this Agreement. Such Assignment shall be made by delivering to Seller and Escrow Agent written instructions signed by Purchaser assigning Purchaser's interest herein. 15. Entire Agreement, Amendments and Waivers. This Agreement contains the entire agreement and understanding of the parties in respect to the subject matter hereof, and the same may not be amended, modified or discharged nor may any of its terms be waived except by an instrument in writing signed by the party to be bound thereby. 16. No Third Party Benefits. This Agreement is for the sole and exclusive benefit of the parties hereto and their respective successors and assigns, and no third party is intended to or shall have any rights hereunder. 17. Governing Laws. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 18. Time. Time is of the essence of each and every term of this Agreement. 19. Interpretation. (a) The headings and captions herein are inserted for convenient reference only and the same shall not limit or construe the paragraphs or sections to which they apply or otherwise affect the interpretation hereof. (b) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms shall refer to this Agreement, and the term "hereafter" shall mean after, and the term "heretofore" shall mean before, the Effective Date. (c) Words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders, and words importing the singular number shall mean and include the plural number and vice versa. (d) Words importing persons shall include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons. (e) The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to." (f) This Agreement and any document or instrument executed pursuant hereto may be executed in any number of counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) Whenever under the terms of this Agreement the time for performance of a covenant or condition falls upon a Saturday, Sunday or holiday, such time for performance shall be extended to the next business day. Otherwise all references herein to "days" shall mean calendar days. SELLER: CMD SOUTHWEST INC., an Arizona corporation By:\s\ D. Scott Gibler ------------------------------ D. Scott Gibler Its: Vice President Dated: August 8, 1996 --------------------------- PURCHASER: MICROAGE COMPUTER CENTERS, INC. By: Alan R. Lyons ----------------------------------------- Its: V.P. Human Resources and Administration ---------------------------------------- Dated: August 5, 1996 -------------------------------------- EXHIBIT A REAL PROPERTY Lots 29, 30 and 31 and the West 100.0 feet of Lot 24, except the North 67.49 feet thereof, of BROADWAY INDUSTRIAL PARK UNIT FOUR, a subdivision recorded in book 210 of Maps, Page 48, records of Maricopa County, Arizona; said parcel containing an area of 380,929 square feet (+/-) or 8.7449 acres, more or less. EXHIBIT B EARNEST MONEY ESCROW AGREEMENT DEED When recorded, return to: CMD Corporation 227 West Monroe Street, Suite 3900 Chicago, Illinois 60606 Attention: General Counsel SPECIAL WARRANTY DEED --------------------- For the consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, CMD SOUTHWEST, INC., an Arizona corporation ("Grantor"), hereby conveys to MICROAGE COMPUTER CENTERS, INC., a Delaware corporation ("Grantee"), the following real property situated in Maricopa County, Arizona, together with all rights and privileges appurtenant thereto: Lots 29, 30 and 31 and the West 100.0 feet of Lot 24, except the North 67.49 feet thereof, of BROADWAY INDUSTRAIL PARK UNIT FOUR, a subdivsion recorded in book 210 of Maps, Page 48, records of Maicopa County, Arizona; said parcel containing an area of 380,929 square feet (+/-) or 8.7449 acres, more or less SUBJECT only to covenants, conditions and restrictions of record; private, public and utility easements and roads and highways, if any; special taxes or assessments for improvements not yet completed; general taxes not yet due and payable and those matters identified in Exhibit A attached hereto. TO HAVE AND TO HOLD the same unto Grantee and Grantee's successors and assigns forever. SUBJECT to the foregoing, the Grantor hereby binds itself and its successors to warrant and defend the title against all acts of Grantor and none other. Executed by Grantor as of the day of , 1996. ------- ----------------- CMD SOUTHWEST INC. By: -------------------------------- Its: -------------------------------- STATE OF ARIZONA ) ) SS: COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this ______ day of __________________ , 1996, by __________________________________, the ___________________ of CMD SOUTHWEST INC., an Arizona corporation, on behalf of the corporation. -------------------------------- Notary Public My Commission Expires: - --------------------------- EXHIBIT A SUBJECT TO: 1. All plans and specifications for any improvement or alteration to the Property, including, but not limited to, the construction of a building or an addition to any existing building on the Property, landscaping, any exterior signs and color schemes for exterior painting, but specifically excluding any interior improvements or alterations which do not affect the exterior portions of the buildings or the parking and landscaping areas on the Property, shall be submitted to Grantor at 9785 Maroon Circle; Suite 350, Englewood, CO 80112, or to such other address for Grantor as shown on a duly recorded notice of change of address, for Grantor's prior written approval, which approval shall not be unreasonably withheld. Grantor's approval shall be for the purpose of assuring aesthetic harmony of the proposed improvements with other improvements, whether proposed or existing, within the Broadway Business Park, and such approval shall not be a warranty that the improvements comply with applicable governmental regulations are structurally sound or are otherwise free from defects. If Grantor fails to give a written response to submitted plans and specifications within thirty (30) days after the same have been mailed or hand-delivered to Grantor at Grantor's address of record as provided above, the improvement or alterations shall be deemed approved. During the course of construction of any improvement or alteration, Grantor shall be entitled to enter upon the Property to inspect the improvement or alteration in order to insure compliance by Grantee with the terms of these Restrictions. Notwithstanding anything contained herein to the contrary, as long as the City of Tempe maintains a Design Review Board whose purpose is, among other things, to assure the aesthetic harmony of proposed improvements with other improvements, Grantee shall not be required to submit plans and specifications for any improvement or alteration to the property, provided, however, all such improvements or alterations shall comply with all applicable governmental requirements including the City of Tempe Design Review Board. 2. Grantee shall maintain the existing landscaping in a neat and orderly manner and shall keep areas not currently landscaped free of weeds. 3. No metal-clad buildings or metal-clad alterations, additions or improvements to existing buildings on the Property shall be permitted. 4. Outside storage of all goods, waste products and other materials of any kind whatsoever, shall be substantially screened from street view by a concrete block wall, which shall be stuccoed and painted to match the existing building. 5. These restrictions shall be deemed covenants running with the land and are binding on Grantee and Grantee's successors and assigns for the benefit of Grantor's property located within the Broadway Business Park. These Restrictions shall be deemed terminated and forever thereafter of no force or effect whatsoever fifty (50) years following the date of recordation of this Deed, or at such time as Grantor no longer owns any property within the Broadway Business Park, whichever first occurs. 6. Grantor shall be entitled to enforce these Restrictions by appropriate court proceeding, including the seeking and obtaining of injunctive relief. Grantee agrees to pay all costs of enforcement, including reasonable attorneys' fees. 7. Grantor shall have the right, but not the obligation, to take such action as may be necessary to secure compliance with or to correct non-compliance with the terms of these Restrictions, and any amounts expended by Grantor in connection therewith shall be repaid to Grantor by Grantee immediately upon demand therefor, together with interest thereon from the date of expenditure by Grantor until paid at a rate equal to 2 percentage points added to the prime interest rate as published by the Wall Street Journal, as it varies from time to time. In the event that The Wall Street Journal ceases either to exist or announce a prime interest rate, the aforementioned interest shall be calculated by adding 2 percentage points to the prime interest rate of the lending institution in Maricopa County, Arizona that, at the time such calculation is made, has the greatest asset value. 8. Notwithstanding anything contained herein to the contrary, prior to exercising any of Grantor's rights to enforce any of these Restrictions or to secure Grantee's compliance with or to correct non-compliance with the terms of these Restrictions, Grantor shall send to Grantee at the Property a written notice informing Grantee of the breach of these Restrictions and permitting Grantee a sixty day period in which to cure such breach (or if such breach cannot be cured within said sixty day period despite Grantee's diligent and continuous efforts to do so, said sixty day period shall be extended for so long as Grantee is diligently and continuously pursuing such cure but in no event longer than an additional sixty days). EX-10.48 31 SINGLE-TENANT LEASE-NET SINGLE-TENANT LEASE-NET 1. Basic Provisions ("Basic Provisions") 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, March 31, 1995, is made by and between Chamberlain Development, L.L.C., an Arizona limited liability company ("Lessor") and MicroAge Computer Centers, Inc., a Delaware corporation and subsidiary of MicroAge, Inc. ("Lessee"), (collectively the "Parties," or individually a "Party"). 1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 3015 S. Priest, Tempe, located in the County of Maricopa, State of Arizona, and generally described as a 100,000 square foot two story office building ("Premises"). (See Paragraph 2 for further provisions.) 1.3 Term: Ten (10) Years and Zero (0) months ("Original Term") commencing December 1, 1995 ("Commencement Date") and ending November 30, 2005 ("Expiration Date"). (See Paragraph 3 for further provisions.) 1.4 Early Possession: ("Early Possession Date") (See Paragraphs 3.2 and 3.3 for further provisions.) 1.5 Base Rent: $58,580.00 per month ("Base Rent"), plus applicable sales tax, payable on the first day of each month commencing December 1, 1995 (See Paragraph 4 for further provisions.) There are provisions in this Lease for the Base Rent to be adjusted. 1.6 Base Rent Paid Upon Execution: $61,479.71 ($58,580.00 plus applicable sales tax in the amount of $2,899.71) for the Period of December 1995. 1.7 Security Deposit: None ("Security Deposit"). (See Paragraph 5 for further provisions.) 1.8 Permitted Use: General offices including sales, service, and support of computer products. (See Paragraph 6 for further provisions.) 1.9 Insuring Party: Lessee is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 Real Estate Brokers: The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties: CB Commercial represents both Lessor and Lessee. (See Paragraph 15 for further provisions.) 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by: None ("Guarantor"). (See Paragraph 37 for further provisions.) 1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 64 and Exhibits A and B, all of which constitute a part of this Lease. 2. Premises. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing roof, plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date and for a period of one year thereafter, except the roof shall be warranted for a period of two years from the Commencement Date. If a noncompliance with said warranty exists, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. 2.3 Compliance with Covenant, Restrictions and Building Code. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3 (a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from the Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 Acceptance of Premises. Lessee hereby acknowledges: that neither Lessor, nor and of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. Term 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date other than pursuant to Paragraph 53 herein, the obligation to pay Base Rent shall be prorated for the period of such early possession. All other terms of this Lease, (including but not limited to the obligations to pay real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. 3.3 Delay In Possession. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is delayed more than thirty (30) days other than pursuant to Paragraph 51 or 53, Lessor shall be liable to Lessee for a penalty of $2,000.00 for each day of delay. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. Except is may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. Rent. 4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. Use 6.1 Use. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to an any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use or presence of, any Hazardous substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom to therefor, including, but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit. business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgements, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee for its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. * ("Environmental Condition") (d) Landlord hereby represents that, to the best of its knowledge, no Environmental Condition (as defined above presently exists or has existed prior to the Lease Commencement Date on, under, or within the Building (a "Pre-Existing Condition'). Landlord shall indemnify, protect, defend (by counsel reasonably acceptable to Tenant) and hold harmless Tenant and its directors, officers, employees, shareholders, lenders, agents, contractors and each of their respective successors and assigns, from and against any and all claims, judgments, causes of action, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the term of the lease as a result of any Pre-Existing Condition. Landlord's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. Landlord shall indemnify, protect, defend (by counsel reasonably acceptable to Tenant) and hold harmless Tenant and its directors, officer, employees, shareholders, lenders, agents, contractors, and each of their respective successor and assigns, from and against any and all orders, penalties, fines, administrative action, or other proceedings (collectively, a "Compliance Obligation") commenced by any governmental agency including, without limitation, the United State Environmental Protection Agency as a result of the Pre-Existing Condition. Landlord's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. The phrase "Environmental Condition" shall mean any adverse condition relating to any Hazardous Substance or the environment, including surface water, groundwater, drinking water supply, land, surface or subsurface strata or the ambient air and includes air, land and water pollutants, noise, vibration, light and odors." 6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Law," which term is used in this Lease to include all laws, rates, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times and after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations. (See Paragraph 56 for additional requirements) 7.1 Lessee's Obligations. (a) Subject to the Provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, structural and non-structural (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about, or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of, the Premises, the elements surrounding same, or neighboring properties, that was caused of materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for ten (10) years or more, Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every ten (10) years. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 Lessor's Obligations. Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with the respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of, any needed repairs. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon; (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not Less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership; Removal; Surrender; and Restoration. (a) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (b) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance Indemnity. 8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include overage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a), above, in addition to, and not lieu of the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance-Building, lmprovements and Rental Value. (a) Building and Improvements. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any Mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature of age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lien of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9. 1 (c). (b) Rental Value. The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an repairs or replacement of the Premises, to provide for one full year's loss of rental revenues front the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) Adjacent Premises. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the Property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Tenant's Improvements. If the Lessor is the Insuring Party, The Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 Indemnity. Except for Lessor's acts, omissions, negligence and/or default or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant fee's, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessees business, any act, omission or neglect of Lessee, its agents, contractors or employees and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, except for the roof, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results for conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease and Lessor's responsibility for the roof, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "Premises Total Destruction" shall mean damage or destruction to the premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in on or under the Premises. 9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, than Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided; however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either party. 9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 Total Destruction. Notwithstanding any other provision thereof, if a Premises Total Destruction occurs (including any distinction required by any authorized public authority), this Lease shall terminate (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or distinction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. Rent will abate beginning on the date of destruction. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is a damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds for adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of' Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) in the event of damage described in Paragraph 9.2 (Partial Damage-insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required tinder Paragraph 8.3(b)), shall be abated in Proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not promptly commence and diligently pursue to completion in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor Find to any lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such lenders and repair or restoration is not commenced and diligently pursued to completion within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or lender commences and diligently pursues to completion the repair or restoration of tire Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonable possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve months. At Lessee's option, the Lessor should remedy as soon as practical any Hazardous Condition which would negatively impact Lessee's interests or present a health risk to occupants of the Premises, otherwise Lessee will have the option to terminate the lease. 9.8 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.l(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. See Paragraph for additional requirements, (b) Advance Payment. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1 (a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 Definition of "Real Property Taxes". As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax, (other than inheritance, personal, income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, or levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part. Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises, and any charge or assessment of any kind whatsoever resulting front the Premises inclusion in any property owners association. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations. Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures. furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with the Lessor's real property. Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other Premises. 12. Assignment and Subletting. 12.1 Lessor's Consent Not Required. Lessor's consent is not required if Lessee assigns this lease to MicroAge, Inc. or to any of its subsidiaries. 12.2 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) struck (c) The involvement of Lessee or its assets in any transactions, or series of transactions (by the way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buyout or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall he considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair market value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market value. if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof, Further, in the event of such Breach and market value adjustment. (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction or depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. 12.3 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval of disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor my consent to subsequent subletting and assignments of the sublease of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit Ft condition to Lessor's consent to such transaction. 12.4 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13. 1) shall occur in the performance of Lessee's obligations under this Lease. Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy tire rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and not withstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default, Breach. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party within 10 days of receipt of written notice of nonpayment, as and when due. the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice thereof by or on behalf of Lessor to Lessee. (b) Except as expressly otherwise provided in this Lease, the failure to provide Lessor with reasonable written evidence (in duty executed original form, if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7. I (b), (iii) the recision of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, and (vii) the execution of any document requested under Paragraph 42 (easements). (c) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c) above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30 days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (d) The occurrence of any of the following events: (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. S 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in the Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (f) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing , (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefore. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require All future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13. 1, with or without further notice or demand. and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of' the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of term after the time of award exceeds the amount of such rental loss that could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises. expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13. l(b), (c) or (d) was not previously given, a notice to pay rent or quit, or perform or quit, a- the case may be, given to Lessee under any statute authorizing the forfeiture of lease-q for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 1 3. 1 (b), (c) or (d) and under the unlawful detainer statue shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions", shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to he performed and observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1 any such Inducement Provision shall automatically he deemed deleted from this Lease and of no future force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor. and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a wavier by Lessor of the provisions of this Paragraph unless specifically so stated in writing b), Lessor at the time of such acceptance. 13.4 Late Charges, Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by terms of any ground lease, mortgage or trust deed covering [he Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee on the first day of each month then, without any requirement for notice to Lessee. Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, not prevent Lessor from exercising any of the other rights and remedies granted hereunder, In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.3, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been famished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed: provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. If Lessor fails to take action to correct the breach within thirty (30) days, then Lessee shall have the option to terminate the lease or correct the breach at Landlord's expense. The expiration or termination of this Lease by Lessee shall not relieve Lessor from liability under any indemnity provision of this Lease as to matters occurring or occurring during the term hereof. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee, written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall he entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures and/or Utility Installations. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. Broker's Fee. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between Lessor and said Brokers, the sum of (by separate agree.) for brokerage services rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39. 1) or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or lb) if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after (he expiration of term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of another lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a third party beneficiary of the provisions of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or tender (other than the Brokers, if any named in Paragraph 1. 10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm, or entity other than said named Brokers is entitled to any commission or Finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. Tenancy Statement. 16.1 Each Party (as "Responding Party') shall within ten (10) days from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current 'Tenancy Statement" form published by the American Industrial Real Estate Association , plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desire to finance, refinance, or sell the Premise, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser and are reasonably available by Lessee, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such tender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease. of the lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinafter defined. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of another provision hereof. 19. Interest On Past-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date of which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. *and except under the indemnity provisions of this Lease 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that is has made, and is relying solely upon, its owner investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. Notices. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by certified or registered mail or U.S. Postal Service Express Mail. with postage prepaid, return receipt requested and shall be deemed sufficiently given if served in a manner specified in this Paragraph 21. The addressees noted adjacent to Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, tile Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. Reasonably a copy of all notices required or permitted to lie given to Lessor hereunder shall be concurrently transmitted to such party or parties at such Addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, Notices delivered by United State Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. 24. Waivers. No waiver by either Lessor or Lessee of the Default or Breach of any term, covenant or condition hereto by Lessor or Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee or Lessor of the same or of any other term, covenant or condition hereof. Lessor's or Lessee's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of such consent to, or approval of, any subsequent or similar act or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor or Lessee by the other party may be accepted on account of moneys or damages due, notwithstanding any qualifying statements or conditions made by the other party in connection therewith, which such statement and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by the other party at or before the time of deposit such payment. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. No Right To holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successor and assigns and be governed by the Laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provision of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "Non-disturbance Agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorn to the record owner of the Premises. Any successor to the Lessor, whether by voluntary or involuntary means is bound to the terms of the lease. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, Financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as provided herein. 31. Attorney's Fees. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in Any such proceeding, action, or appeal thereon, shall he entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with.any court fee schedule, but shall be such as to full), reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notice of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of emergency, and otherwise at reasonable times upon reasonable notice for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any signs upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). The Lessor is prohibited from erecting, placing or allowing signs on the Premises other than those referred to in Paragraph 32. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises, provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money ( in addition to the Security Deposit held under Paragraph 5), reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's re-quest. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. Guarantor. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be the form most recently published by the American industrial Re-a] Estate Association and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease of any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions, and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. Options. 39.1 Definition. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of First refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 Options Personal to Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1. I hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in hill and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to tile contrary; (i) during the period commencing with (he giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in material Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 1 3. 1, whether or not the Defaults are cured, during the twelve (I 2) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised Shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due and after Lessor gives notice thereof to Lessee), or (ii) Lessor gives to Lessee three or more notices of Default under Paragraph 13.1 during any twelve month period, whether or not the Defaults are cured, or (iii) if Lessee commits a material Breach of this Lease. 40. Multiple Buildings. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of' the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include (he cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor top effectuate any such easement rights, dedication, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall survive the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions, 46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustment that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations or rights hereunder or Lessee's use of the Premises, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with (lie obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place oil the dates specified above to their respective signatures. Executed at______________________________ on_______________________________________ by LESSOR: By: James M. Chamberlain Name Printed: James M. Chamberlain Title:___________________________________ Address:_________________________________ Tel. No._________________________________ Fax No.__________________________________ Executed at 2400 S. MicroAge Way on 5/12/95 by LESSEE: By: Alan R. Lyons Name Printed: Alan R. Lyons Title: V.P., Administration Address: 2400 S. MicroAge Way, Tempe, AZ 85282 Tel. No. 602-968-3168 Fax No. 602-929-2444 ADDENDUM TO STANDARD INDUSTRIAL LEASE/COMMERCIAL SINGLE-TENANT LEASE - NET 49. PREMISES. The Premises shall include the real property described in Exhibit "A" attached hereto, containing approximately 369,559 square feet, together with an office building (the "Building) to be erected thereon by Lessor. The Building shall be erected in accordance with the plans and specifications prepared substantially in conformity with the site plan, floor plan, and List of Components in Exhibit "B" attached hereto (the "Approved Plans and Specifications") (subject to possible minor deviations therefrom), as they may be modified as hereinafter provided. 50. TERM. The term of this Lease (the "Term") shall be for ten (10) years (plus the partial month at the beginning of the Term if the Term Commencement Date is a day other than the first day of a calendar month), unless this Lease is sooner terminated as hereinafter provided. The Term shall commence on the date the Improvements are deemed completed in accordance with Paragraph 52 (the "Term Commencement Date"). Notwithstanding the foregoing, if Lessee takes possession of or begins to use the Premises or any part thereof prior to the Term Commencement Date (as defined herein), the Term of this Lease shall commence on the date such possession or use begins. Upon the Commencement of the Term, Lessor and Lessee shall execute an amendment to this Lease specifying the commencement date and expiration date of the Term. 51. CONSTRUCTION OF THE IMPROVEMENTS: As soon as practicably possible, Lessor shall apply for all building permits and other governmental permits and approvals necessary for the improvements described in the Approved Plans and Specifications (the "Improvements"). Thereafter, Lessor at its sole expense shall proceed diligently with the construction and completion of the Improvements in accordance with the Approved Plans and Specifications and all applicable governmental permits and approvals and all applicable laws, ordinances, regulations and court orders. Lessor shall complete the Improvements and they shall be ready for occupancy by Lessee not later than November 1, 1995, as such date may be extended by Force Majeure. The term "Force Majeure' as used herein shall include, but not be limited to, acts of God, acts of any civil or military authority, acts of war or the public enemy, legislation, acts or orders of any courts, acts or failures to act of regulatory agencies or administrative bodies having jurisdiction with respect to the performance of this Agreement, insurrections, riots, strikes, boycotts or other labor disturbances, breakdown of necessary equipment or facilities, derailments, fire, flood, windstorm, explosion, delay or inability to obtain water, power, fuel or other materials, any present or future laws or regulations enacted. adopted, instituted or sponsored by any government or governmental corporation, agency or bureau and any other cause not within the reasonable control of the party claiming such Force Majeure and which by the exercise of due diligence could not reasonably have been avoided by such party: provided, however, that nothing herein shall require any party to settle any labor dispute or strike in which it may be involved. Lessor shall notify Lessee in writing of any Force Majeure event within fifteen (15) days after it occurs. Lessor hereby agrees to hold Lessee harmless from and against any liens filed in connection with the Improvements (other than liens caused by Lessee), including without limitation liens filed in connection with any repair or reconstruction of the Premises by Lessor. Lessor shall reimburse Lessee upon demand for any costs and expenses incurred in connection with any such lien, including without limitation attorneys' fees. 52. COMPLETION AND DELIVERY. The Improvements shall be deemed completed when: (a) All work of construction has been substantially completed in accordance with the Approved Plans and Specifications, subject to normal minor so-called "Punch-list Items" (defined below) agreed to after an inspection by Lessor and Lessee, with a maximum aggregate value of $25,000.00, exclusive of landscaping, which may be completed after the Commencement Date. (b) The architect or engineer in charge of construction of the Improvements has prepared, certified by his signature and delivered to Lessor and Lessee a written statement certifying that the Improvements have been completed in accordance with the Approved Plans and Specifications, the working drawings and any properly authorized construction changes, and certifying the date of such completion: and (c) A temporary or permanent certificate of occupancy for the Building has been delivered to Lessee. Notwithstanding the foregoing, if issuance of a certificate of occupancy is delayed by reason of Lessee's work, the Term of this Lease shall commence upon substantial completion of Lessor's work, as provided in subparagraphs (a) and (b) above, and the certificate of occupancy shall be obtained thereafter upon completion of Lessee's work. Lessor shall diligently complete any Punch-List Items as soon as reasonably possible. "Punch-List Items," as used herein, shall refer to minor, non-structural repairs and/or minor, non-structural replacement of work not installed (i) in a workmanlike manner and/or (ii) in accordance with the Approved Plans and Specifications. "Minor, non-structural repairs and replacements" mean repairs and replacements that do not interfere with the occupancy of the Building and Premises or use of the Building and Premises for their intended purposes. If Lessor's work shall not be completed within thirty (30) days after the scheduled completion date of December 1, 1995, as such date may change pursuant to Paragraph 51, 53, 54 or otherwise herein, Lessor shall be subject to a penalty of $2,000.00 per day for each day of delay. Failure to complete the work as aforesaid shall not affect the validity of this Lease nor Lessee's obligations hereunder, but the Term of this Lease shall not commence until Lessor has completed such work except as provided in 3.3 above. 53. LESSEE'S WORK. Lessee, at its own cost and subject to all of the terms of this Lease (other than the obligation to pay the Net Rent and other charges hereunder prior to the commencement of the Term), may perform work in the Building concurrently with Lessor's work, to fit the Building for Lessee's occupancy, provided Lessee's work does not interfere with Lessor's work; Lessee's work may be performed through Lessor's contractor or, if no labor discord would be caused thereby, through Lessee's own contractor. Lessee shall not allow any liens or encumbrances of any kind to lie attached to or placed upon the Premises as a result of Lessee's work and in the event such liens or encumbrances are discovered, Lessee agrees to promptly satisfy and remove same, Lessee hereby agrees to hold Lessor harmless from and against any liens caused by Lessee, and Lessee shall reimburse Lessor upon demand for any costs and expenses incurred in connection with any such lien, including without limitation attorneys' fees. Any action by Lessee to take full or partial occupancy to fit the Building for Lessee's occupancy pursuant to this Paragraph 53 shall not advance the Commencement Date from what would otherwise apply pursuant to this lease. 54. LESSEE REQUESTED CONSTRUCTION CHANGES. Lessee may, at any time, by a written request signed by one of Lessee's Change Representatives and delivered or mailed in accordance with this Lease to one of Lessor's Change Representatives at Lessor's address for notices, make any change in the work within the general scope of construction contemplated by the Approved Plans and Specifications, including, but not limited to changes: (a) in the plans, specifications or working drawings, including without limitation the Approved Plans and Specifications; provided, however, that no such request shall result in any major structural change to the Building or change the 'footprint' of the Building as depicted in the Approved Plans and Specifications; or (b) in the method or manner of performance of the work. Lessee requested construction changes will be transmitted to Lessor only by means of written requests ("Construction Change Requests") given in accordance with this Section. "Lessee's Change Representatives" will be those two (2) persons designated by Lessee to Lessor in writing who will be the only representatives of Lessee authorized to request construction changes. Until such designation is received by Lessor, Lessor may send requests for construction changes to Lessee's address for notices without reference to any Lessee Change Representative, and Lessee may not make any Construction Change Requests. Upon receipt of any Construction Change Request issued pursuant to this Section, Lessor shall immediately proceed in accordance with the directions contained in the Requested Construction Change Request. Lessor shall have the right to (i) require Lessee to pay, in addition to any other payments due under this lease, all of the increase in construction costs caused by the change as such changes are completed or (ii) increase the annual rent payable under this Lease by One Hundred Ten and No/100 Dollars ($110.00) for every One Thousand and No/100 Dollars ($1,000.00) of increases in construction costs caused by the change; provided, however, that such costs payable by Lessee for the Construction Change Request or as increased rent shall be limited to Lessor's actual, reasonable direct costs for labor and materials (excluding any and all overhead and administration costs and any profit margin in excess of ten percent (10%) of such direct costs). If Lessee shall have requested a construction change and Lessor elects to increase the annual rent, then within thirty (30) days after the Term Commencement Date, Lessor and Lessee shall execute an amendment to this lease setting forth the rent payable under this Lease, as adjusted pursuant to this Section. Lessee shall not be required to pay Lessor any increases in rent pursuant to this Section until such an amendment has been executed or any arbitration of the increase in rent has been concluded, but Lessee shall thereupon promptly pay any past due rent to Lessor. Except as provided in this Section, no order, statement, or conduct of Lessee's Change Representatives, or of any manager, inspector, engineer, architect, employee representative, or consultant of Lessee, shall be treated as a change order under this Section. The time period specified above for the completion of the Improvements shall be extended by delays caused by Construction Change Requests. 55. LESSOR REQUESTED CONSTRUCTION CHANGES. Lessor may, at any time, by a written request ("Lessor Change Request") signed by one of Lessor's Change Representatives which expressly refers to this paragraph and which is delivered or mailed in accordance with this Lease to Lessee's Change Representatives at Lessee's address for notices, request any reasonable change in the work within the general scope of the construction necessary to comply with law, to obtain required governmental permits or approvals, or to complete the Improvements in accordance with the Approved Plans and Specifications, including changes: (a) in the plans, specifications or working drawings, including, without limitation the Approved Plans and Specifications; provided, however, that no such request shall result in any major structural change to the Building or change the "footprint" of the Building as depicted in the Approved Plans and Specifications; and (b) in the method or manner of performance of the work or type of materials provided, however that no such change will degrade the quality of the Building and provided, further that no change in materials may be requested unless the change is necessary because of any inability to obtain the material or the new materials is necessary to comply with law or to obtain required governments[ permits or approvals. "Lessor's Change Representatives" will be those two (2) persons designated by Lessor to Lessee in writing who will be the only representatives of Lessor Authorized to make Lessor Change Requests. Until such designation is received by Lessee, Lessee may send Construction Change Requests to Lessor's address for notices without reference to any Lessor Change Representative, and Lessor may not make any Lessor Change Requests. Lessor Change Requests will be transmitted to Lessee by means of a written request describing in hill the requested change, plus the reasons, effects and results of the change as compared to the original and/or existing working drawings or plans pertaining to the requested change. The Lessor Change Request will include drawings, documents, specifications, and all pertinent data relating to the requested change. Upon receipt of any Lessor Change Request, Lessee shall immediately begin analysis of the Lessor Change Request. Lessee will unilaterally have the option to: (a) Accept the Lessor Change Request by issuing a Construction Change Request referencing the specific Lessor Change Request. (b) Enter into fact-finding or negotiations with Lessor pertaining to Lessor Change Request. (c) Reject the Lessor Change Request in writing and require the Lessor to perform the work in accordance with the Approved Plan and Specifications at no delay to Lessee in Building occupancy. Should Lessee not act within ten (10) business days after submittal of any Lessor Change Request, the requested change will be considered to be rejected by Lessee. Under no condition will the Lessor begin work on any Lessor Change Request until after receipt of a fully executed Construction Change Request from Lessee. Except as provided in this Section, no order, statement or conduct of Lessor's Change Representatives or of any manager, inspector, engineer, architect or other employee representative, or consultant of Lessor shall be treated as a change request under this Section. 56. RENTAL ADJUSTMENTS Notwithstanding anything to the contrary contained in the Lease, the Base Rent commencing with the 61st month shall be increased to 115% of the Base Rent in the immediately preceding month. For example, if there are no changes in the Base Rent pursuant to Paragraph 54 or otherwise such that the Base Rent in the 60th months is $58,580.00, the Base Rent in the 61st month shall be increased to $67,367.00 plus applicable sales tax. 57. TENANT IMPROVEMENTS. The Lessor agrees to provide $500,000.00 (inclusive of profit and overhead of 10% and sales tax) as an estimated budget for proposed tenant improvements. In the event that Lessee's tenant improvements are less than $500,000.00, Lessee shall be entitled to a reduction in rent equal to 10% per annum of the difference between the actual cost and this allowance. 58. MOVING ALLOWANCE. Notwithstanding the tenant improvement allowance, Lessor agrees to provide Lessee with a $100,000 credit for costs associated with moving into the building. Such amount to be credited against the Base Rent beginning in the first month and continuing until such credit has been fully used. 59. BUILDING SIGNAGE. Lessee shall have the right to provide and pay for its own sign on the building, subject to City of Tempe sign code regulations. 60. ADDITIONAL, MAINTENANCE REQUIREMENTS: Lessee shall maintain a contract with a fire sprinkler maintenance company that provides quarterly inspections of the fire sprinklers on the Premises. Lessee shall provide a copy of the contract and copies of the quarterly inspection reports to Lessor. This Building will have a limited roof warranty of ten (10) years from the roofing material supplier. Lessee shall maintain a contract with a roof maintenance company that provides for two (2) yearly inspections, the sealing of all roof protrusions, and any necessary repairs, including without limitation caulking or adhesive work. Lessee shall provide copies of the contract and copies of all inspection reports to Lessor. Lessee shall keep all roof drains and scuppers free of debris and shall promptly notify the roof warranty company and/or roof maintenance company of all additional protrusions made by Lessee. 61. PROPERTY TAXES: Lessee will receive a bill in October of each year for the year's property taxes to be paid to Lessor in two installments. This bill will include sales tax on the property taxes as required by the State and City. Lessor and/or Lessee shall have (he option to appeal tax valuations each year. In the event that the Full Cash Value is reduced by the tax appeal service for the next year, Lessee shall reimburse Lessor the fee paid to the tax service tip to the amount of the savings. EXAMPLE: Property tax before appeal: $10,000.00 Property tax after appeal: $ 9,000.00 ---------- Tax savings: $ 1,000.00 Tax service fee: $ 350.00 ---------- Total tax savings for Lessee: $ 650.00 62. BROKERS' COMMISSIONS. Section 15 of the Lease (including Paragraphs 15.1 through 15.6, inclusive) is hereby stricken in its entirety. Lessor agrees to pay a brokers' commission to CB Commercial, Kit Tiedemann (the "Broker") for brokerage services in connection with this Lease. Lessor and Lessee hereby represent and warrant to one another that, except for the Broker named above, neither has dealt with any person in such a manner to give rise to a valid claim for a brokerage commission in connection with this Lease. If any person other than the Broker named above shall assert a claim to a fee, commission or other compensation on account of alleged employment as a broker, finder, or intermediary in connection with this transaction, the party hereto under whom the broker, finder, or intermediary is claiming shall indemnify and hold harmless the other party against and from any such claim and all costs, expenses and liabilities incurred in connection with such claim or any action or proceeding brought thereon (including, but without limitation, counsel and witness fees and court costs in defending against such claim). 63. RENEWAL OPTION. Lessee shall have the Option to extend the Expiration Date of this Lease for sixty (60) months by giving notice to Lessor six (6) months prior to the Expiration Date. In such event, the Base Rent shall be increased to 115% of the Base Rent in the immediately preceding period. All other terms of this Lease shall remain the same. 64. TERMINATION OPTION. Lessee shall have the Option effective after the sixtieth (60th) month of the Lease to cancel this Lease by providing notice to Lessor at least six (6) months prior to the effective date of cancellation accompanied by a payment to Lessor equal to one-half of the remaining unpaid rent. As an example, if the Base Rent in the sixty-first (61st) month is $67,367.00 and Lessee provides Notice of Cancellation during the sixty-first (61st) month effective with the sixty-seventh (67th) month, the remaining rent on the effective date would be $3,570,451.00 and the payment amount would be $1,785,225.50. EXHIBIT "A" LEGAL DESCRIPTION Lots 25, 26, 27 and 28, and the West 100.00 feet of the North 67.49 feet of Lot 24, BROADWAY INDUSTRIAL PARK UNIT 4, a subdivision recorded in Book 210 of Maps, Page 49, records of Maricopa County, Arizona; EXCLUDING the South 20 feet of said Lot 25, except including the West 100 feet thereof; CONTAINING an area of 369,559 square feet (+/-) or 8.4839 acres, more or less. EX-10.48.1 32 CHAMBERLAIN LEASE FIRST AMENDMENT FIRST AMENDMENT That certain Lease dated March 31, 1995, by and between Chamberlain Development, L.L.C., an Arizona limited liability company, as Lessor, and MicroAge Computer Centers, Inc., a Delaware corporation and subsidiary of MicroAge, Inc., as Lessee, is hereby amended as follows: 1. Paragraph 1.5 shall be amended such that the Base Rent shall be increased from $58,580.00 to $65,050.00. 2. Paragraph 57 shall be amended such that the Tenant Improvement allowance shall be increased to $1,000,000.00 (inclusive of the amount of additional commission due to Broker on the Lease pursuant to this First Amendment). In the event that Lessee's tenant improvements are more than $500,000 but less than $1,000,000, Lessee shall be entitled to a reduction in rent equal to 15.5% per annum of the difference between the actual cost and $1,000,000). In the event that Lessee's tenant improvements are less than $500,000, Base Rent shall be calculated as provided in the original Lease. For example: (a) If Tenant's requested tenant improvements are $950,000, the additional commission due Broker will be $31,597.13, the total tenant improvements will be $981,597.13 and the revised Base Rent will be $64,812.18. (b) If Tenant's actual Tenant Improvements are $450,000.00, the revised Base Rent will be $58,163.00. All other terms and conditions remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of August 29, 1995. CHAMBERLAIN DEVELOPMENT, L.L.C. MICROAGE COMPUTER CENTERS, INC. By: /s/ James M. Chamberlain By: /s/ Alan R. Lyons - ------------------------------ ------------------------------- James M. Chamberlain, Member Printed Name: Alan R. Lyons Its: Vice President By: /s/ Patsy L. Chamberlain - ------------------------------ Patsy L. Chamberlain, Member EX-10.49 33 STANDARD INDUSTRIAL LEASE DERMODY P R O P E R T I E S STANDARD INDUSTRIAL LEASE For Landlord Use Only: (NET-NET-NET) Building #: 228CD L/A: BPE Lease Preparation Date: September 27, 1996 Landlord: Dermody Properties, a Nevada corporation, located at 1200 Financial Boulevard, P. O. Box 7098, Reno, Nevada 89510 Tenant: MicroAge Logistics Services, Inc., a Delaware corporation Trade Name (dba): MicroAge 1. LEASE TERMS 1.01 Premises: The Premises referred to in this Lease contain approximately 100,648 square feet as shown on Exhibit "A" attached. The address of the Leased Premises is: 1430 East Greg Street, Units 103 and 104, Sparks, Nevada 89431. 1.02 Project: The Project in which the Premises are located consist of approximately 201,295 square feet as shown in Exhibit A. 1.03 Tenant's Notice Address: Tenant's Notice Address is the address of the Leased Premises as defined in Section 1.01 unless otherwise specified here: 2400 S. MicroAge Way, Attn: V.P. Administration, Tempe, AZ 85282. 1.04 Landlord's Notice Address: P. O. Box 7098, Reno, Nevada 89510 1.05 Tenant's Permitted Use: Computer warehousing, configuration, and product clearance, general office, and call center operations, in compliance with all applicable laws, rules, and regulations and this Lease. 1.06 Lease Term: The Lease Term is for five (5) years and one (1) month and commences on December 1, 1996, and expires December 31, 2001. 1.07 Base Monthly Rent: Shall be paid in lawful money of the United States of America based on the following schedule: Month 1, December 1, 1996 - December 31, 1996: Free of Base Monthly Rent; however, Tenant shall be required to pay "Additional Rent" pursuant to Article 5. herein; Months 2 - 13,January 1,1997 - December 31, 1997: TWENTY-TWO THOUSAND, FIVE HUNDRED TWENTY FIVE AND NO/100 DOLLARS ($22,525.00) per month; Months 14 - 19, January 1, 1998 - June 30, 1998: TWENTY-THREE THOUSAND, THREE HUNDRED SEVENTY FIVE AND NO/100 DOLLARS ($23,375.00) per month; Months 20 - 25, July 1, 1998 - December 31, 1998: TWENTY-SEVEN THOUSAND, SIX HUNDRED SEVENTY-EIGHT AND 20/100 DOLLARS ($27,678.20) per month; Months 26 - 43, January 1, 1999 - June 30, 2000: TWENTY-EIGHT THOUSAND, SIX HUNDRED EIGHTY-FOUR AND 68/100 DOLLARS ($28,684.68) per month; and Months 44 - 61, July 1, 2000 - December 21, 2001: TWENTY-NINE THOUSAND SIX HUNDRED NINETY-ONE AND 16/100 DOLLARS ($29,691.16) per month. 1.08 Security Deposit: --$0-- in lawful money of the United States of America. 1.09 Proportionate Share: Tenant's Proportionate Share is 50% based upon the total square footage of the Project and the square --- footage of the Premises. 1.11 Tenant is entitled to common vehicle parking spaces subject to the provisions of Section 8 of the Lease. 1.12 Tenant Improvements: Tenant Improvements to be performed in the Premises, if any, will be performed in accordance with the terms and provisions entitled "Landlord's Work" contained in Exhibit "B" attached if applicable. Thereafter during the Lease Term, Landlord will be under no obligation to alter, change, decorate or improve the Premises. 1.13 Guaranty: Tenant's obligations under this Lease shall be guaranteed by MicroAge Computer Centers, Inc., a Delaware corporation, pursuant to the Guaranty attached hereto as Exhibit "E" and made a part hereof. 2. DEMISE AND POSSESSION 2.01 Landlord leases to Tenant and Tenant leases from Landlord the Premises described in 1.01. By entering the Premises, Tenant acknowledges that it has examined the Premises and accepts the Premises in their present condition subject to any additional work Landlord has agreed to do as stated on Exhibit B if applicable. Landlord expressly reserves its right to lease any other space available in the Project to whom ever it wishes, further Tenant hereby acknowledges that it did not rely on any other tenant remaining a tenant in the Project as a consideration for entering into this Lease. 2.02 If for any reason Landlord cannot deliver possession of the Premises on the date the Lease commences, Landlord shall not be subject to any liability nor shall the validity of this Lease be affected. If Tenant has not caused such delay there shall be a proportionate reduction of the Base Monthly Rent covering the period between the commencement of the Lease Term and the date when Landlord can deliver possession. However, Tenant, unless it is the cause of the delay, has the right to cancel this Lease by written notification if possession of the Premises is not delivered within ninety (90) days of the date the Lease Term commences. Landlord may terminate this Lease by giving written notice to Tenant if possession of the Premises is not delivered within ninety (90) days of the date the lease is to commence. 3. BASE MONTHLY RENT 3.01 Base Monthly Rent: Commencing January 1, 1997, Tenant will pay, without deduction or offset (except as set forth in Section 30.01), prior notice or demand, Base Monthly Rent at the place designated by Landlord. However, the first month's rent is due and payable upon execution of this Lease. In the event, that the Term of this Lease commences or ends on a day other than the first day of a calendar month, a prorated amount of Base Monthly Rent shall be due upon execution and it will be calculated using a thirty (30) day month. In the event this Lease is to commence upon a date not ascertained on execution, both parties agree to complete and execute a Commencement Date Certificate in the form of Exhibit "F" within ten (10) days of the Commencement Date, if applicable. -1- 3.02 See Section 1.07 herein for Rent Schedule. 3.03 Any installment of rent or any other charge payable which is not paid within ten (10) days after it becomes due will be considered past due and Tenant will pay to Landlord as Additional Rent a late charge equal to the product of the variable Prime Rate "Prime", plus six percent (6%) per annum as charged by Bank of America, Nevada; times the amount of such installment amount due, or eighteen percent (18%) per annum of such installment or the sum of twenty-five dollars ($25.00), whichever is greater, for each month or fractional month transpiring from the date due until paid. Notwithstanding the foregoing, no late charge for the first three (3) delinquent payments of rent or any other charge payable under this Lease shall be assessed unless such delinquent payment is not made within ten (10) days of written notice from Landlord to Tenant of the delinquency. A twenty-five dollar ($25.00) handling charge will be paid by Tenant to Landlord for each returned check and, thereafter, Tenant will pay all future payments of rent or other charges due by money order or cashier's check. In the event a late charge is assessed for three (3) consecutive rental periods, whether or not it is collected, the rent shall without further notice become due and payable quarterly in advance notwithstanding any provision of this Lease to the contrary. If Tenant shall be served with a demand for the payment of past due rent, any payments tendered thereafter to cure any default by Tenant shall be made only by cashier's check or equivalent. 3.04 The amount of the Base Monthly Rent includes projected construction of Tenant's improvements as indicated on Exhibit "B" attached. In the event that Tenant requests Landlord to construct additional improvements and/or final construction costs exceed original estimates, such costs or expenses upon itemized notice by Landlord, shall be paid by Tenant to Landlord, or Landlord may increase the Base Monthly Rent according to the terms and conditions outlined on Exhibit "B", or elsewhere in this Lease. 4. COMMON AREAS 4.01 Definitions: "Common Areas": "Common Area" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project that are provided and designated by Landlord for the non-exclusive use of Landlord, Tenant and other lessees of the Project and their respective employees, agents, customers and invitees. Common Areas include, but are not limited to: all parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, corridors, landscaped areas and any restrooms used in common by lessees. 4.02 Tenant, its employees, agents, customers and invitees have the non-exclusive right (in common with other Tenants, Landlord, and any other person granted use by Landlord) to use of the Common Areas. Tenant agrees to abide by and conform to, and to cause its employees, contractors, and agents to abide by and conform to all rules and regulations established by Landlord subject to provisions of paragraph 24. Tenant agrees to cause its customers and invitees to abide by and conform to all rules and regulations established by Landlord subject to the provisions of paragraph 24 with respect to the Premises and to utilize its best efforts to cause its customers and invitees to abide by and conform to all rules and regulations established by Landlord subject to the provisions of paragraph 24. with respect to the Project. 4.03 Landlord has the right, in its sole discretion, from time to time, to: 1) make changes to the Common Areas, including without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, ingress, egress, direction of driveways, entrances, corridors parking areas and walkways; 2) close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; 3) add additional buildings and improvements to the Common Areas; 4) use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or any portion thereof; do and perform any other acts or make any other changes in, to or with respect to the Common Areas and Project as Landlord may, in the exercise of sound business judgement, deem to be appropriate. Notwithstanding the foregoing, (1) at no time will parking spaces located within the Project and available for use by Tenant and Tenant's employees, contractors, agents, customers, and invitees be less than the total number of parking spaces within the Project multiplied by Tenant's Proportionate Share percentage specified in Section 1.09 above, and (2) any acts by or authorized by Landlord specified in this Section 4.03 shall not materially and unreasonably interfere with the conduct of Tenant's business from the Premises, except in the case of emergency. 5. ADDITIONAL RENT 5.01 All charges payable by Tenant other than Base Monthly Rent are called "Additional Rent". Unless this lease provides otherwise, Additional Rent is to be paid with the next monthly installment of Base Monthly Rent and is subject to the provisions of 3.03. The term "rent" whenever used in this Lease means Base Monthly Rent and Additional Rent. 5.02 Operating Costs A. "Operating Costs" are all costs and expenses of ownership, operation, maintenance, management, repair and insurance incurred by Landlord for the Project including, but not limited to the following: all supplies, materials, labor and equipment, used in or related to the operation and maintenance of the Common Areas; all utilities, including but not limited to: water, electricity, gas, heating, lighting, sewer, waste disposal related to the maintenance or operation of the Common Areas; all air-conditioning and ventilating costs related to the maintenance or operation of the Project; all Landlord's costs in managing, maintaining, repairing, operating and insuring the Project, including, for example, clerical, supervisory, and janitorial staff; all maintenance, management and service agreements, including but not limited to, janitorial, security, trash removal related to the maintenance or operation of the Project; all legal and accounting costs and fees for licenses and permits related to the ownership and operation of the Project; all insurance premiums and costs of fire, casualty, and liability coverage, rent abatement and earthquake insurance and any other type of insurance related to the Entire Project, including any deductible for a loss attributable to the Premises; all operation, maintenance and repair costs to the Common Areas, including but not limited to, sidewalks, walkways, parkways, parking areas, loading and unloading areas, trash areas, roadways, driveways, corridors, and landscaped area, including for example, costs of resurfacing and restriping parking areas; all maintenance and repair costs of building exteriors (including painting, asphalt repair and replacement, and roof maintenance, repair and replacement), restrooms used in common by Tenants and signs and directories of the Project; amortization (along with reasonable financing charges) of capital improvements made to the Common Areas which may be required by any government authority or which will improve the operating efficiency of the Project; a reasonable reserve for repairs and replacement; a five percent (5%) fee for Landlord's supervision of the Common Areas (five percent (5%) of the total above mentioned costs and expenses incurred in a calendar year). Operating Costs will not include (1) depreciation of the Project, (2) lease, mortgage, or similar payments made by Landlord, (3) Real Project Taxes, or (4) late charges specified in Section 3.03 above. B. Tenant shall pay to Landlord Tenant's Proportionate Share of the Operating Costs as indicated in 1.09. If there is a change in the square footage of either the Project or the Premises during the term of this Lease the Proportionate Share of the Tenant shall be -2- adjusted accordingly. Such payment shall be paid by Tenant with and in addition to the monthly payment of Base Monthly Rent. Tenant shall, if Landlord so elects, pay to Landlord on a monthly basis, in advance, the amount which Landlord reasonably estimates to be Tenant's Proportionate Share of the Operating Costs. In the event of such election by Landlord, Landlord shall periodically determine Tenant's share of the actual Operating Costs, and in the event that the amount which Tenant has paid to Landlord on account of the estimated Operating Costs is less than his share of such actual Operating Costs, Tenant shall pay such difference to Landlord on the next rent payment date. In the event that Tenant has paid to Landlord more than his share of such actual Operating Costs, the amount of such difference shall be credited against Tenant's payments of Operating Costs next due or if such period is at the end of the Lease term the amount of any overpayment shall be promptly refunded to Tenant. C. Failure by Landlord to provide Tenant with a statement by April 1st of each year shall not constitute a waiver by Landlord of its right to collect Tenant's share of Operating Costs or estimates for a particular calendar year, Landlord's right to charge Tenant for such expenses in subsequent years is not waived. Upon reasonable written notice to Landlord, Tenant shall have the right to audit Landlord's books and records with respect to Additional Rent at Landlord's offices at Tenant's sole cost and expense, and not more frequently than annually. 5.03 Taxes A. "Real Project Taxes" are: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax imposed by any taxing authority against the Project; (ii) any tax or fee on Landlord's right to receive, or the receipt of, rent or income from the Project or against Landlord's business of leasing the Project, (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Project by any governmental agency; (iv) any tax imposed upon this transaction, or based upon a re-assessment of the Project due to a change in ownership or transfer of all of part or Landlord's interest in the Project; (v) any charge or fee replacing, substituting for, or in addition to any tax previously included within the definition of real property tax; and (vi) the Landlord's cost of any tax protest relating to any of the above. Real Project Taxes do not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes. B. Tenant shall pay to Landlord Tenant's Proportionate Share of the Real Project Taxes as indicated in 1.09 for Real Project Taxes which accrue during the Lease term. Such payment shall be paid by Tenant annually upon being invoiced for such taxes in addition to the monthly payment of Base Monthly Rent. Tenant shall, if Landlord so elects, pay to Landlord on a monthly basis, in advance, the amount which Landlord reasonably estimates to be Tenant's Proportionate Share of the Real Project Taxes. In the event of such election by Landlord, Landlord shall periodically determine Tenant's share of the actual Real Project Taxes, and in the event that the amount which Tenant has paid to Landlord on account of the Real Project Taxes is less than his share of such actual Real Project Taxes, Tenant shall pay such difference to Landlord on the next rent payment date. In the event that Tenant has paid to Landlord more than his share of such actual Real Project Taxes, the amount of such difference shall be credited against Tenant's payment of Real Project Taxes next due. If the Lease term is expired then Landlord shall promptly refund any overpayment to Tenant. Landlord shall exercise commercially reasonable efforts to reduce Real Project Taxes as determined by Landlord in Landlord's sole and absolute discretion. C. Personal Property Taxes: Tenant will pay all taxes charged against trade fixtures, furnishing, equipment or any other personal property belonging to Tenant. Tenant will have personal property taxes billed separately from the Project. If any of Tenant's personal property is taxed with the Project, Tenant will pay Landlord the taxes for the personal property upon demand by Landlord. 5.04 Based on Tenant's Proportionate Share defined in 1.09, Tenant agrees to pay as Additional Rent to Landlord its share of any parking charges, utility surcharges, occupancy taxes, or any other costs directly resulting from the statutes or regulations, or interpretations thereof, enacted by any governmental authority in connection with the use or occupancy of the Project or the parking facilities serving the Project, or any part thereof. 5.05 Landlord by completing this paragraph may elect to have Tenant pay a monthly estimate of the Additional Rent due from Tenant of 5(cent) per square foot, i.e, FIVE THOUSAND, THIRTY-TWO AND 40/100 DOLLARS ($5,032.40) per month. Landlord shall make adjustments to this estimate based upon actual costs and projected future costs. Landlord shall periodically determine the balance between actual Additional Rent and Additional Rent paid by Tenant and make adjustments in accordance with 5.02 and 5.03 above. 7. USE OF PREMISES: QUIET CONDUCT 7.01 The Premises may be used and occupied only for Tenant's Permitted Use as shown in 1.05 and for no other purpose, without obtaining Landlord's prior written consent. Tenant will comply with all laws, ordinances, orders and regulations affecting Tenant's use and occupancy of the Premises. Tenant will not perform any act or carry on any practices that may injure the Project or the Premises or be a nuisance or menace, or disturb the quiet enjoyment of other lessees in the Project including but not limited to equipment which causes vibration in excess of commercially reasonable standards or is otherwise damaging to the Premises, or any portion or component thereof, or any other tenant, use or storage of chemicals other than minimal amounts in the ordinary course of business and in full compliance with all "Environmental Laws" (as defined in Section 7.02 below), or heat or noise which is not properly insulated. Tenant will not cause, maintain or permit any outside storage on or about the Premises. In addition, Tenant will not allow any condition or thing to remain on or about the Premises which diminishes the appearance or aesthetic qualities of the Premises and/or the Project or the surrounding property. The keeping of a dog or other animal on or about the Premises is expressly prohibited. 7.02 As used in this section, the term "Hazardous Waste" means: A. Those substances defined as "hazardous substances", "hazardous materials", "toxic substances", "regulated substances", or "solid waste" in the Toxic Substance Control Act, 15 U.S.C. ss. 2601 et. seq., as now existing or hereafter amended ("TSCA"), the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss. 9601 et. seq., as now existing or hereafter amended ("CERCLA"), the Resource, Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et. seq., as now existing or hereafter amended ("RCRA"), the Federal Hazardous Substances Act, 15 U.S.C. ss. 1261 et. seq., as now existing or hereafter amended ("FHSA"), the Occupational Safety and Health Act of 1970, 29 U.S.C. ss. 651 et. seq., as now existing or hereafter amended ("OSHA"), the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et. seq., as now existing or hereafter amended ("HMTA"), and the rules and regulations now in effect or promulgated hereafter pursuant to each law referenced above; B. Those substances defined as "hazardous waste", "hazardous material", or "regulated substances" in Nev. Rev. Stat. ch 459, 1989 Nev. Stat. ch. 598 and 1989 Nev. Stat. ch 363, or in the regulations now existing or hereafter promulgated pursuant thereto or in the Uniform Fire Code, 1988 edition; C. Those substances listed in the United States Department of Transportation table (49 CFR ss. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); and -3- D. Such other substances, mixtures, materials and waste which are regulated under applicable local, state or federal laws, rules, or regulations, or which are classified as hazardous or toxic under federal, state or local laws, rules, or regulations (all laws, rules and regulations referenced in paragraphs (a), (b), (c) and (d) are collectively referred to as "Environmental Laws"). 7.03 Tenant's Covenants. Tenant does not intend to and Tenant will not, nor will Tenant allow any of Tenant's employees, contractors, agents, visitors, customers, or invitees during the term of this Lease to manufacture, process, store, distribute, use, discharge or dispose of any Hazardous Waste in, under or on the Project, the Common Areas, or any property adjacent thereto, nor will Tenant allow any other person (including partnerships, corporations and joint ventures), during the term of this Lease to manufacture, process, store, distribute, use, discharge or dispose of any hazardous waste in, under, or on the Premises, except for minimal amounts of Hazardous Waste in the ordinary course of business and in full compliance with all Environmental Laws. A. Tenant shall notify Landlord promptly in the event of any spill or release of Hazardous Waste into, on, or onto the Project regardless of the source of spill or release, whenever Tenant knows or suspects that such a release occurred. B. Tenant will not be involved in operations at or near the Project which could lead to the imposition on the Tenant or the Landlord of liability or the creation of a lien on the Project, under the Environmental Laws. C. Tenant shall, upon twenty-four (24) hour prior notice by Landlord, permit Landlord or Landlord's agent access to the Project to conduct an environmental site assessment with respect to the Project. 7.04. Tenant's Indemnity. Tenant for itself and its successors and assigns undertakes to protect, indemnify, save and defend (by counsel reasonably acceptable to Landlord) Landlord, its agents, employees, directors, officers, shareholders, affiliates, consultants, independent contractors, lenders, partners, and their respective successors and assigns (collectively the "Indemnitees") harmless from any and all claims, judgments, causes of action, liabilities, losses, damages, penalties, fines, taxes, costs, and expenses, including reasonable attorneys' fees, claims, suits and judgments that Landlord or any other Indemnitee, whether as Landlord or otherwise, may suffer either during or after the term of this Lease as a result of, or with respect to: A. The violation affecting the Project by Tenant or Tenant's agents, employees, invitees, licensees or contractors of any Environmental Law, including the assertion of any lien thereunder and any suit brought or judgment rendered regardless of whether the action was commenced by a citizen (as authorized under the Environmental Laws) or by a government agency; B. To the extent caused by Tenant or Tenant's agents, employees, invitees, licensees or contractors, any spill or release of or the presence of any Hazardous Waste affecting the Project whether or not the same originates or emanates from the Project or any contiguous real estate, including any loss of value of the Project as a result of a spill or release of or the presence of any Hazardous Waste; C. To the extent caused by Tenant or Tenant's agents, employees, invitees, licensees or contractors, any other matter affecting the Project within the jurisdiction of the United States Environmental Protection Agency, the Nevada State Environmental Commission, the Nevada Department of Conservation and Natural Resources, or the Nevada Department of Commerce, including costs of investigations, remedial action, or other response costs whether such costs are incurred by the United States Government, the State of Nevada, or any Indemnitee; D. To the extent caused by Tenant or Tenant's agents, employees, invitees, licensees or contractors, liability for clean-up costs, fines, damages or penalties incurred pursuant to the provisions of any applicable Environmental Law; and E. To the extent caused by Tenant or Tenant's agents, employees, invitees, licensees or contractors, liability for personal injury or property damage arising under any statutory or common-law tort theory, including, without limitation, damages assessed for the maintenance of a public or private nuisance, or for the carrying of an abnormally dangerous activity, and response costs. Landlord shall promptly provide notice of any claims for which Tenant is to indemnify Landlord hereunder, and Landlord and Tenant shall reasonably cooperate in the defense of the claims. Tenant's obligations under this Article 7. shall survive the termination of this Lease. 7.05 Remedial Acts. In the event of any spill or release of or the presence of any Hazardous Waste affecting the Project, caused by Tenant, its employees, agents, invitees, licensees, or contractors, whether or not the same originates or emanates from the Project or any contiguous real estate, and/or if Tenant shall fail to comply with any of the requirements of any Environmental Law, Landlord may, upon ten (10) business days notice to Tenant (except in the case of emergency, for which no notice is required), at its election, but without obligation so to do, give such notices and/or cause such work to be performed at the Project and/or take any and all other actions as Landlord shall deem necessary or advisable in order to remedy said spill or release of Hazardous Waste or cure said failure of compliance and any amounts paid as a result thereof, together with interest at the rate equal to the product of the variable Prime Rate "Prime", plus six percent (6%) per annum as charged by Bank of America, Nevada; times the amount of such installment amount due, or eighteen percent (18%) per annum of such installment or the sum of twenty-five dollars ($25.00), whichever is greater, for each month or fractional month transpiring from the date due until paid. 7.06 Settlement. Landlord upon giving Tenant ten (10) business days prior notice, shall have the right in good faith to pay, settle or compromise, or litigate any claim, demand, loss, liability, cost, charge, suit, order, judgment or adjudication under the belief that it is liable therefor, whether liable or not, without the consent or approval of Tenant unless Tenant within said ten (10) business day period shall protest in writing and simultaneously with such protest deposit with Landlord collateral satisfactory to Landlord sufficient to pay and satisfy any penalty and/or interest which may accrue as a result of such protest and any judgment or judgments as may result, together with attorney's fees and expenses, including, but not limited to, environmental consultants. 7.07 Landlord's Representations and Indemnity. Landlord shall comply with all Environmental Laws and shall utilize its reasonable best efforts to promptly notify Tenant of the violation of any Environmental Law or presence of any Hazardous Waste in violation of any Environmental Law on the Premises whenever Landlord knows or suspects of any such violation. Landlord represents and warrants to Tenant that, as of the date of this Lease, Landlord has received no written notice from any governmental or administrative entity having jurisdiction over the Premises notifying Landlord that Hazardous Waste is present on, in, or under the Premises in violation of any Environmental Law. Landlord shall indemnify, protect, defend (by counsel reasonably acceptable to Tenant) and hold harmless Tenant and its partners, directors, officers, employees, shareholders, lenders, agents, contractors, and each of their respective successors and assigns, from and against any and all claims, judgments, causes of action, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the term of this Lease as a result of (i) a breach of the representation as is set forth in the immediately preceding sentence of this Section 7.07, or (ii) was authorized by Landlord or caused by the acts or omissions of Landlord, its employees, agents, contractors, or predecessors, and was not initially caused by Tenant, or Tenant's employees, agents, invitees, customers, licensees, or contractors. Tenant shall promptly provide notice of any claims for which Landlord is to indemnify Tenant hereunder and Tenant and Landlord shall reasonably cooperate in the defense of the claims. Landlord's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. 8. PARKING 8.01 Tenant and Tenant's customers, suppliers, employees, and invitees have the non-exclusive right to park in common with other lessees in the parking facilities as designated by Landlord and as otherwise set forth in this Lease. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other lessees in the use of the parking facilities. Landlord reserves the right to, on an equitable basis, assign specific spaces without charge to Tenant, make changes in the parking layout from time to time, and to establish reasonable time limits on parking. 9. UTILITIES -4- 9.01 Tenant will be responsible for and shall pay for all water, gas, heat, light, power, sewer, electricity, or other services metered, chargeable to or provided to the Premises separate from and in addition to the costs outlined in Section 5.02 dealing with the utility costs for Common Area Maintenance. Landlord reserves the right to install separate meters for any such utility. 9.02 Landlord will not be liable or deemed in default to Tenant nor will there be any abatement of rent for any interruption or reduction of utilities or services not caused by any act of Landlord or any act reasonably beyond Landlord's control. Tenant agrees to comply with energy conservation programs implemented by Landlord by reason of enacted laws or ordinances. 9.03 Tenant will contract and pay for all telephone and such other services for the Premises subject to the provisions of 10.03. 10. ALTERATIONS, MECHANIC'S LIENS 10.01 Except for nonstructural changes, alterations, or additions which do not decrease the value of the Premises, Tenant will not make any alterations to the Premises without Landlord's prior written consent. Landlord's consent shall be contingent upon Tenant providing Landlord with the following items or information, all subject to Landlord's approval which approval shall not be unreasonably withheld in accordance with the provisions of this Article 10: (i) Tenant's contractor, (ii) certificates of insurance by Tenant's contractor for commercial general liability insurance with limits not less than $2,000,000 General Aggregate,$1,000,000 Products/Complete Operations Aggregate,$1,000,000 Personal & Advertising Injury, $1,000,000 Each Occurrence, $50,000 Fire Damage, $5,000 Medical Expense, $1,000,000 Auto Liability (Combined Single Limit, including Hired/Non-Owned Auto Liability), Workers Compensation, including Employer's Liability, as required by state statute endorsed to show Landlord as an additional insured and for worker's compensation as required and (iii) detailed plans and specifications for such work. Tenant agrees that it will have its contractor execute a waiver of mechanic's lien and that Tenant will remove any mechanic's lien placed against the Project or provide a bond or other collateral in an amount and on such terms as are acceptable to Landlord in Landlord's reasonable discretion (it being agreed that Landlord may require removal of and Tenant shall immediately remove any such liens if so required by Landlord's lenders or otherwise to finance or refinance the Project or Premises) within ten (10) days of receipt of notice of lien. In addition, before alterations may begin, valid building permits or other permits or licenses required must be furnished to Landlord, and, once the alterations begin, Tenant will diligently and continuously pursue their completion. At Landlord's option, any alterations may become part of the realty and belong to Landlord. As a further condition to giving such consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a payment and performance bond in form acceptable to Landlord, in a principal amount not less than one and one-half times the estimated costs of such alterations, to ensure Landlord against any liability for mechanic's and materialmen's liens and to ensure completion of work. Tenant, at Landlord's option, shall at Tenant's expense remove all alterations and repair all damage to the Premises. 10.02 Notwithstanding anything in 10.01, Tenant may, with written consent of Landlord, install trade fixtures, equipment, and machinery in conformance with the ordinances of the applicable city and county, and they may be removed upon termination of its Lease provided the Premises are not damaged by their removal. 10.03 Any private telephone systems and/or other related telecommunications equipment and lines must be installed within Tenant's Premises and, if requested in writing by Landlord, upon termination of this Lease removed and the Premises restored to the same condition as before such installation. 10.04 Tenant will pay all costs for alterations and will keep the Premises, the Project and the underlying property free from any liens arising out of work performed for, materials furnished to or obligation incurred by Tenant or otherwise provide a bond or other collateral in an amount and on such terms as are acceptable to Landlord in Landlord's reasonable discretion (it being agreed that Landlord may require removal of and Tenant shall remove any such liens if so required by Landlord's lenders or otherwise to finance or refinance the Project or Premises). 10.05 Landlord will have the right to construct or permit construction of tenant improvements in or about the Project for existing and new Tenants and to alter any public areas in and around the Project. Notwithstanding anything which may be contained in this Lease, Tenant understands this right of Landlord and agrees that such construction will not be deemed to constitute a breach of this Lease by Landlord and Tenant waives any such claim which it might have arising from such construction. Landlord agrees to conduct or permit such construction so that such construction shall not materially and unreasonably interfere with Tenant's ability to conduct its business on the Premises to the extent reasonably possible. 11. FIRE INSURANCE: HAZARDS AND LIABILITY INSURANCE 11.01 Except as expressly provided as Tenant's Permitted Use, or as otherwise consented to by Landlord in writing, Tenant shall not do or permit anything to be done within or about the Premises which Tenant knows or reasonably believes will increase the existing rate of insurance on the Project and shall, at its sole cost and expense, comply with any requirements, pertaining to the Premises, of any insurance organization insuring the Project and Project-related apparatus. Upon prompt notice of such increase, Tenant agrees to pay to Landlord, as Additional Rent, any increases in premiums on policies resulting from Tenant's Permitted Use or other use consented to by Landlord which increases Landlord's premiums or requires extended coverage by Landlord to insure the Premises. Landlord agrees to provide Tenant with a reasonable opportunity to cure such condition. 11.02 Tenant, at all times during the term of this Lease and at Tenant's sole expense, will maintain a policy of standard fire and extended coverage insurance with "all risk" coverage on all Tenant's improvements and alterations in or about the Premises and on all personal property and equipment to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from this policy will be used by Tenant for the replacement of personal property and equipment and the restoration of Tenant's improvements and/or alterations. This policy will contain an express waiver, in favor of Landlord, of any right of subrogation by the insurer. 11.03 Tenant, at all times during the term on this Lease and at Tenant's sole expense, will maintain a policy of commercial general liability coverage with limits of not less than $2,000,000 combined single limit for bodily injury and property damage insuring against all liability of Tenant and its authorized representatives arising out of or in connection with Tenant's use or occupancy of the Premises. 11.04 All insurance will name Landlord and/or Landlord's designated partners and affiliates as an additional insured and will include an express waiver of subrogation by the insurer in favor of Landlord and Tenant and will release Landlord from any claims for damage to any person, to the Premises, and to the Project, and to Tenant's personal property, equipment, improvements and alterations in or on the Premises of the Project, caused by or resulting from risks which are to be insured against by Tenant under this Lease. All insurance required to be provided by Tenant under this Lease will (a) be issued by an insurance company authorized to do business in the state in which the Premises are located and which has and maintains a rating of A/X in the Best's Insurance Reports or the equivalent, (b) be primary and noncontributing with any insurance carried by Landlord, and (c) contain an endorsement requiring at least thirty (30) days prior written notice of cancellation to Landlord before cancellation or change in coverage, scope or limit of any policy. Tenant will deliver a certificate of insurance or a copy of the policy to Landlord within thirty (30) days of execution of this Lease and will provide evidence of renewed insurance coverage at each anniversary, and prior to the expiration of any current policies; however, in no event will Tenant be allowed to occupy the Premises before providing adequate and acceptable proof of insurance as stated above. Tenant's failure to provide evidence of this coverage to Landlord within ten (10) business days of notice from Landlord, may, in Landlord's sole discretion, constitute a default under this Lease. 12. INDEMNIFICATION AND WAIVER OF CLAIMS 12.01 Except as caused by the negligence or intentional misconduct of Landlord, its employees, agents, visitors, invitees, licenses, or contractors, Tenant waives all claims against Landlord for damage to any property in or about the Premises and for injury to any persons, including death resulting therefrom, regardless of cause or time of occurrence. Tenant will defend (with counsel reasonably acceptable to Landlord), indemnify and hold Landlord harmless from and against any and all claims, actions, proceedings, expenses, damages and liabilities, including attorney's fees, arising out of, connected with, or resulting from any use of the Premises by Tenant, its employees, agents, visitors -5- or licensees, including, without limitation, any failure of Tenant to comply fully with all of the terms and conditions of this Lease except for any damage or injury which is the result of the negligence or intentional misconduct or omission by Landlord, its employees, agents, visitors, licensees or contractors. Landlord shall give Tenant prompt notice of any claim for which Tenant is to indemnify, defend, and hold harmless Landlord hereunder and Landlord shall reasonably cooperate with Tenant. 13. REPAIRS 13.01 Tenant shall, at its sole expense, keep and maintain the Premises and every part thereof (excepting common use equipment, which Landlord agrees to repair or replace pursuant to Section 5.02 unless damages are due to the neglect or intentional acts of Tenant or its agents, employees, visitors, or licensees), including interior windows, skylights, doors, plate glass, any store fronts and the interior of the Premises, in good and sanitary order, condition and repair. Tenant will, also, at its sole cost keep and maintain all utilities, fixtures, plumbing and mechanical equipment used by Tenant in good order and repair and furnish all expendables (light bulbs, paper goods, soaps, etc.) used in the Premises. The standard for comparison and need of repair will be the condition of the Premises at the time of commencement of this Lease and all repairs will be made by a licensed and bonded contractor approved by Landlord. 13.02 Except as specified in 13.01, Tenant will not make repairs to the Premises at the cost of Landlord whether by deductions of rent or otherwise, or vacate the Premises or terminate the Lease if repairs are not made. If during the Term, any alteration, addition or change to the Premises is required by legal authorities, Tenant, at its sole expense, shall promptly make the same. Landlord reserves the right to make any such repairs not made or maintained in good condition by Tenant and Tenant shall reimburse Landlord for all such costs upon demand. 13.03 If repairs deemed necessary by Landlord or any government authority are not made by Tenant within the prescribed time frame as reasonably requested in writing, Tenant shall be in default of this Lease. 13.04 Tenant shall, at its own expense, within thirty days of lease commencement, contract with a vendor acceptable to Landlord for the maintenance service of the HVAC which will be furnished to the Landlord upon request. If Tenant fails to obtain and maintain such a maintenance service contract Landlord shall have the right to obtain such a maintenance service contract at the expense of Tenant. 14. AUCTIONS, SIGNS, AND LANDSCAPING 14.01 Tenant will not conduct or permit to be conducted any sale by auction on the Premises. Landlord will have the right to control landscaping and approve the placement, size, and quality of signs pursuant to Exhibit "G", "Sign Criteria". Tenant will not make alterations or additions to the landscaping and will not place any signs nor allow the placement of any signs, which are visible from the outside, on or about any building of the Project, nor in any landscape area, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Any signs not in conformity with this Lease or in accordance with the provisions of Exhibit "G" may be removed by Landlord at Tenant's expense. 15. ENTRY BY LANDLORD 15.01 Tenant will permit Landlord and Landlord's agents to enter the Premises at all reasonable times and upon reasonable notice (except in the case of emergency) for the purpose of inspecting the same, or for the purpose of maintaining the Project, or for the purpose of making repairs, alterations or additions to any portion of the Project, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, or for the purpose of posting notices of nonresponsibility for alterations, additions or repairs , or for the purpose of showing the Premises to prospective tenants during the last six months of the Lease Term, or placing upon the Project any usual or ordinary "for sale" signs, without any rebate of rents and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant will permit Landlord at any time within sixty (60) days prior to the expiration of this Lease, to place upon the Premises any usual or ordinary "to let" or "to lease" signs. Landlord retains the right to charge Tenant for restoring any altered doors to their condition prior to the installation of the new or additional locks. 16. ABANDONMENT 16.01 Tenant will not vacate or abandon the Premises, which shall be deemed to occur any time during the Lease Term if Tenant does not conduct business for a period of fifteen (15) consecutive days and/or leaves the Premises unoccupied for any period of time. If Tenant abandons, vacates or surrenders the Premises, or is dispossessed by process of law, or otherwise, any personal property belonging to Tenant left in or about the Premises will, at the option of Landlord be deemed abandoned and may be disposed of by Landlord in the manner provided for by the laws of the state in which the Premises are located. 17. DESTRUCTION 17.01 In the case of destruction of more than fifty percent (50%) of the Premises, or any portion thereof substantially interfering with Tenant's use of the Premises, whether by fire or other casualty, not caused by the fault or negligence of Tenant, its agents, employees, servants, contractors, subtenants, licensees, customers or business invitees, this Lease shall terminate except as herein provided. If Landlord notifies Tenant in writing within forty-five (45) days of such destruction of Landlord's election to repair said damage, and if Landlord proceeds to and does repair such damage within One Hundred Eighty (180) days of such damage, this Lease shall not terminate, but shall continue in full force and effect, except that Tenant shall be entitled to a reduction in the minimum rent in an amount equal to that proportion of the minimum rent which the number of square feet of floor space in the unusable portion bears to the total number of square feet of floor space in the Premises. Said reduction shall be prorated so that the rent shall only be reduced for those days any given area is actually unusable. The time of completion of repair of such damage shall be extended for, delays caused by labor disputes, civil commotion, war, warlike operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or control, fire or other casualty, inability to obtain any materials or services, acts of God and other causes beyond Landlord's control. If this Lease is terminated pursuant to this Section 17 and if Tenant is not in default hereunder, Rent shall be prorated as of the date of termination, any security deposited with Landlord shall be returned to Tenant, less any reasonable offsets and all rights and obligations hereunder shall cease and terminate. 17.02. Notwithstanding the foregoing provisions, in the event the Premises, or any portion thereof, shall be damaged by fire or other casualty caused by the fault or negligence of Tenant, its agents, employees, servants, contractors, subtenants, licensees, customers or business invitees, then, without prejudice to any other rights and remedies of Landlord, this Lease shall not terminate, the damage shall be repaired at Tenant's cost, and there shall be no apportionment or abatement of any rent. 17.03. In the event of any damage not limited to, or not including, the Premises, such that the building of which the Premises is a part is damaged to the extent of twenty-five (25%) percent or more of the cost of replacement, or the buildings (taken in the aggregate) of the Project owned by Landlord shall be damaged to the extent of more than twenty-five (25%) of the aggregate cost of replacement, Landlord may elect to terminate this Lease upon giving notice of such election in writing to Tenant within ninety (90) days after the occurrence of the event causing the damage. 17.04. The provisions of this Section 17 with respect to Landlord shall be limited to such repair as is necessary to place the Premises in the condition specified for Landlord's work by Exhibit B (if applicable) and when placed in such condition the Leased Property shall be deemed restored and rendered tenantable promptly following which time Tenant, at Tenant's expense shall perform Tenant's work required by Exhibit B (if applicable) unless such destruction was caused by the negligence or intentional misconduct of Landlord, or Landlord's employees, agents, visitors, contractors, invitees, or licenses, and Tenant shall also repair or replace its stock in trade, fixtures, furniture, furnishings, floor coverings and equipment, and if Tenant has closed, Tenant shall promptly reopen for business. -6- 17.05. All insurance proceeds payable under any fire, and/or rental insurance shall be payable solely to Landlord and Tenant shall have no interest therein. Tenant shall in no case be entitled to compensation for damages on account of any annoyance or inconvenience in making repairs under any provision of this Lease. Except to the extent provided for in this Section 17, neither the rent payable by Tenant nor any of Tenant's other obligations under any provision of this Lease shall be affected by any damage to or destruction of the Premises or any portion thereof by any cause whatsoever. 18. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP 18.01 Except for a "Permitted Assignment," as defined in Section 18.02 below, Tenant will not, without Landlord's prior written consent, assign, sublease sell, mortgage, encumber, convey or otherwise transfer all or any part of Tenant's leasehold estate, or permit the Premises to be occupied by anyone other than Tenant and Tenant's employees or sublet the Premises or any portion thereof (collectively called "Transfer"). Tenant must supply Landlord with any and all documents deemed necessary by Landlord to evaluate any proposed Transfer and with respect to a Permitted Assignment at least sixty (60) days in advance of Tenant's proposed Transfer date or the date of a Permitted Assignment. 18.02 Except for a "Permitted Assignment," as defined hereinbelow, Landlord need not consent to any Transfer for reasons including, but not limited to, whether or not: (a) in the reasonable judgment of Landlord the transferee is of a character or is engaged in a business which is not in keeping with the standard of Landlord for the Project; (b) in the reasonable judgment of Landlord any purpose for which the transferee intends to use the Premises is not in keeping with the standards of Landlord for the Project; provided in no event may any purpose for which transferee intends to use the Premises be in violation of this Lease; (c) the portion of the Premises subject to the transfer is not regular in shape with appropriate means of entering and exiting, including adherence to any local, county or other governmental codes, or is not otherwise suitable for the normal purposes associated with such a Transfer; or (d) Tenant is in default under this Lease or any other Lease with Landlord. Notwithstanding the foregoing provisions of this Section 18.02, and provided that Tenant complies with all other provisions of this Article 18, Landlord hereby consents to the assignment of the Lease to MicroAge, Inc., a Delaware corporation, or any wholly-owned subsidiary corporation of MicroAge, Inc. (a "Permitted Assignment"). No Permitted Assignment shall release or otherwise affect Tenant's or any guarantor's obligations under this Lease, or constitute an express or implied consent to any other Transfer of all or any part of Tenant's leasehold estate, or the occupation by anyone other than Tenant or Tenant's employees. 18.03 In the event Landlord consents to a Transfer or in the event of a Permitted Assignment, Tenant will pay Landlord fifty percent (50%) of the excess, if any, of the rent and other charges reserved in the Transfer or Permitted Assignment over the allocable portion of the rent and other charges hereunder for that portion of the Premises subject to the Transfer or Permitted Assignment. For the purpose of this section, the rent reserved in the Transfer will be deemed to include any lump sum payment or other consideration given to Tenant in consideration for the Transfer or Permitted Assignment. Tenant will pay or cause the transferee to pay to Landlord this additional rent together with the monthly installments of rent due. 18.04 Any consent to any Transfer which may be given by Landlord, or any Permitted Assignment, or the acceptance of any rent, charges or other consideration by Landlord from Tenant or any third party, will not constitute a waiver by Landlord of the provisions of this Lease or a release of Tenant from the full performance by it of the covenants stated herein; and any consent given by Landlord to any Transfer, or any Permitted Assignment, will not relieve Tenant (or any transferee of Tenant) from the above requirements for obtaining the written consent of Landlord to any subsequent Transfer. 18.05 If a default under this Lease should occur while the Premises or any part of the Premises are Transferred, assigned, sublet or otherwise transferred (including, without limitation, a Permitted Assignment), Landlord, in addition to any other remedies provided for within this Lease or by law, may at its option collect directly from the transferee all rent or other consideration becoming due to Tenant under the Transfer or Permitted Assignment and apply these monies against any sums due to Landlord by Tenant; and Tenant authorizes and directs any transferee to make payments of rent or other consideration direct to Landlord upon receipt of notice from Landlord. No direct collection by Landlord from any transferee should be construed to constitute a novation or a release of Tenant or any guarantor of Tenant from the further performance of its obligations in connection with this Lease. 18.06 If Tenant is a corporation or a partnership, the issuances of any additional stock or equity interest and/or the transfer, assignment or hypothecation of any stock or interest in such corporation or partnership in the aggregate in excess of Twenty-five percent (25%) of such interests, as the same may be constituted as of the date of this Lease, whether directly or indirectly, shall be deemed to be a Transfer within the meaning of this Section 18. Notwithstanding the foregoing, Tenant may issue additional stock and/or transfer, assign, or hypothecate all or any portion of Tenant's stock, as the same may be constituted as of the date of this Lease, whether directly or indirectly, to MicroAge, Inc. or any wholly owned subsidiary of MicroAge, Inc. and the same shall not constitute a Transfer within the meaning of this Article 18. In the event of any such stock issuance or transfer, the same shall not constitute consent by Landlord to any further stock issuance or transfer, nor shall it affect this Lease or any of Tenant's or any guarantor's obligations hereunder. 18.07 In the event Tenant requests Landlord's consent to an Assignment, Sub-Let or Transfer of Tenant's interest in the leased Premises or in the case of a Permitted Assignment, Tenant agrees to pay Landlord all reasonable attorney's fees incurred by Landlord for any legal services for document review of any and all documents deemed necessary by Landlord and Tenant to Assign, Sub-let or Transfer Tenant's interest in the leased Premises. 19. BREACH BY TENANT 19.01 Tenant will be in breach of this Lease if at any time during the term of this Lease (and regardless of the pendency of any bankruptcy, reorganization, receivership, insolvency or other proceedings in law, in equity or before any administrative tribunal which have or might have the effect of preventing Tenant from complying with the terms of this Lease): A. Tenant fails to make payment of any installment of Base Monthly Rent, Additional Rent, or of any other sum herein specified to be paid by Tenant within ten (10) days of the date such sum was due under this Lease; and after three (3) days following notice from Landlord of such breach; or B. Tenant fails to observe or perform any of its other covenants, agreements or obligations hereunder, and such failure is not cured within ten (10) business days after Landlord's written notice to Tenant of such failure; provided, however, that if the nature of Tenant's obligation is such that more than ten (10) business days are required for performance, then Tenant will not be in breach if Tenant commences performance within such 10 business day period and thereafter diligently prosecutes the same to completion; or C. Tenant, Tenant's assignee, subtenant, guarantor, or occupant of the Premises becomes insolvent, makes a transfer in fraud of its creditors, makes a transfer for the benefit of its creditors, is the subject of a bankruptcy petition, is adjudged bankrupt or insolvent in proceedings filed against Tenant, a receiver, trustee, or custodian is appointed for all or substantially all of Tenant's assets, fails to pay its debts as they become due, convenes a meeting of all or a portion of its creditors, or performs any acts of bankruptcy or insolvency, including the selling of its assets to pay creditors; or D. Tenant has abandoned the Premises as defined in paragraph 16 above. 20. REMEDIES OF LANDLORD 20.01 Nothing contained herein shall constitute a waiver of Landlord's right to recover damages by reason of Landlord's efforts to mitigate the damage to it by Tenant's default; nor shall anything in this Section adversely affect Landlord's right, as in this Lease elsewhere provided, to indemnification against liability for injury or damages to persons or property occurring prior to a termination of this Lease. -7- 20.02 All cure periods provided herein shall run concurrently with any periods provided by law. 20.03 In the event of default, as designated herein above, in addition to any other rights or remedies provided for herein or at law or in equity, Landlord, at its sole option, shall have the following rights: A. The right to declare the term of this Lease ended and reenter the Premises and take possession thereof, and to terminate all of the rights of Tenant in and to the Premises. B. The right, without declaring the term of this Lease ended, to reenter the Premises and to occupy the same, or any portion there of, for and on account of the Tenant as hereinafter provided, and Tenant shall be liable for and pay to Landlord on demand all such expenses as Landlord may have paid, assumed or incurred in recovering possession of the Premises, including reasonable costs, expenses, attorney's fees and expenditures placing the same in good order, or preparing or altering the same for reletting, and all other reasonable expenses, commissions and charges paid by the Landlord in connection with reletting the Premises. Any such reletting may be for the remainder of the term of this Lease or for a longer or shorter period. Such reletting shall be for such rent and on such other terms and conditions as Landlord, in its sole discretion, deems appropriate. Landlord may execute any lease made pursuant to the terms hereof either in the Landlord's own name or in the name of Tenant or assume Tenant's interest in any existing subleases to any tenant of the Premises, as Landlord may see fit, and Tenant shall have no right or authority whatsoever to collect any rent from such tenants, subtenants, of the Premises. In any case, and whether or not the Premises or any part thereof is relet, Tenant, until the end of the Lease term shall be liable to Landlord for an amount equal to the amount due as Rent hereunder, less net proceeds, if any of any reletting effected for the account of Tenant. Landlord reserves the right to bring such actions for the recovery of any deficits remaining unpaid by the Tenant to the Landlord hereunder as Landlord may deem advisable from time to time without being obligated to await the end of the term of the Lease. Commencement of maintenance of one or more actions by the Landlord in this connection shall not bar the Landlord from bringing any subsequent actions for further accruals. In no event shall Tenant be entitled to any excess rent received by Landlord over and above that which Tenant is obligated to pay hereunder; or C. The right, even though it may have relet all or any portion of the Premises in accordance with the provisions of subsection B. above, to thereafter at any time elect to terminate this Lease for such previous default on the part of the Tenant, and to terminate all the rights of Tenant in and to the Premises. 20.04 Pursuant to the rights of re-entry provided above, Landlord may remove all persons from the Premises and may, but shall not be obligated to, remove all property therefrom, and may, but shall not be obligated to, enforce any rights Landlord may have against said property or store the same in any public or private warehouse or elsewhere at the cost and for the account of Tenant or the owner or owners thereof. Tenant agrees to hold Landlord free and harmless from any liability whatsoever for the removal and/or storage of any such property, whether of Tenant or any third party whomsoever. Such action by the Landlord shall not be deemed to have terminated this Lease. 20.05 If Tenant breaches this Lease and abandons the Premises before the end of the term, or if its right of possession is terminated by Landlord because of Tenant's breach of this Lease, then this Lease may be terminated by Landlord at its option. On such Termination Landlord may recover from Tenant, in addition to the remedies permitted at law: A. The worth, at the time of the award, of the unpaid Base Monthly Rents and Additional Rents which had been earned at the time this Lease is terminated. B. The worth, at the time of the award, of the amount by which the unpaid Base Monthly Rents and Additional Rents which would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rents that Tenant proves could be reasonably avoided; C. The worth, at the time of the award, of the amount by which the unpaid Base Monthly Rent and Additional Rents for the balance of the Lease Term after the time of award exceeds the amount of such rental loss for such period as the Tenant proves could have been reasonably avoided; and D. Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's breach of its obligations under this Lease, or which in the ordinary course of events would be likely to result therefrom. The detriment proximately caused by Tenant's breach will include, without limitation, (i) reasonable expenses for cleaning, repairing or restoring the Premises, (ii) reasonable expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting the Premises, (iii) reasonable brokers' fees and commissions, and advertising costs for the purpose of reletting the Premises, and such other expenses as may be required by a new tenant, , (iv) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions, (v) expenses of retaking possession of the Premises, (vi) reasonable attorney's fees and court costs, (vii) any unearned brokerage commissions paid in connection with this Lease, (viii) reimbursement of any previously waived Base Rent, Additional Rent, free rent or reduced rental rate, and (ix) any concession made or paid by Landlord to the benefit of Tenant in consideration of this Lease including, but not limited to, any moving allowances, contributions or payments by Landlord for tenant improvements or build-out allowances or assumptions by Landlord of any of the Tenant's previous lease obligations. 20.06 In any action brought by either party to enforce any of its rights under or arising from this Lease, the prevailing party shall be entitled to receive its costs and legal expenses including reasonable attorneys' fees, whether or not such action is prosecuted to judgment. 20.07 The waiver by either party of any breach or default of the other party hereunder shall not be a waiver of any preceding or subsequent breach of the same or any other term. Acceptance of any Rent payment shall not be construed to be a waiver of the Landlord of any preceding breach of the Tenant. 20.08 All past due amounts owed by Tenant or Landlord under the terms of this Lease shall bear interest at twelve percent (12%) per annum unless otherwise stated. 21. SURRENDER OF LEASE NOT MERGER 21.01 The voluntary or other surrender of this Lease by Tenant, or mutual cancellation thereof, will not work a merger and will, at the option of Landlord, terminate all or any existing transfers, or may, at the option of Landlord, operate as an assignment to it of any or all of such transfers. 22. ATTORNEYS FEES/COLLECTION CHARGES 22.01 In the event of any legal action or proceeding between the parties hereto, reasonable attorneys' fees and expenses of the prevailing party in any such action or proceeding will be added to the judgment therein. Should Landlord be named as defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder and not caused by Landlord's negligence or intentional misconduct, Tenant will pay to Landlord its costs and expenses incurred in such suit, including reasonable attorney's fees. Landlord shall promptly notify Tenant of any claim or expense for which Tenant is to indemnify Landlord pursuant to the preceding sentence and Landlord shall reasonably cooperate with Tenant. Tenant's obligations hereunder shall survive the termination of this Lease. 22.02 If Landlord utilizes the services of any attorney at law for the purpose of collecting any rent due and unpaid by Tenant after receipt of five (5) days written notice to Tenant of such nonpayment of rent or in connection with any other breach of this Lease by Tenant, Tenant agrees to pay Landlord reasonable attorneys' fees as determined by Landlord for such services, regardless of the fact that no legal action may be commenced or filed by Landlord -8- 23. CONDEMNATION 23.01 If fifty percent (50%) or more of the square footage of the Premises or in the event any portion of the Premises substantially interfering with Tenant's use thereof is taken for any public or quasi-public purpose by any lawful government power or authority, by exercise of the right of appropriation, reverse condemnation, condemnation or eminent domain, or sold to prevent such taking, and if the remaining portion of the Premises will be reasonably adequate for the operation of Tenant's business after Landlord completes such repairs or alterations as Landlord elects to make, either Tenant or the Landlord may at its option terminate this Lease by notifying the other party hereto of such election in writing within twenty (20) days after such taking. Tenant will not because of such taking assert any claim against the Landlord or the taking authority for any compensation because of such taking, and Landlord will be entitled to receive the entire amount of any award without deduction for any estate of interest of Tenant. If less than twenty-five percent (25%) of the Premises is taken or if the taking does not substantially interfere with Tenant's use of the Premises, Landlord at its option may terminate this Lease. If Landlord does not so elect, Landlord will promptly proceed to restore the Premises to substantially its same condition prior to such partial taking, allowing for any reasonable effects of such taking, and a proportionate allowance based on the loss of square footage will be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises, which, Tenant is deprived on account of such taking and restoration. 24. RULES AND REGULATIONS 24.01 Tenant will faithfully observe and comply with any reasonable Rules and Regulations promulgated by Landlord for the Project and Landlord reserves the right to modify and amend them as it deems necessary. Landlord will not be responsible to Tenant for the nonperformance by any other Tenant or occupant of the Project of any of said Rules and Regulations. 24.02 In the event that Tenant fails to cure any violations of such Rules and Regulations following ten (10) business days written notice by Landlord, such failure to cure shall be deemed a material breach of this Lease by Tenant. 25. ESTOPPEL CERTIFICATE 25.01 Tenant will execute and deliver to Landlord, within ten (10) business days of Landlord's written demand, a statement in writing certifying that this Lease is in full force and effect, and that the Base Monthly Rent and Additional Rent payable hereunder is unmodified and in full force and effect (or, if modified, stating the nature of such modification) and the date to which rent and other charges are paid, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or specifying such defaults if they are claimed and such other matters as Landlord may reasonably request and which do not diminish Tenant's rights under this Lease. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that (1) this Lease is in full force and effect, without modification except as may be represented by Landlord; (2) to Tenant's knowledge there are no uncured defaults in Landlord's performance, and (3) not more than one (1) month's rents has been paid in advance. 26. SALE BY LANDLORD 26.01 Provided that any successor agrees in writing to be bound as Landlord under this Lease, in the event of a sale or conveyance by Landlord of the Project the same shall operate to release Landlord from any liability upon any of the covenants or conditions, expressed or implied, herein contained in favor of Tenant which accrue or occur, or for which Landlord may become obligated, subsequent to such sale or transfer, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. This Lease will not be affected by any such sale, and, provided that any successor agrees in writing to be bound as Landlord under this Lease, Tenant agrees to attorn to the purchaser or assignee. 27. NOTICES 27.01 All notices, statements, demands, requests, consents, approvals, authorizations, offers, agreements, appointments, or designations under this Lease by either party to the other will be in writing and will be considered sufficiently given and served upon the other party (1) five (5) days after mailing by certified or registered mail, return receipt requested, postage prepaid, (2) upon personal delivery by any legitimate third party, or (3) upon receipt from a national overnight delivery service for next day delivery, and addressed as indicated in Sections 1.03 and 1.04. 28. WAIVER 28.01 The failure of either party to insist in any one or more cases upon the strict performance of any term, covenant or condition of the Lease will not be construed as a waiver of a subsequent breach of the same or any other covenant, term or condition; nor shall any delay or omission by the other party to seek a remedy for any breach of this Lease be deemed a waiver by such party of its remedies or rights with respect to such a breach. 29. HOLDOVER 29.01 If Tenant remains in the Premises after the Lease Expiration Date with the consent of the Landlord, and has not given prior written notice to Landlord, such continuance of possession by Tenant will be deemed to be a month-to-month tenancy at the sufferance of Landlord terminable on thirty (30) day notice at any time by either party. All provisions of this Lease, except those pertaining to term and rent, will apply to the month-to-month tenancy. Tenant will pay a new Base Monthly Rent in an amount equal to 125% of the Base Monthly Rent payable for the last full calendar month during the regular term of this Lease (including any exercised option term(s)) for the first (1st) sixty (60) days after the Lease Expiration Date, and 150% of the Base Monthly Rent payable for the last full calendar month during the regular term of this Lease (including any exercised option term(s)) thereafter. 30. DEFAULT OF LANDLORD/LIMITATION OF LIABILITY 30.01 Landlord Default; Tenant Set-Off Rights: In the event of any default by Landlord hereunder, Tenant agrees to give notice of such default, by registered mail, to Landlord at Landlord's Notice Address as stated in 1.04 and to offer Landlord ten (10) business days to cure such default; provided, however, that if the nature of Landlord's obligation is such that more than ten (10) business days are required for performance, then Landlord will not be in breach if Landlord commences performance within such ten (10) business day period and thereafter diligently prosecutes the same to completion. Notwithstanding any of the other provisions of this Lease, Tenant shall have the right to set off up to a maximum cumulative amount during the term of this Lease of Ten Thousand Dollars ($10,000) of Tenant's expenses incurred as a result of the failure by Landlord to cure any default of Landlord in accordance with the provisions of this Section 30.01. Prior to Tenant's performing on Landlord's behalf the obligations hereunder and exercising Tenant's set-off rights, Tenant shall provide Landlord with an additional ten (10) business day notice of the exercise of such rights and, if Landlord objects in writing to such exercise within the foregoing ten (10) business day period, the parties agree to submit the issue to binding arbitration in Reno, Nevada, in accordance with the rules of the American Arbitration Association then in effect. The costs of the arbitration shall be borne equally by Landlord and Tenant. In the event Tenant has provided Landlord with the required notices specified above, and Landlord has not timely commenced actions and diligently prosecutes to cure the default or notified Tenant of Landlord's objection or difference of opinion as to the nature of Landlord's default within the time period specified above, then, and only then, may Tenant perform such obligations on Landlord's behalf and at Landlord's cost, and set off against the next payment(s) of rent due under this Lease, up to a maximum cumulative amount of Ten Thousand Dollars ($10,000) during the term of this Lease of such amount in accordance with the provisions of this Section 30.01. Tenant shall provide Landlord with appropriate substantiation of the costs incurred by Tenant and any work performed by Tenant shall be performed by a licensed contractor subject to the requirements of Section 10.01 above. 30.02 Limitation of Liability. In the event of any actual or alleged failure, breach or default hereunder by Landlord, Tenant's sole and exclusive remedy will be against Landlord's interest in the Project, and Landlord, its directors, officers, employees and any partner of Landlord will not be sued, be subject to service or process, or have a judgement obtained against him in connection with any alleged breach -9- or default, and no writ of execution will be levied against the assets of any partner, shareholder or officer of Landlord. The covenants and agreements are enforceable by Landlord and also by any partner, shareholder or officer of Landlord. 31. SUBORDINATION 31.01 Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the Project or any ground lessor with respect to the Project, this Lease will be subject and subordinate at all times to (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Project, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Project, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant will, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest, provided that such successor-in-interest agrees in writing to be bound as Landlord under this Lease. Tenant covenants and agrees to execute and deliver to Landlord any document or instrument reasonably requested by Landlord or its ground lessor, mortgagee or beneficiary under a deed of trust evidencing such subordination of this Lease with respect to any such ground lease or underlying leases or the lien of any such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant, in the event Tenant has failed to execute and deliver such document or instrument within ten (10) business days of Landlord's request to Tenant and provision of the requested form of document or instrument to Tenant consistent with the terms of Article 31. 32. DEPOSIT AGREEMENT 32.01 Landlord and Tenant hereby agree that Landlord will be entitled to immediately endorse and cash Tenant's good faith rent and the Security Deposit check(s) accompanying this Lease. It is further agreed and understood that such action will not guarantee acceptance of this Lease by Landlord, but, in the event Landlord does not accept this Lease, such deposits will be promptly refunded in full to Tenant. This Lease will be effective only after Tenant has received a copy fully executed by both Landlord and Tenant. 33. GOVERNING LAW 33.01 This Lease is governed by and construed in accordance with the laws of the State of Nevada, and venue of any suit will be in the county where the Premises are located unless the Premises are not located in Nevada in which case the venue will be Washoe County in the State of Nevada. 34. NEGOTIATED TERMS 34.01 This Lease is the result of the negotiations of the parties and has been agreed to by both Landlord and Tenant after prolonged discussion. 35. SEVERABILITY 35.01 If any provision of this Lease is found to be unenforceable, all other provisions shall remain in full force and effect. 36. BROKERS 36.01 Tenant warrants that it has had no dealings with any broker or agent in connection with this Lease, except Kit Tiedemann, CB Commercial, and covenants to pay, hold harmless and indemnify Landlord from and against any and all cost, expense or liability for any compensation, commissions and charges claimed by any broker or agent, other than any identified above, with respect to this Lease or its negotiation. 37. QUIET POSSESSION 37.01 Tenant, upon paying the rentals and other payments herein required from Tenant, and upon Tenant's performance of all of the terms, covenants and conditions of this Lease on its part to be kept and performed, may quietly have, hold and enjoy the Premises during the Term of this Lease without disturbance from Landlord or from any other person claiming through Landlord. 38. MISCELLANEOUS PROVISIONS 38.01 Whenever the singular number is used in this Lease and when required by the context, the same will include the plural, and the masculine gender will include the feminine and neuter genders, and the word "person" will include corporation, firm, partnership, or association. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease will be joint and several. 38.02 The headings or titles to paragraphs of this Lease are not a part of this Lease and will have no effect upon the construction or interpretation of any part of this Lease. 38.03 This instrument contains all of the agreements and conditions made between the parties to this Lease. Tenant acknowledges that neither Landlord nor Landlord's agents have made any representation or warranty as to the suitability of the Premises to the conduct of Tenant's business. Any agreements, warranties or representations not expressly contained herein will in no way bind either Landlord or Tenant, and Landlord and Tenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Lease. 38.04 Time is of the essence of each term and provision of this Lease. 38.05 Except as otherwise expressly stated, each payment required to be made by Tenant is in addition to and not in substitution for other payments to be made by Tenant. 38.06 Subject to Article 18, the terms and provisions of this Lease are binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of Landlord and Tenant. 38.07 All covenants and agreements to be performed by Tenant under any of the terms of this Lease will be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent (except as set forth in Section 30.01). 38.08 In consideration of the parties' respective covenants and agreements hereunder, each party hereby covenants and agrees not to disclose any terms, covenants or conditions of this Lease to any other party without the prior written consent of the other party except (1) as otherwise represented in the normal course of business for financing and in other business purposes, (2) as required by law or court order, or (3) as required by either party's independent auditors. 38.09 Tenant agrees it will provide to Landlord such financial information as Landlord may reasonably request for the purpose of obtaining construction and/or permanent financing for the Premises. Landlord agrees that such financial information shall be subject to the Confidentiality Agreement in the form attached hereto as Exhibit H. 38.10 If either party (the "Requesting Party") shall request the consent of the other party (the "Non-requesting Party") and the Non-requesting Party shall fail or refuse to give such consent, the Requesting Party shall not be entitled to any damages for any withholding by the Non-requesting Party of its consent; the Requesting Party's sole remedy shall be an action for specific performance or injunction, and such remedy shall be available only in those cases where the Non-requesting -10- Party has expressly agreed in writing not to unreasonably withhold its consent or where as a matter of law the Non-requesting Party may not unreasonably withhold its consent. 38.11 Whenever a day is appointed herein on which, or a period of time is appointed in which, either party is required to do or complete any act, matter or thing, the time for the doing or completion thereof shall be extended by a period of time equal to the number of days on or during which such party is prevented from, or is reasonably interfered with, the doing or completion of such act, matter or thing because of labor disputes, civil commotion, war, warlike operation, sabotage, governmental regulations or control, fire or other casualty, inability to obtain materials, or to obtain fuel or energy, weather or other acts of God, or other causes beyond such party's reasonable control (financial inability excepted); provided, however, that nothing contained herein shall excuse Tenant from the prompt payment of any Rent or charge required of Tenant hereunder. 38.12 No slot machine or other gambling game shall be permitted on the Premises without the prior written consent of Landlord. The Premises shall not be used for any "adult bookstore" or "adult motion picture theater" as said terms are defined in NRS 278.0221, or any similar use, notwithstanding any local zoning codes or ordinances or any other provisions of law to the contrary permitting such use. 39. CHANGE ORDERS. In the event Tenant requests and\or approves changes in the scope the work being provided by or through Landlord Tenant agrees to pay all the direct and indirect costs of additional work at the time it gives such approval. In the event that the aggregate cost of additional work provided under this Lease is ten thousand dollars ($10,000.00) or more, or in excess of two months rent, whichever is less, then Landlord may accept payment of one half of the cost of additional work at the time of approval of said change order by the Tenant, and payment of the balance to be paid at the time the additional work is substantially completed. 40. SPECIAL PROVISIONS 40.01 Special provisions of this Lease number 41 through 44 and Exhibits "A" (description of premises showing square footage), "B" ("Landlord's Work" - tenant improvements), "C" (Tenant Questionnaire), "D" (Rules and Regulations), "E" (Guaranty), "F" ("Commencement Date Certificate"), "G" ("Sign Criteria"), and "H" ("Confidentiality Agreement"), are attached hereto and made a part hereof. 41. OPTION TO EXTEND 41.01 Tenant is hereby granted one (1) option (the "Option") to extend the Lease Term for an additional term of five (5) years (the "Extension"), beginning on January 1, 2002, and expiring on December 31, 2006 (unless terminated sooner pursuant to any other terms or provisions of the Lease), on all of the same terms and conditions as set forth in the Lease, but at an adjusted rent as set forth in Section 41.02 below (and without any additional option to extend the Lease Term after the expiration of the Extension). The Option may be exercised by Tenant only by delivery of written notice to Landlord, which notice must be received by Landlord at least one hundred twenty (120) days before the expiration of the original Lease Term set forth in Section 1.06 above. If Tenant fails to timely deliver such written notice, or if this Lease is terminated pursuant to any other terms or provisions of this Lease prior to the expiration of the original Lease Term, the Option shall lapse, and Tenant shall have no right to extend the Lease Term. The Option shall be exercisable by Tenant on the express conditions that (i) at the time of delivery of Tenant's notice of its election to exercise the Option, and at all times prior to the commencement of the Extension, Tenant shall not be in default under this Lease, (ii) Tenant has not previously been in default (whether or not any such default has been timely cured) under this Lease on more than three (3) occasions during the Lease Term, and (iii) Tenant has not assigned this Lease nor sublet all or any part of the Premises, it being understood that the Option is personal to the original named Tenant under this Lease. In the event of any such assignment or sublease, the Option shall lapse and shall be null and void and of no further force or effect. 41.02 The rental during this Option period shall be at the "then current market rate". In no event, however, shall the rental during the Option period be less than the Base Rent due during the previous lease term. 42. FIRST RIGHT OF REFUSAL. At any time during the initial Lease term, Tenant shall have the right of first refusal to lease the adjacent 35,560 square-foot unit in the Premises. Should Landlord receive a bonafide offer from a third party to lease this adjacent space, Landlord will notify Tenant, and Tenant shall then have five (5) business days after receipt of notice from Landlord to accept or reject the adjacent space on the same terms as Landlord's proposal from a Third Party. If Tenant does not accept the same material terms and provisions by written notice to Landlord within five (5) days of receipt of such notice, then Landlord shall be free to enter into a lease with the Third Party. In the event Tenant elects not to take the adjacent space at that time and Landlord enters into a Lease with the Third Party for the adjacent space, Tenant shall have a continuing option to expand into this space as follows. At any time following the 18th month of the Third Party's lease, Tenant may provide Landlord with not less than six (6) month's written notice of its intent to expand into the adjacent space. Upon exercising this option, Tenant shall be responsible to pay the costs of moving the Third Party tenant to another facility in the Reno/Sparks, Nevada area. In no event, however, shall Tenant be liable to pay more than $35,560.00 in moving costs to the Third Party tenant. 43. OPTION TO MOVE TO A LARGER FACILITY. After the 48th month of the initial Lease Term, provided Tenant is not in default of this lease, Tenant shall have the option to move to a larger facility owned by Landlord provided Tenant gives Landlord a minimum of one hundred eighty (180) days prior written notice of its desire to do so; that the larger space is a minimum of 35% larger than the space covered in this Lease (i.e., a minimum of 135,875 square feet), and that Landlord has such larger space available for lease. In the event Landlord does not have such larger space available for lease, either in Tenant's existing building or within Landlord's portfolio, Landlord and Tenant shall enter into a build-to-suit contract for a new facility. Each of the above expansions shall constitute a new five-year lease term on all of the Tenant's space at the then current market rates. The present lease would automatically terminate upon commencement of the new lease for the larger facility. 44. OPTION TO TERMINATE. In the event Landlord is unable to accommodate Tenant's expansion space requirements pursuant to Article 43 herein, Tenant shall have the option to terminate the lease. Upon exercising this option to terminate, Tenant shall pay to Landlord a cancellation fee equal to two (2) month's base monthly rent at their then current rate. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year indicated by Landlord's execution date as written below. Individuals signing on behalf of a Tenant warrant that they have the authority to bind their principals. In the event that Tenant is a corporation, Tenant shall deliver to Landlord, concurrently with the execution and delivery of this Lease, a certified copy of corporate resolutions adopted by Tenant authorizing said corporation to enter into and perform the Lease and authorizing the execution and delivery of the Lease on behalf of the corporation by the parties executing and delivering this Lease. THIS LEASE, WHETHER OR NOT EXECUTED BY TENANT, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY LANDLORD, ACTING ITSELF OR BY ITS AGENT ACTING THROUGH ITS PRESIDENT, VICE PRESIDENT, OR ITS DIRECTOR OF LEASING AND MARKETING.
Landlord: Dermody Properties, a Nevada corporation Tenant: MicroAge Logistics Services, Inc. By: /s/ Michael C. Dermody By: /s/ Alan R. Lyons ------------------------------------- ---------------------------------- Michael C. Dermody Alan R. Lyons Its: President Its: V.P. Administration Date: 11/1/96 Date: 11/1/96 (Execution date) (Execution date)
-11- EX-21 34 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 MICROAGE, INC. ANNUAL REPORT ON FORM 10-K SUBSIDIARIES OF THE REGISTRANT I. MicroAge Computer Centers, Inc., a Delaware corporation Subsidiaries: A. MCSA, Inc., a Delaware corporation B. MCSZ, Inc., a Delaware corporation C. 153000 Canada Limited, a Canadian corporation II. MicroAge Solutions, Inc., a Delaware corporation Subsidiaries: A. MCSJ, Inc., a Delaware corporation B. MCSP, Inc., a Delaware corporation C. MCSQ, Inc., a Delaware corporation D. MCSR, Inc., a Delaware corporation E. MCSS, Inc., a Delaware corporation F. MCST, Inc., a Delaware corporation G. MCSY, Inc., a Delaware corporation III. BMUS Corporation, a Delaware corporation IV. ECadvantage, Inc., a Delaware corporation V. FirstSource Distribution, Inc., a Delaware corporation VI. Flynnco Inc., an Arizona corporation A. Advanced Systems Consultants, Inc., an Arizona corporation VII. Intracom Marketing, Inc., a Delaware corporation VIII. MicroAge Administration, Inc., a Delaware corporation IX. MicroAge Infosystems Services Europe, Ltd., a United Kingdom corporation X. MicroAge Enterprises, Inc., a Delaware corporation A. Image Choice, Inc. , a Delaware corporation XI. MicroAge Europe Limited, a United Kingdom corporation XII. MicroAge Federal, Inc., a Delaware corporation XIII. MicroAge Infinity, Inc., a Delaware corporation XIV. MicroAge Infosystems Services, Inc., a Delaware corporation XV. MicroAge International, Inc., a Delaware corporation XVI. MicroAge Integration Management, Inc., a Delaware corporation XVII. MicroAge Logistics Services, Inc., a Delaware corporation XVIII. MicroAge Paymaster, Inc., a Delaware corporation XIX. MicroAge Resellers, Inc., a Delaware corporation XX. MicroAge Systems, Inc., a Delaware corporation XXI. MicroAge Technologies, Inc. a Delaware corporation XXII. MicroAge Ventures, Inc. a Delaware corporation XXIII. MicroSource Technologies, Inc., a Delaware corporation XXIV. ConnectWorks, Inc. a Delaware corporation Subsidiaries: A. PhoenixWorks, Inc. a Delaware corporation EX-23 35 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-18967, No. 33-26351, No. 33-26565, No. 33-33370, No. 33-51978, No. 33-58899, No. 33-58901 and No. 33-81040). We also consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (No. 33-35674) and Form S-2 (No. 33-38764 and No. 33-33094) of MicroAge, Inc. of our report dated December 11, 1996 appearing on page F-2 of this Form 10-K. PRICE WATERHOUSE LLP Phoenix, Arizona January 30, 1997 EX-27 36 ARTICLE 5 FDS FOR FISCAL 1996 FORM 10-K
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets as of November 3, 1996 and October 29, 1995 and the Consolidated Statements of Income for the fiscal years ended November 3, 1996, October 29, 1995, and October 30, 1994 contained in the Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 U.S. DOLLARS 12-MOS NOV-03-1996 OCT-30-1995 NOV-03-1996 1 20,496 0 260,474 (7,254) 325,213 610,058 112,617 (59,476) 689,505 499,490 0 0 0 147 185,976 689,505 3,516,446 3,516,446 3,331,610 3,331,610 148,388 0 1,286 23,131 9,878 13,253 0 0 0 13,253 0.89 0.86
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