-----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, IG9kkP5jFvfDamfQyDscfzSJLayoavsjeTGqR5GfCSDeSMOA7Tgsmg6JPgbPmNiC zLCmaeC/1PU4sYCkzTeMxg== 0000950147-98-000195.txt : 19980319 0000950147-98-000195.hdr.sgml : 19980319 ACCESSION NUMBER: 0000950147-98-000195 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980201 FILED AS OF DATE: 19980318 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: 860321346 STATE OF INCORPORATION: DE FISCAL YEAR END: 1103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15995 FILM NUMBER: 98567829 BUSINESS ADDRESS: STREET 1: 2400 S MICROAGE WY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6028042000 MAIL ADDRESS: STREET 1: 2400 SOUTH MICROAGE WAY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ------- X Quarterly report pursuant to Section 13 or 15 (d) of the ------- Securities Exchange Act of 1934, For the quarterly period ended February 1, 1998 or ------- Transition report pursuant to Section 13 or 15(d) of the ------- Securities Exchange Act of 1934 Commission file number 0-15995 MICROAGE, INC. (Exact name of registrant as specified in its charter) Delaware 86-0321346 (State of incorporation) (I. R. S. Employer Identification No.) 2400 South MicroAge Way Tempe, AZ 85282 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 366-2000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- The number of shares of the registrant's Common Stock (par value $.01 per share) outstanding at March 12, 1998 was 19,588,674. INDEX MICROAGE, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- February 1, 1998 and November 2, 1997. Consolidated statements of operations -- Quarters ended February 1, 1998 and February 2, 1997. Consolidated statements of cash flows -- Quarters ended February 1, 1998 and February 2, 1997. Notes to consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K SIGNATURES 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MICROAGE, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data)
Assets February 1, November 2, 1998 1997 ----------- ----------- Current assets: Cash and cash equivalents $ 39,189 $ 24,029 Accounts and notes receivable, net 281,461 341,124 Inventory, net 600,361 478,532 Other 11,183 11,662 ----------- ----------- Total current assets 932,194 855,347 Property and equipment, net 85,731 73,975 Intangible assets, net 70,412 43,766 Other 13,877 12,826 ----------- ----------- Total assets $ 1,102,214 $ 985,914 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 732,986 $ 680,648 Accrued liabilities 18,470 22,527 Current portion of long-term obligations 3,027 2,744 Other 3,517 3,951 ----------- ----------- Total current liabilities 758,000 709,870 Line of credit 69,650 30,650 Long-term obligations 4,802 4,537 Other long-term liabilities 8,884 1,239 Stockholders' equity: Preferred stock, par value $1.00 per share; Shares authorized: 5,000,000 Issued and outstanding: none - - Common stock, par value $.01 per share; Shares authorized: 40,000,000 Issued: February 1, 1998 - 19,574,852 November 2, 1997 - 18,451,653 196 184 Additional paid-in capital 174,468 148,329 Retained earnings 86,380 91,922 Treasury stock, at cost; Shares: February 1, 1998 - 16,378 November 2, 1997 - 80,378 (166) (817) ----------- ----------- Total stockholders' equity 260,878 239,618 ----------- ----------- Total liabilities and stockholders' equity $ 1,102,214 $ 985,914 =========== ===========
The accompanying notes are an integral part of these financial statements. 2 MICROAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data)
Quarter ended --------------------------- February 1, February 2, 1998 1997 ----------- ----------- Revenue $ 1,179,011 $ 897,420 Cost of sales 1,105,186 834,510 ----------- ----------- Gross profit 73,825 62,910 Operating expenses 73,061 49,273 ----------- ----------- Operating income 764 13,637 Other expenses - net 10,239 4,881 ----------- ----------- Income (loss) before income taxes (9,475) 8,756 Income tax provision (benefit) (4,061) 3,719 ----------- ----------- Net income (loss) ($ 5,414) $ 5,037 =========== =========== Net income (loss) per common and common equivalent share: Basic ($ 0.28) $ 0.29 =========== =========== Diluted ($ 0.28) $ 0.28 =========== =========== Weighted average common and common equivalent shares outstanding: Basic 19,456 17,174 =========== =========== Diluted 19,456 18,160 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 MICROAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Quarter ended -------------------------- February 1, February 2, 1998 1997 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (5,414) $ 5,037 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 8,042 5,749 Provision for losses on accounts and notes receivable 2,300 1,694 Changes in assets and liabilities, net of business acquisitions: Accounts and notes receivable 84,545 67,643 Inventory (112,240) (149,237) Other current assets 661 588 Other assets (5,953) (961) Accounts payable 17,943 (10,121) Accrued liabilities (7,045) 146 Other liabilities 7,819 8,869 ----------- ----------- Net cash used in operating activities (9,342) (70,593) Cash flows from investing activities: Purchases of property and equipment (15,401) (5,928) ----------- ----------- Net cash used in investing activities (15,401) (5,928) Cash flows from financing activities: Proceeds from issuance of stock - stock option and employee stock purchase plans 1,802 2,628 Net borrowings under line of credit 39,000 62,735 Amounts received from ESOT -- 123 Shareholder distributions - pooled companies (128) -- Net change in long-term obligations (771) 899 ----------- ----------- Net cash provided by financing activities 39,903 66,385 ----------- ----------- Net increase (decrease) in cash and cash equivalents 15,160 (10,136) Cash and cash equivalents at beginning of period 24,029 22,261 ----------- ----------- Cash and cash equivalents at end of period $ 39,189 $ 12,125 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 MICROAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of MicroAge, Inc. (the "Company") do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the periods have been included. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. Operating results for the quarter ended February 1, 1998 are not necessarily indicative of the results that may be expected for the year ending November 1, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended November 2, 1997. On November 14, 1997, the Company issued shares of its common stock in exchange for all of the outstanding shares of a reseller. The merger has been accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the acquired company for all periods presented. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below (in thousands). Quarter ended February 2, 1997: MicroAge, Inc. Acquired Co. Combined -------------- ------------ -------- Revenue $890,748 $ 6,672 $897,420 Net income $ 4,857 $ 180 $ 5,037 NOTE B - OTHER EXPENSES - NET Other expenses - net consists of the following (in thousands): Quarters ended -------------------------- February 1, February 2, 1998 1997 ----------- ----------- Interest expense $ 2,346 $ 595 Expenses from sales of accounts receivable 5,577 4,264 Amortization expense 1,415 392 Other 901 (370) ----------- ----------- $ 10,239 $ 4,881 =========== =========== 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain statements contained in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; potential fluctuations in quarterly results; risks of declines in inventory values; no assurance of successful acquisitions or investments; the capital intensive nature of the Company's business; dependence on information systems; year 2000 issues; dependence on independent shipping companies; rapid technological change; and possible volatility of stock price. Reference is made to Exhibit 99.1 of the Company's Report on Form 10-K for the year ended November 2, 1997 for additional discussion of the foregoing factors. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On November 14, 1997, the Company issued shares of its common stock in exchange for all of the outstanding shares of a reseller location. The merger has been accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the acquired company for all periods presented. Results of Operations The following table sets forth, for the indicated periods, data as percentages of total revenue:
Quarter ended ----------------------------------------------------------------------------- Feb. 1, Nov. 2, Aug. 3, May 4, Feb. 2, 1998 1997 1997 1997 1997 ---- ---- ---- ---- ---- Revenue (in thousands) $ 1,179,011 $ 1,331,502 $ 1,161,839 $ 1,101,107 $ 897,420 Cost of sales 93.7% 93.1% 92.8% 92.9% 93.0% ------------ ------------ ------------ ------------ ------------ Gross profit 6.3 6.9 7.2 7.1 7.0 Operating expenses 6.2 5.3 5.6 5.4 5.5 ------------ ------------ ------------ ------------ ------------ Operating income 0.1 1.6 1.6 1.7 1.5 Other expenses - net 0.9 0.6 0.6 0.7 0.5 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (0.8) 1.0 1.0 1.0 1.0 Income tax provision (benefit) (0.3) 0.4 0.4 0.4 0.4 ============ ============ ============ ============ ============ Net income (loss) (0.5)% 0.6% 0.6% 0.6% 0.6% ============ ============ ============ ============ ============
6 Total Revenue. Total revenue of $1.2 billion increased $282 million, or 31%, for the quarter ended February 1, 1998 as compared to the quarter ended February 2, 1997. This revenue increase included a $197 million, or 37%, increase in distribution business revenue and an $84 million, or 23%, increase in systems integration business revenue. The increase in revenue was attributable to sales to resellers added since February 2, 1997, increased demand for the Company's major suppliers' products, the Company's addition of new product offerings, the growth of the microcomputer products industry and acquisitions of reseller locations. Total revenue decreased $152 million, or 12%, when compared to the quarter ended November 2, 1997. This revenue decrease included a $108 million, or 13%, decrease in distribution business revenue and a $43 million, or 9%, decrease in systems integration business revenue. The distribution business was impacted by competitive issues (see Gross Profit Percentage below) and the integration business was impacted by issues related to the purchases of company-owned locations. During the calendar year ended December 31, 1997, the Company added 32 company-owned locations. The process of assimilating the new locations diverted management time from sales and profit momentum to internal systems and organizational issues. Gross Profit Percentage. The Company's gross profit percentage was 6.3% for the quarter ended February 1, 1998 and 7.0% for the quarter ended February 2, 1997. The decrease in the Company's gross profit percentage was primarily in the Company's distribution business. In an effort to reduce inventory levels and reduce price protection risk, the Company initially decided not to participate in inventory buy-in opportunities offered by certain key suppliers in the first fiscal quarter of 1998. Certain competitors that did participate in the buy-in opportunities received more of the products that were in high demand and had supplier incentive funds which allowed them to aggressively price products to customers. This affected both the Company's sales volume and margins as prices were reduced to maintain market share. In response to the competitive situation, the Company did elect to participate in the buy-in opportunities mid-way through the quarter, however, executing these buy-ins mid-quarter resulted in the Company not achieving certain suppliers' sales out objectives, which would have generated additional incentive funds. Operating Expenses. As a percentage of revenue, operating expenses were 6.2% for the quarter ended February 1, 1998 compared to 5.5% for the quarter ended February 2, 1997. Operating expenses increased $23.8 million to $73.1 million for the quarter ended February 1, 1998, as compared to the quarter ended February 2, 1997. The increase in operating expenses was primarily attributable to acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other businesses), increased spending in support of electronic commerce initiatives and capacity expansion in personnel, systems and facilities. Other Expenses - Net. Other expenses - net increased to $10.3 million for the quarter ended February 1, 1998 from $4.9 million for the quarter ended February 2, 1997. This increase was primarily due to increases in average daily borrowings to support higher inventory and accounts receivable levels and to increased amortization expense associated with goodwill from acquisitions. 7 Supplier Incentive Funds The Company receives funds from certain suppliers which are earned through marketing programs or meeting purchasing or other objectives established by the supplier. A large portion of the incentives are passed on to the Company's customers. However, a portion of the incentives positively impact the Company's income. There can be no assurance that these programs will be continued by the suppliers. A substantial reduction in the supplier funds available to the Company would have an adverse effect on the Company's results of operations. Subsequent Event In February, 1998, the Company announced a plan to restructure the Company into two independent businesses - a distribution business and an integration business. These businesses will have separate management teams, will operate autonomously in their respective marketplaces, and will contract with headquarters for a limited number of services, such as payroll processing, employee benefits and information services. Restructuring and other one-time charges will be recognized in the second quarter of fiscal 1998 to reflect employee termination benefits and other costs related to the restructuring. The amount of the charges has not yet been determined. Potential Fluctuations in Quarterly Results The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services, the amount of supplier incentive funds received by the Company, the results of acquired businesses, product availability, competitive conditions, new product introductions, changes in customer order patterns and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments and interest rates. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special supplier promotions and year-end business purchases. Liquidity and Capital Resources The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. If the Company is successful in achieving continued revenue growth, its working capital requirements are likely to increase. 8 The Company has acquired or invested in, and intends to acquire or invest in, resellers to increase core service competencies, expand the Company's geographic coverage in key market areas, and strengthen the Company's direct relationships with end-user customers. During the quarter ended February 1, 1998, the Company completed three acquisitions in exchange for 1,632,382 shares of common stock. See Part II, Item 2(c) below for additional information about these acquisitions. The Company's future acquisitions or investments may be made utilizing cash, stock, or a combination of cash and stock. Cash used in operating activities was $9 million for the quarter ended February 1, 1998 as compared to $71 million for the quarter ended February 2, 1997. The decrease was primarily due to a change in cash used by inventory and accounts payable. During the quarter ended February 1, 1998, $94 million was used in operating activities for inventory and accounts payable compared to $159 million during the quarter ended February 2, 1997. In addition, cash provided by accounts receivable increased from $68 million to $85 million. The number of days cost of sales in ending inventory increased from 35 days at November 2, 1997 to 49 days at February 1, 1998. This increase in inventory was due to inventory buy-ins executed during the quarter (see discussion above under Gross Profit Percentage). The number of days' cost of sales in ending accounts payable increased from 49 days at November 2, 1997 to 60 days at February 1, 1998. The number of days' sales in ending accounts receivable was 22 days at February 1, 1998 and November 2, 1997. The receivables days adjusted for sold receivables were 45 days and 41 days at February 1, 1998 and November 2, 1997, respectively. Cash used in investing activities increased from $6 million during the quarter ended February 2, 1997 to $15 million during the quarter ended February 1, 1998 due to increased purchases of property and equipment as a result of increased spending for electronic commerce initiatives and capacity expansion in systems and facilities. Cash provided by financing activities was $40 million during the quarter ended February 1, 1998 compared to $66 million during the quarter ended February 1, 1997. This change was primarily due to a smaller increase in borrowings under the Company's line of credit. The Company maintains three financing agreements (the "Agreements") with financing facilities totaling $675 million. The Agreements include an accounts receivable facility (the "A/R Facility") and inventory financing facilities (the "Inventory Facilities"). Under the A/R Facility, the Company has the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At February 1, 1998, the net amount of sold accounts receivable was $296 million. The Inventory Facilities provide for borrowings up to $325 million. Within the Inventory Facilities, the Company has lines of credit for the purchase of inventory from selected product suppliers ("Inventory Lines of Credit") of $175 million and a line of credit for general working capital requirements ("Supplemental Line of Credit") of $150 million. Payments for products purchased under the Inventory Lines of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. Amounts borrowed under the Supplemental Line of Credit may remain outstanding until the expiration date of the Agreements (August 2000). No interest or finance charges are payable on the Inventory Lines of Credit if payments are made when due. At February 1, 1998, the Company had $47 million outstanding under the Inventory Lines of Credit (included in accounts payable 9 in the accompanying Balance Sheets), and $70 million outstanding under the Supplemental Line of Credit. Of the $675 million of financing capacity represented by the Agreements, $262 million was unused as of February 1, 1998. Utilization of the unused portion is dependent upon the Company's collateral availability at the time the funds would be needed. There can be no assurance that the Company will be able to borrow adequate amounts on terms acceptable to the Company. Borrowings under the Agreements are secured by substantially all of the Company's assets, and the Agreements contain certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. At February 1, 1998, the Company was in compliance with these covenants. In addition to the financing facilities discussed above, the Company maintains an accounts receivable purchase agreement (the "Purchase Agreement") with a commercial credit corporation (the "Buyer") whereby the Buyer agrees to purchase, from time to time at its option, on a limited recourse basis, certain accounts receivable of the Company. Under the terms of the Purchase Agreement, no finance charges are assessed if the accounts are settled within forty days. At February 1, 1998, the net amount of sold accounts receivable under the Purchase Agreement was $6.1 million. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. The unavailability of a significant portion of, or the loss of, the Agreements or trade credit from suppliers would have a material adverse effect on the Company. Although the Company has no material capital commitments, the Company expects to make capital expenditures of approximately $5 to $10 million during the second quarter of fiscal 1998. Inflation The Company believes that inflation has generally not had a material impact on its operations. 10 Part II. OTHER INFORMATION Item 2. Changes in Securities (a) None (b) None (c) On November 5, 1997, the Company issued 814,458 shares of Common Stock to three individuals in connection with their sale to the Company of a previously franchised corporate reseller. On November 14, 1997, the Company issued 601,724 shares of Common Stock to four individuals in connection with their sale to the Company of a previously franchised corporate reseller. On November 17, 1997, the Company issued 207,200 shares of Common Stock to two individuals in connection with their sale to the Company of a previously franchised corporate reseller. In each of the above transactions, the sale of the Common Stock was exempt from the registration provisions of the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act for transactions not involving a public offering, based on the fact that the Common Stock was offered and sold to a limited number of investors who had access to financial and other relevant data concerning the Company, its financial condition, business and assets. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 MicroAge, Inc. Compensation Trust dated February 1, 1998 by and between MicroAge, Inc. and Northern Trust Bank of Arizona, N.A. 10.2 Endorsement Split-Dollar Insurance Agreement dated November 25, 1997 by and between MicroAge, Inc. and Jeffrey D. McKeever 11 EPS Detail Calculation 27 Financial Data Schedule (b) During the quarter ended February 1, 1998, the Company filed one report on Form 8-K, dated and filed December 10, 1997, pursuant to Items 5 and 7, to file a copy of the Company's press release entitled, "Strong Fourth Quarter Highlights Fiscal 1997 Financial Results." SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICROAGE, INC. (Registrant) Date: 3-17-98 By: /s/ Jeffrey D. McKeever ------------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Date: 3-17-98 By: /s/ James R. Daniel ------------------------------------- James R. Daniel Senior Vice President Chief Financial Officer and Treasurer EX-10.1 2 MICROAGE, INC. COMPENSATION TRUST MICROAGE, INC. COMPENSATION TRUST DATED: February 1, 1998 MICROAGE, INC. COMPENSATION TRUST THIS TRUST AGREEMENT is made and entered into by and between MICROAGE, INC., a Delaware corporation (the "Company") and NORTHERN TRUST BANK OF ARIZONA, N.A. (the "Trustee"). WHEREAS, the Company has adopted certain plans or agreements for JEFFREY D. McKEEVER (hereinafter collectively referred to as the "Plan") attached as Appendix A and incorporated herein by this reference; WHEREAS, the Company has incurred or expects to incur liability under the terms of the Plan with respect to individuals participating in the Plan; WHEREAS, the Company wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in meeting its liabilities under the Plan. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: 2 SECTION 1 ESTABLISHMENT OF TRUST ---------------------- 1.1 The Company hereby deposits with the Trustee in trust Ten Dollars ($10.00), which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 herein. 1.5 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS ----------------------------- AND THEIR BENEFICIARIES ----------------------- 2.1 The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to 3 the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Company shall have the sole responsibility for all tax withholding filings and reports. The Trustee shall withhold such amounts from distributions as the Company directs and shall follow the instructions of the Company with respect to remission of such withheld amounts to appropriate governmental authorities. 2.2 The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefit shall be considered and reviewed under the procedures set out in the Plan. 2.3 The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ----------------------------------------- TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT ---------------------------------------------- 3.1 The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (a) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. 4 (b) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (c) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. (d) The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). 3.3 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4 PAYMENTS TO THE COMPANY ----------------------- 4.1 Except as provided in Section 3 hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. SECTION 5 INVESTMENT AUTHORITY -------------------- 5.1 In no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company, other than a de minimus amount held 5 in common investment vehicles in which the Trustee invests. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan participants. 5.2 The Company shall have the right at anytime, and from time to time, in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. SECTION 6 DISPOSITION OF INCOME --------------------- 6.1 During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7 ACCOUNTING BY THE TRUSTEE ------------------------- 7.1 The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. SECTION 8 RESPONSIBILITY OF THE TRUSTEE ----------------------------- 8.1 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any 6 action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. The Trustee shall not be liable, to the extent permitted by law, for compliance with the investment directions as communicated to the Trustee by the Company. 8.2 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.3 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. 8.4 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy or collateral assignment interest therein is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy or collateral assignment interest therein (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy or collateral assignment interest therein. 8.5 However, notwithstanding the provisions of Section 8.4 above, the Trustee may loan to the Company the proceeds of any borrowing against an insurance policy or collateral assignment interest therein held as an asset of the Trust, provided the Plan participant or policy owner authorizes such loan in writing. 8.6 Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. 8.7 Any cost or expense incurred in connection with the performance of the Trustee's responsibilities under this Section 8 (including the hiring of agents, attorneys, accountants, etc.) shall be a proper expense of this Trust and the Trustee shall not be liable for the payment of such costs or expenses. The Company shall reimburse the Trustee for any such cost or expense incurred by the Trustee in connection with the performance of its duties and responsibilities under this Section 8. 7 8.8 The Company (which has the authority to do so under the laws of its state of incorporation) shall indemnify the Trustee, and defend it and hold it harmless from and against any and all liabilities, losses, claims, suits or expenses (including attorneys' fees) of whatsoever kind and nature which may be imposed upon, asserted against or incurred by the Trustee at any time by reason of its provision of services under this Trust Agreement, its status as Trustee, or by reason of any act or failure to act under the Trust Agreement, except to the extent that any such liability, loss claim, suit or expense arises directly from the Trustee's negligence or willful misconduct in the performance of responsibilities specifically allocated to it under the Trust Agreement. This paragraph shall survive the termination of this Trust Agreement. SECTION 9 COMPENSATION AND EXPENSES OF THE TRUSTEE ---------------------------------------- 9.1 The Company shall pay all expenses associated with the administration of the Trust including the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10 RESIGNATION AND REMOVAL OF THE TRUSTEE -------------------------------------- 10.1 The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.2 The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee. 10.3 Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. 10.4 If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Section 10.1 or 10.2. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. 8 SECTION 11 APPOINTMENT OF SUCCESSOR ------------------------ 11.1 If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Company may appoint only a corporate trustee as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. 11.2 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes the successor Trustee. SECTION 12 AMENDMENT OR TERMINATION ------------------------ 12.1 This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of a Plan or shall make the Trust revocable. 12.2 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.3 Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to the Company. 9 SECTION 13 MISCELLANEOUS ------------- 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.2 Benefits payable to the Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. SECTION 14 EFFECTIVE DATE -------------- 14.1 The effective date of this Trust Agreement shall be as of February 1, 1998. IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust Agreement to be executed by their duly authorized representatives on the 1st day of February 1, 1998. MICROAGE, INC. By: /s/ Jeffrey D. McKeever ---------------------------------- Its: ----------------------------- NORTHERN TRUST BANK OF ARIZONA, N.A. By: /s/ Cynthia Hazeltine ---------------------------------- Its: ----------------------------- 10 APPENDIX A ---------- 1. Jeffrey D. McKeever Supplemental Executive Retirement Plan, dated October 1, 1992, as amended from time to time. 2. Jeffrey D. McKeever Amended & Restated Split Dollar Insurance Agreement, dated December 14, 1994. * * * 11 EX-10.2 3 ENDORSEMENT SPLIT-DOLLAR INSURANCE AGREEMENT ENDORSEMENT SPLIT-DOLLAR INSURANCE AGREEMENT -------------------------------------------- THIS AGREEMENT is made as of this 25th day of November, 1997, by and between MICROAGE, INC., a Delaware corporation (hereinafter referred to as "Corporation") and JEFFREY D. McKEEVER (hereinafter referred to as "Insured"). WHEREAS, Corporation plans to acquire insurance on the Insured's life under a policy issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as "Insurer"); and WHEREAS, Corporation wants to assist Insured by paying all premiums due on the policy; and WHEREAS, Corporation will be the owner of the insurance policy and as such, will possess all incidents of ownership in and to the policy; The parties, therefore, in consideration of the mutual promises contained herein, hereby agree as follows: ARTICLE I A. The Corporation plans to acquire from the Insurer a policy on the life of the Insured in the face amount of $2,444,336.00 (hereinafter referred to as the "Policy"). The policy number, face amount and plan of insurance will be recorded on Schedule A attached to this Agreement and the Policy will then be subject to the terms of this Agreement. The Corporation shall be the sole and absolute owner of the Policy, and may exercise all ownership rights granted to the owner thereof by the terms of the Policy, except as provided herein. B. The Insured may select the settlement option for payment of the death benefit provided under the Policy and the beneficiary or beneficiaries to receive the portion of policy proceeds to which the Insured is entitled hereunder, by specifying the same in a written notice to the Corporation. Upon receipt of such notice, the Corporation shall execute and deliver to the Insurer the forms necessary to elect the requested settlement option and to designate the requested person, persons or entity as the beneficiary or beneficiaries to receive the death proceeds of the Policy in excess of the amount to which the Corporation is entitled hereunder. The parties hereto agree to take all action necessary to cause the beneficiary designation and settlement election provisions of the Policy to confirm to the provisions hereof. The Corporation shall not terminate, alter or amend such designation or election without the express written consent of the Insured. ARTICLE II All premiums due on the Policy which shall be FORTY-FOUR THOUSAND DOLLARS ($44,000.00) per year, shall be paid by Corporation until the first to occur of (i) the death of the Insured, or (ii) Insured's termination of employment with Corporation. The Corporation shall annually furnish the Insured a Statement of the amount of income reportable by the Insured for federal and state income tax purposes. ARTICLE III A. Any dividend declared on the Policy shall be applied, under the fifth dividend option, to purchase one (1) year term insurance on the life of the Insured, in an amount equal to the cash value of the Policy (as defined therein), as of the next anniversary date thereof. If the premium for such term insurance is less than the amount of such dividend, then the balance of such dividend shall be used to reduce the premiums payable on the Policy. If such dividend is not adequate to purchase 2 the required amount of one (1) year term insurance on the life of the Insured, then the entire dividend shall be applied to purchase such term insurance on the life of the Insured. The parties hereto agree that the dividend election provisions of the Policy shall conform to the provisions hereof. B. Contemporaneously with the execution of this Agreement, the Corporation has executed a beneficiary designation for and/or an endorsement to the Policy, under the form used by the Insurer for such designations, in order to secure the Corporation's recovery of the amount of the premiums on the Policy paid by the Corporation hereunder. Such beneficiary designation or endorsement shall not be terminated, altered or amended by the Corporation, without the express written consent of the Insured. The parties hereto agree to take all action necessary to cause such beneficiary designation or endorsement to conform to the provisions of this Agreement. C. Except as otherwise provided herein, the Corporation shall not sell, assign, transfer, surrender or cancel the Policy, change the beneficiary designation provision thereof, nor terminate the dividend election thereof without, in any such case, the express written consent of the Insured. D. The Corporation may pledge or assign the Policy, subject to the terms and conditions of this Agreement, for the sole purpose of securing a loan from the Insurer or from a third party. The amount of such loan, including accumulated interest thereon, shall not exceed the lesser of (i) the amount of the premiums on the Policy paid by the Corporation hereunder, or (ii) the cash surrender value of the Policy (as defined therein) as of the date to which premiums have been paid. Interest charges on such loan shall be paid by the Corporation. If the Corporation so encumbers the Policy, other than by a policy loan from the Insurer, then, upon the death of the Insured or upon the election of the Insured hereunder to purchase the Policy from the Corporation, the Corporation shall promptly take all action necessary to secure the release or discharge of such encumbrance. 3 ARTICLE IV In the event of the death of Insured, the proceeds of the Policy shall be divided into two parts and paid by Insurer as follows: Part A - Upon the death of the Insured, the Corporation shall have the unqualified right to receive a portion of such death benefit equal to the total amount of premiums paid, the then cash surrender value of the Policy, or the amount by which the death benefit exceeds $2,000,000, whichever is greater, reduced by any indebtedness against the Policy existing at the death of the Insured (including any interest due on such indebtedness). In no event shall the amount payable to the Corporation hereunder exceed the Policy proceeds payable at the death of the Insured. No amount shall be paid from such death benefit to the beneficiary or beneficiaries designated by the Corporation at the direction of the Insured, until the full amount due the Corporation hereunder has been paid. The parties hereto agree that the beneficiary designation provision of the Policy shall conform to the provisions hereof. Part B - The balance of the death benefit shall be paid to the beneficiary designated by the Insured. ARTICLE V A. This Agreement shall terminate, during the Insured's lifetime, without notice, upon the occurrence of any of the following events: (a) total cessation of the Corporation's business; (b) 4 bankruptcy, receivership or dissolution of the Corporation or (c) termination of Insured's employment by the Corporation (other than by reason of his death). ARTICLE VI A. For sixty (60) days after the date of the termination of this Agreement during the Insured's lifetime, the Insured shall have the assignable option to purchase the Policy from the Corporation. The purchase price for the Policy shall be the greater of the total amount of the premium payments made by the Corporation hereunder or the then cash surrender value of the Policy, less any indebtedness secured by the Policy which remains outstanding as of the date of such termination, including interest on such indebtedness. Upon receipt of such amount, the Corporation shall transfer all of its right, title and interest in and to the Policy to the Insured or his assignee, by the execution and delivery of an appropriate instrument of transfer. B. If the Insured or his assignee fails to exercise such option within such sixty (60) day period, then the Corporation may enforce its right to be repaid for the premiums which it paid hereunder by surrendering or canceling the Policy for its cash surrender value, or it may change the beneficiary designation provisions of the Policy, naming itself or any other person or entity as revocable beneficiary thereof, or exercise any other ownership rights in and to the Policy, without regard to the provisions hereof. Thereafter, neither the Insured, his assignee nor their heirs, assigns or beneficiaries shall have any further interest in and to the Policy, either under the terms thereof or under this Agreement. ARTICLE VII Insurer is not a party to this Agreement and the obligations of Insurer are those set forth in the Policy. 5 ARTICLE VIII This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. ARTICLE IX This Agreement may be altered, amended or modified only by written instrument signed by Corporation and the Insured. ARTICLE X This Agreement shall be construed according to the laws of the State of Arizona. ARTICLE XI Insured may add a rider to the Policy for the benefit of his beneficiaries. Upon written request by Corporation, Insured will add a rider to the Policy for the benefit of Corporation. The additional premium for any rider which is added to the Policy will be paid by the party entitled to received the proceeds of the rider. ARTICLE XXI A. The party designated as the "named fiduciary" for the Split-Dollar Plan established by this Agreement shall have the authority to control and manage the operation and administration of such plan; provided however, the Insurer shall be the fiduciary of the plan solely with regard to the review and final decision on a claim or benefits under its Policy as provided in Article XIII Claims Procedure, set forth below. B. The Fiduciary may allocate his responsibilities or the operation and administration of the Split-Dollar Plan, including the designation of persons to carry out fiduciary responsibilities under any such plan. He shall erect such allocation of his responsibilities by delivering to the 6 Corporation a written instrument signed by him that specifies the nature and extent of the responsibilities allocated, including, the persons who are designated to carry out these fiduciary responsibilities under the Split-Dollar Plan, together with a signed acknowledgment of their acceptance. ARTICLE XIII The following claims procedure shall apply to the Split-Dollar Plan: A. The beneficiary of such Policy shall make a claim for the benefits provided under the Policy in the manner provided in the Policy. B. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials. C. If a claim is wholly or partially denied, notice of the decision, meeting the requirements of paragraph D below, shall be furnished to the claimant within a reasonable period of time after the claim has been filed. D. The Insurer shall provide to any claimant who is denied a claim for benefits, written notice setting forth in a manner calculated to be understood by the claimant, the following: 1. The specific reasons for the denial; 2. Specific reference to the pertinent Policy or plan provisions on which the denial is based; 3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; 7 4. An explanation of the plan's claim review procedure, as set forth in paragraph E and F below. E. The purpose of the review procedure set forth in this paragraph and in paragraph F below, is to provide a procedure by which a claimant under the Split-Dollar Plan may have a reasonable opportunity to appeal a denial of a claim for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: 1. May request a review upon written application to the Insurer; 2. May review pertinent plan documents or agreements; and 3. May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. F. A decision on review of a denial of a claim shall be made in the following manner: 1. The decision on review shall be made by the Insurer, which may in its discretion hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. 2. The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the 8 claimant, and specific references to the pertinent Policy or plan provision on which the decision is based. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICROAGE, INC., a Delaware Corporation By /s/ Jeffrey D. McKeever -------------------------------------- Its -------------------------------- By /s/ Jeffrey D. McKeever -------------------------------------- JEFFREY D. McKEEVER 9 SCHEDULE A Face Amount $2,444,336 Policy Number 14431834 Plan of Insurance The Northwestern Mutual Life Insurance Company 10 ENDORSEMENT FORM Appin. No., Contract No. Date this form is signed: or Policy No.: 14431834 November 25, 1997 Insured: JEFFREY D. McKEEVER Insurance Company: The Northwestern Mutual Life Insurance Company The undersigned request and direct the Insurance Company to make the provisions of this form a part of the policy. All previous designations of payees are hereby revoked. It is hereby requested and directed that: BENEFICIARIES (1) In the event of the death of the Insured, MicroAge, Inc., a Delaware corporation, or its successors ("Corporation"), will be the direct beneficiary of an amount equal to the greater of (i) the premiums paid to the Insurance Company by Corporation for the Policy, (ii) the cash surrender value of the Policies, or (iii) the amount by which the death benefit exceeds $2,000,000, reduced by any indebtedness against the Policy existing at the death of the Insured (including any interest due on such indebtedness). In the event of Corporation's cessation of business, bankruptcy, receivership or dissolution, Corporation will be the direct beneficiary of an amount equal to the greater of (i) the premiums paid to the Insurance Company by Corporation for the Policy or (ii) the then cash surrender value of the Policy, less any indebtedness secured by the Policy which remains outstanding as of such date (including interest due on such indebtedness). It is understood and agreed that the Insurance Company will have the right to rely on any statement signed by said Corporation setting forth said Corporation's share of the premium payments referred to above, and any decision made by Insurance Company in reliance upon such statement will be conclusive and will fully protect the Insurance Company. (2) Jeffrey D. McKeever Revocable Trust (Name of spouse or primary beneficiary) if living and married to the Insured on (his/her) date of death will be the direct beneficiary of any remaining proceeds, and if (he/she) is either not married to Insured or living on Insured's date of death, ______________________ _____________________ (Name of children or secondary beneficiaries) will share equally or by right of representation of any remaining proceeds. 11 The Insurance Company will be fully discharged of liability for any action taken by the Insured and for all amounts paid to, or at the direction of, the Insured and will have no obligation as to the use of the amounts. In all dealings with the Insured, the Insurance Company will be fully protected against the claims of every other person. The Insurance Company will not be charged with notice of a change of beneficiary unless written evidence of the change is received at the Insurance Company's Home Office. OWNERSHIP (3) The owner of the Policy shall be the Corporation. The Corporation alone may exercise all the rights and privileges specified in the Policy. MODIFICATION OF ASSIGNMENT PROVISIONS Upon death of the Insured, the interest of any collateral assignee of Corporation will be limited to the portion of the proceeds described in (1) above. MICROAGE, INC., a Delaware corporation By /s/ Jeffrey D. McKeever -------------------------------------- Officer /s/ Jeffrey D. McKeever ---------------------------------------- JEFFREY D. McKEEVER 12 EX-11 4 CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE MICROAGE, INC NET INCOME (LOSS) PER COMMON SHARE CALCULATION (in thousands)
Quarter ended ---------------------------- February 1, February 2, 1998 1997 ----------- ----------- Basic Weighted average common shares 19,456 17,174 ----------- ----------- Diluted Weighted average shares from primary calculation 19,456 17,174 Dilutive effect of stock options and warrants -- 986 ----------- ----------- Weighted average common and common equivalent shares outstanding - diluted 19,456 18,160 ----------- ----------- Net income (loss) $ (5,414) $ 5,037 Net income (loss) per common and common equivalent share: Basic $ (0.28) $ 0.29 =========== =========== Diluted $ (0.28) $ 0.28 =========== ===========
EX-27 5 ARTICLE 5 FDS FOR FIRST QUARTER 10-Q
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets (Unaudited) as of February 1, 1998 and November 2, 1997 and the Consolidated Statements of Operations (Unaudited) for the quarters ended February 1, 1998 and February 2, 1997 1,000 U.S. Dollars 3-MOS NOV-01-1998 NOV-03-1997 FEB-01-1998 1 39,189 0 294,213 12,752 600,361 932,194 169,587 83,856 1,102,214 758,000 0 0 0 196 260,682 1,102,214 1,179,011 1,179,011 1,105,186 1,105,186 73,061 0 2,346 (9,475) (4,061) (5,414) 0 0 0 (5,414) (0.28) (0.28)
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