-----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, JYxgIJxmmpnE5frx0T7OuMTp6Q/Iah7TKMXCVEMX1MFE5AnxhutNWT9F4sCZDaAX 5HK6Va6zEgywnIklmk7hZQ== 0000950147-99-000068.txt : 19990201 0000950147-99-000068.hdr.sgml : 19990201 ACCESSION NUMBER: 0000950147-99-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19981101 FILED AS OF DATE: 19990129 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-K SEC ACT: SEC FILE NUMBER: 000-15995 FILM NUMBER: 99517115 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-K 1 ANNUAL REPORT FOR THE YEAR ENDED 11/1/98 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 1, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________to ___________ Commission File Number 0-15995 MICROAGE, INC. ------------------------------------------------------ (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, Arizona 85282-1896 - --------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (602) 366-2000 ---------------------------------------------------- (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. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $299.9 million at December 31, 1998, based on the closing market price of the Common Stock on such date, as reported by the Nasdaq Stock Market. The number of shares of the registrant's Common Stock outstanding at December 31, 1998 was 20,315,711. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders to be held on March 31, 1999 are incorporated by reference into Part III hereof. ================================================================================ PART I ITEM 1. BUSINESS BUSINESS OVERVIEW MicroAge, Inc. ("MICROAGE" or the "COMPANY"), was incorporated in the State of Arizona in 1976 and reincorporated in the State of Delaware in 1987. The Company is a global provider of efficient technology solutions. The Company does business in more than 40 countries and offers over 21,000 products from more than 500 suppliers, backed by a suite of technical, financial, logistics, and account management services. In February 1998, the Company initiated a plan to restructure the Company into two independent businesses--a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc. ("PINACOR"), and an integration business ("MICROAGE IT SERVICES"). Pinacor and MicroAge IT Services each have separate management teams, operate autonomously in their respective marketplaces, and contract with MicroAge Headquarters for a limited number of services, such as payroll processing and employee benefits. Unless the context otherwise requires, as used herein, the term the "Company" refers to MicroAge, Inc., its predecessors, and subsidiaries. The Company's headquarters are located at 2400 South MicroAge Way, Tempe, Arizona 85282-1896, and its telephone number is (602) 366-2000. The Company also maintains a web page on the world wide web at www.microage.com. Pinacor maintains a separate web page at www.pinacor.com. Certain statements in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; potential fluctuations in quarterly results; risks of declines in inventory values; no assurance of successful acquisitions or investments; capital intensive nature of the Company's business; dependence on information systems; dependence on independent shipping companies; rapid technological change; possible volatility of stock price; and the Company's future relationship with Pinacor. EXHIBIT 99.1 to this Annual Report on Form 10-K, which is attached hereto and incorporated by reference herein, discusses these important factors in greater detail. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. MICROAGE IT SERVICES GENERAL The Company's business activities, other than those conducted by Pinacor, the Company's distribution subsidiary, are currently conducted by MicroAge IT Services, which provides ISO 9001-certified multi-supplier integration services and distributed computing solutions to large organizations worldwide. MicroAge IT Services serves corporations, institutions, and government agencies through its network of more than 40 company-owned locations, in addition to owner-managed branches and alliance partners spanning more than 40 countries. BUSINESS STRATEGY MicroAge IT Services' strategic vision is to become the preferred information technology infrastructure services company for distributed computing solutions. MicroAge IT Services' dual strategic focus is to pursue profit expansion and revenue growth. MicroAge IT Services' profit expansion strategy focuses on the addition and expansion of higher-margin products and services and on expense control, including the improvement of MicroAge IT Services' 2 internal processes and procedures, and effective asset management. Revenue growth is driven primarily by sales to new clients and the expansion of service offerings to existing clients. There can be no assurance that MicroAge IT Services will experience growth in revenue or profits. CORE SERVICE OFFERINGS MicroAge IT Services is dedicated to building long-term client relationships by delivering a consistent level of quality information technology services, within the following core service offerings: PROCUREMENT SUPPORT Procurement Support assists clients in every phase of the information technology procurement process. MicroAge IT Services works with clients to help them identify their system needs, streamline internal procurement processes, and design, implement, and integrate systems to meet their particular needs. Procurement support allows clients to achieve strategic goals by reducing procurement costs and order cycle time, and increasing internal customer satisfaction. A major component of Procurement Support is the delivery of the Company's Quality Integration Services (QIS). QIS serves clients from its ISO 9001-certified facility in Tempe, Arizona. Among the services offered by QIS are systems assembly, including refurbishment; concurrent engineering, design, assembly, and prototype testing, and vendor service upgrades. Additionally, QIS offers inventory services that give clients the ability to coordinate procurement, delivery, and billing from multiple suppliers, purchase-in-place services, and seed unit services that make the new technology available to clients for evaluation purposes. The Company's long-standing relationships with all major technology manufacturers allows MicroAge IT Services to provide the latest and best technology to clients and to provide consistent integration of multi-vendor solutions. DESKTOP MANAGEMENT SERVICES Desktop Management Services works with clients to develop, deploy, and support network and information systems. MicroAge IT Services provides a wide spectrum of desktop solutions including planning, system/network maintenance, installation, staffing, asset management, and help desk options. Through Desktop Management, MicroAge IT Services meets a wide spectrum of client needs, from event or project-based solutions to comprehensive integrated desktop outsourcing solutions. PROGRAM AND PROJECT MANAGEMENT MicroAge IT Services' Program and Project Management services provide clients with centralized oversight of information technology projects. Program and Project Management brings all of MicroAge IT Services' service offerings together and provides effective, reliable IT solutions. PROFESSIONAL SERVICES MicroAge IT Services provides Professional Services in the following four key service practices: Back Office Services, Infrastructure Services, Systems Management, and Business Systems. Back Office Services targets consulting and project services for network operating systems such as Microsoft and Novell Network. Additional Back Office Services also include e-mail, planning software, and fault tolerance solutions. Infrastructure Services includes establishing Local Area Networks (LAN), Wide Area Networks (WAN), security, remote access, and data storage. Systems Management provides consulting and services for managing complex network environments, including audit, design, and implementation of systems from major software providers. Business Systems provides services in the areas of intranet and Internet-based technologies and systems for electronic commerce, process re-engineering, and work-flow integration. MICROAGE TELESERVICES MicroAge Teleservices offers customized outsourced telephonic support services to manufacturers, large corporations, and technology organizations. Through its telephony support infrastructure, MicroAge Teleservices provides solutions for corporate customers requiring any combination of inbound, outbound, and technical support. MicroAge Teleservices currently employs almost 1,000 associates and conducts its telephonic support services from three strategic call centers located in Santa Maria, California; Las Vegas, Nevada; and Tempe, Arizona. 3 ACQUISITIONS AND INVESTMENTS The Company has acquired or invested in, and intends to acquire or invest in, systems integrators to increase the Company's core service competencies, expand the Company's geographic coverage in key market areas, and strengthen the Company's direct relationship with end-user customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in Part II, Item 7 and Note 3 to the Company's Consolidated Financial Statements in Part II, Item 8 for additional information about the Company's acquisition activities. PRODUCTS AND SUPPLIERS During the fiscal year ended November 1, 1998, MicroAge IT Services purchased approximately 85% of its computer product needs, including both hardware and software, from Pinacor. In December 1998, MicroAge and Pinacor entered into a supply agreement (the "DISTRIBUTOR AGREEMENT") pursuant to which Pinacor supplies products to MicroAge IT Services. The Distributor Agreement will be in place for two years and may be extended for a third year with the mutual consent of MicroAge and Pinacor. The agreement may be terminated upon 90 days notice. While MicroAge IT Services has a choice of distributors from which it can purchase products, given its strong relationship with Pinacor and the stability of product supply, MicroAge IT Services currently chooses to purchase a substantial majority of its product needs from Pinacor. COMPETITION The markets in which MicroAge IT Services operate are characterized by intense competition from original equipment manufacturers (OEMs), such as Dell, COMPAQ, Hewlett-Packard and IBM, and other systems integrators and IT service companies such as InaCom Corp.; Entex Information Services, Inc.; CompuCom Systems; and DecisionOne Corporation. MicroAge IT Services expects to face further competition from new market entrants and possible alliances between competitors in the future. Certain of MicroAge IT Services' current and potential competitors have greater financial, technical, marketing, and other resources than MicroAge IT Services. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than MicroAge IT Services. The principal competitive factors in the systems integration industry include the breadth and quality of product and service offerings, product availability, pricing, and expertise and size of workforce. MicroAge IT Services believes it competes favorably with respect to each of these factors. TRADEMARKS AND SERVICE MARKS The Company holds various trademarks and service marks, including, among others, MicroAge(R), The Solution Store(R), The Solution Center(R), Solutions(R), MicroSource(R), and MicroAge 2000(R). All trademarks and service marks are registered, or pending registration, in the United States, and certain trademarks and service marks are registered in various foreign countries. The marks are not otherwise registered with any states; however, the Company also claims common law rights to the marks based on adoption and use. Management believes that the value of the Company's marks is increasing with the development of its business, but that the business of the Company as a whole is not materially dependent on such marks. PINACOR GENERAL Pinacor is a wholesale distributor of microcomputer products with locations in North and South America. Pinacor markets microcomputer hardware, networking equipment, software products and related services to more than 25,000 reseller customers in multiple countries. Pinacor operates in three principal market sectors: the Integrator Sector, consisting of value-added resellers, systems integrators, network integrators, application value-added resellers, and OEMs; the Commercial Sector, consisting of direct marketers, independent dealers, and owner-operated chains; and the Consumer Sector, consisting of consumer electronics stores, computer superstores, catalog resellers, mass merchants, office product superstores, software-only stores, and warehouse clubs. As a wholesale distributor, Pinacor markets its products to each of these types of resellers as opposed to marketing directly to end-user customers. 4 Pinacor offers one-stop shopping to its reseller customers by providing access to more than 21,000 products from over 200 principal suppliers, including most of the microcomputer industry's leading hardware manufacturers, networking equipment suppliers, and software publishers. Pinacor's broad product offerings include: desktop and notebook personal computers, servers, and workstations; mass storage devices; CD-ROM drives; monitors; printers; scanners; modems; networking hubs, routers, and telephone switches; network interface cards; business application software; operating software; and computer supplies. Pinacor's suppliers include IBM, COMPAQ, Hewlett-Packard, Apple, Microsoft, Toshiba, Novell, 3Com, Fujitsu, Hitachi, Canon, Lexmark, Sony, NEC, Panasonic, and Lucent. Pinacor is focused on providing a broad range of products and services, quick and efficient order fulfillment, and consistent on-time and accurate delivery to its reseller customers. Pinacor believes that its information systems provide a competitive advantage through real-time information access and processing capabilities. These on-line information systems, coupled with its leading operations in telesales, credit, customer service, purchasing, technical support, and logistics, enable Pinacor to provide its reseller customers with superior service and low cost. In addition, to enhance sales and to support its suppliers and reseller customers, Pinacor provides a wide range of value-added services, such as customer fulfillment, tailored financing programs, systems configuration, marketing programs, and electronic commerce. BUSINESS STRATEGY Pinacor believes that it has the customer relationships, the suppliers, the capabilities, and the systems critical for long-term success in the microcomputer products distribution industry. Pinacor generally is able to purchase products in large quantities and to avail itself of special purchase opportunities from a broad range of suppliers. This allows Pinacor to take advantage of various discounts from its suppliers, which in turn enables Pinacor to provide competitive pricing to its reseller customers. Pinacor's size and location have permitted it to attract highly qualified associates and increase its investment in personnel development and training. Pinacor's relationship with MicroAge IT Services as a customer gives it the lead in providing procurement services to both large and small integrators. Finally, Pinacor benefits from being able to make large investments in information systems, warehousing systems, and support infrastructure. Pinacor is pursuing a number of strategies to further enhance its leadership position within the microcomputer marketplace, including: expanding market coverage; strengthening customer relationships; exploring information systems and electronic commerce capabilities; building strategic relationships with suppliers; delivering value-added services to suppliers and resellers through capacity expansion; and developing human resources for excellence and to support future growth. DISTRIBUTION SERVICES Product orders are fulfilled and shipped from strategic distribution centers located in Tempe, Arizona; Cincinnati, Ohio; Reno, Nevada; Miami, Florida; Paulsboro, New Jersey; and Allen, Texas for delivery in one to three business days to a reseller or end-user anywhere in the continental United States. In addition, Pinacor has in-country distribution facilities in Columbia, Venezuela, Bolivia, and Ecuador. Combined, these facilities encompass more than 1,000,000 square feet of warehouse space and can distribute products anywhere in the Americas. In conjunction with product ordering and shipment, Pinacor offers various services to end-user customers and resellers, including expedited delivery, vendor direct shipment, and deferred shipment. Pinacor has relationships with more than 500 on-demand suppliers to quickly procure products outside of the its major manufacturing alliances. Pinacor also offers consigned storage and redistribution of customer-owned proprietary products. INTEGRATION SERVICES Pinacor has Quality Integration Centers (QICs) located in Cincinnati, Ohio and Allen, Texas, and colocated in Tempe, Arizona with MicroAge IT Services. Pinacor's Cincinnati, Ohio and Tempe, Arizona QICs are ISO 9001-certified and offer custom integration services, including systems set-up; local area network integration and testing; board-level enhancement; disk or tape drive installation; device testing; and software loading, including complex operating systems. Pinacor's QIC in Allen, Texas is ISO 9002-certified. Each integrated system is tested and inspected before delivery to ensure that manufacturer and customer specifications are met. The QICs can incorporate unique or highly complex system testing requirements into the integration process. The QICs also direct-ship configured systems to end-user customers, 5 allowing resellers to service these customers more profitably by reducing inventory levels, carrying costs, and freight expense, and by freeing up technical staff. PINACOR PRODUCTS AND SERVICES Pinacor provides customers with market-leading products from hardware, software, peripheral, and imaging manufacturers. Pinacor offers a comprehensive inventory of more than 21,000 products from over 200 principal suppliers, including most of the microcomputer industry's leading hardware manufacturers, networking equipment suppliers, and software publishers. Pinacor's broad product offerings include: desktop and notebook personal computers, servers, and workstations; mass storage devices; CD-ROM drives; monitors; printers; scanners; modems; networking hubs, routers and telephone switches; network interface cards; business application software; entertainment software; and computer supplies. Pinacor's suppliers include IBM, COMPAQ, Hewlett-Packard, Microsoft, Toshiba, Novell, 3Com, Fujitsu, Hitachi, Sony, NEC, Panasonic, and Lucent. In addition, Pinacor is one of two U.S. distributors of Apple products. Pinacor is focused on providing a broad range of products and services, quick and efficient order fulfillment, and consistent on-time and accurate delivery to its reseller customers around the world. Pinacor believes that its information systems provide a competitive advantage through real-time worldwide information access and processing capabilities. These on-line information systems, coupled with Pinacor's exacting operating procedures in telesales, credit support, customer service, purchasing, technical support, and warehouse operations, enable Pinacor to provide its reseller customers with superior service in an efficient and low cost manner. In addition, to enhance sales and to support its suppliers and reseller customers, Pinacor provides a wide range of value-added services, such as order fulfillment, tailored financing programs, systems configuration, and marketing programs. Through its ECworkgate products, Pinacor offers a complete family of electronic commerce products designed to improve productivity, increase sales, and reduce expenses by providing real-time information focused around core business processes. CHANNEL ASSEMBLY SERVICES Pinacor's QICs include state-of-the-art Assembly Solutions Areas dedicated to supporting systems assembly and joint manufacturing projects. Pinacor is a recognized leader in channel assembly and is an authorized assembly provider for IBM's Authorized Assembly Partner program, Hewlett-Packard's Extended Solutions Partnership Program, COMPAQ's Channel Configured Products Program, and channel assembly programs for Fujitsu, Panasonic, Toshiba, Sun Microsystems, and Acer. RESELLERS GENERAL Resellers operate independently. Pinacor generally does not require minimum purchase levels from its reseller customers. The loss of any single reseller would not have a material adverse impact on the Company. RESELLER PURCHASING TERMS Pinacor offers resellers several financing options, including the option of purchasing products on open credit terms of up to 30 days, subject to credit review and approval. If Pinacor is successful in achieving continued revenue growth, this reseller financing program will place increased demands on Pinacor's working capital requirements to fund the associated increase in accounts receivable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in Part II, Item 7 of this report. COMPETITION Pinacor operates in a highly competitive environment with other microcomputers distributors such as Ingram Micro, Inc., Tech Data Corp., and Merisel, Inc., both in the United States and Latin America. The microcomputer products distribution industry is characterized by intense competition based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customers needs, quality and breadth of product lines and services, availability of technical and product information, and recruitment and retention of resellers. Pinacor believes that it competes 6 favorably with respect to each of these factors. As price points have declined, Pinacor believes that value-added service capabilities (such as configuration, innovative financing programs, order fulfillment, contract telesales, and contract warehousing) will become more important competitive factors. Certain of Pinacor's current and potential competitors have greater financial, technical, marketing, and other resources than Pinacor. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than Pinacor. TRADEMARKS AND SERVICE MARKS Pinacor holds various trademarks and service marks, including, among others, Pinacor(TM), ECadvantage(TM), EC Media (TM), Netgenuity(TM), EC Configuration(TM), Infotour(TM), 20/20 Group(TM), EC Document(TM), Powerdisc(TM), and ZData(R). All trademarks and service marks are registered, or pending registration, in the United States, and certain trademarks and service marks are registered in various foreign countries. The marks are not otherwise registered with any states; however, Pinacor also claims common law rights to the marks based on adoption and use. Management believes that the value of Pinacor's marks is increasing with the development of its business, but that the business of Pinacor as a whole is not materially dependent on such marks. PRODUCT STRATEGY Pinacor sells a broad selection of products with a predominant focus on the products of major microcomputer and peripheral manufacturers. Three suppliers of Pinacor each represented more than 10% of total product sales for the year ended November 1, 1998: COMPAQ, Hewlett-Packard, and IBM. The following table sets forth the percentage of sales of these suppliers' products for the last three fiscal years: 1998 1997 1996 ---- ---- ---- COMPAQ 26% 23% 22% Hewlett-Packard 19% 20% 20% IBM 13% 14% 14% Sales of these three manufacturers' products represented approximately 58%, 57%, and 56% of Pinacor's revenue from product sales during fiscal 1998, fiscal 1997 and fiscal 1996, respectively. Pinacor's agreements with these suppliers generally are renewed periodically and permit termination by the vendor without cause, generally upon 30 to 90 days' notice, depending on the vendor. Pinacor believes that these provisions are standard in the computer reseller industry. In addition, Pinacor's business is dependent upon price and related terms and product availability provided by its key suppliers. Although Pinacor considers its relationships with COMPAQ, Hewlett-Packard, and IBM to be good, there can be no assurance that these relationships will continue as presently in effect or that changes by one or more of these key suppliers in their terms and conditions, volume discount schedules, or other marketing programs would not adversely affect Pinacor. Termination or nonrenewal of Pinacor's agreements with COMPAQ, Hewlett-Packard, or IBM would have a material adverse effect on Pinacor's business. Pinacor continually evaluates its product assortment based on technological advances, the market for information technology products, and resellers' requirements related to technological capability, product availability, and marketability. Over the last several years, Pinacor has expanded its product offerings in response to market conditions and has established relationships with new suppliers to distribute, service, and support both high-end, higher-priced workstation products as well as complementary computer peripheral products and software. These products generally carry higher profit margins than Pinacor's traditional brand name products and have historically been distributed primarily by wholesale distributors or sold directly to end-users by manufacturers. Sales of these products generally require the extension of credit by Pinacor, resulting in increased working capital requirements. PRODUCT SUPPLY The computer reseller industry continues to experience product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply certain products. In addition, certain suppliers have initiated new channels of distribution that increase competition for the available product supply. The backlog of orders for products distributed by Pinacor was approximately $121.8 million on November 1, 1998, compared to 7 approximately $100.9 million on November 2, 1997. This increase in backlog orders for fiscal year 1998 was due primarily to increased product demand. Such orders are not necessarily firm because customers may place orders with several computer resellers and will accept products from the first computer reseller to provide delivery. There can be no assurance that suppliers will be able to maintain an adequate supply of products to fulfill all of Pinacor's customer orders on a timely basis. Although Pinacor has not historically encountered such conditions, the failure to obtain adequate product supplies, if competitors were able to obtain them, could have a material adverse effect on Pinacor's results of operations. SUPPLIER RELATIONSHIPS Because of its quantity purchasing capabilities, Pinacor generally obtains volume discounts from its suppliers, enabling it to sell products to resellers on more favorable terms than the typical reseller could obtain on its own from such suppliers. Generally, Pinacor's agreements include provisions designed to protect Pinacor's inventory risk in the event of price reductions by its suppliers on eligible products in Pinacor's inventory and to permit the return of slow-moving and other products for credit (generally at cost minus a restocking fee). However, suppliers are now taking steps to reduce such price protection. Although Pinacor believes that it will be able to manage inventories at levels that minimize the risk of non-protected price decreases, there can be no assurance that losses from price reductions will not be incurred. Such losses could have a material adverse effect on Pinacor's results of operations. Subject to product availability, Pinacor carries inventory at levels that it believes will enable it to meet the anticipated needs of its resellers and end-user customers and, to a lesser extent, to take advantage of certain vendor discounts and promotions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding the impact of supplier incentives on Pinacor's gross profit percentage. Several major suppliers sponsor payment programs with commercial credit companies to facilitate product sales to and through resellers. Such programs generally provide resellers with payment terms ranging from 30 to 60 days, depending on the supplier. Under these programs, Pinacor generally receives payment for product sales within three to five business days, thus significantly reducing Pinacor's working capital requirements and credit exposure. RELATIONSHIP BETWEEN MICROAGE IT SERVICES AND PINACOR MicroAge IT Services and Pinacor currently provide services and products to each other pursuant to a number of agreements. MicroAge and Pinacor have entered into a Distributor Agreement pursuant to which Pinacor provides products, both hardware and software, to MicroAge IT Services. Under the agreement, Pinacor supplies products to MicroAge IT Services according to its then-current standard sales terms and conditions published at the time of purchase. Pinacor may offer MicroAge IT Services special pricing discounts based on the existence of specific, publicized manufacturer rebate programs. The Distributor Agreement will be in place for two years and may be extended for a third year with the mutual consent of MicroAge and Pinacor. Either party may terminate the agreement upon 90 days' notice. MicroAge and Pinacor have entered into an Automation Agreement pursuant to which Pinacor supplies data services from its mainframe system to MicroAge IT Services. Pinacor will continue to provide such services until such time as MicroAge IT Services establishes its own mainframe system. MicroAge and Pinacor have entered into an integration services agreement (the "QIS AGREEMENT") pursuant to which MicroAge IT Services provides integration services, such as operating system installation, software application installation, software device testing, mass media drive installation, asset tagging, and custom packaging and labeling, to Pinacor. All services are provided pursuant to a fee schedule included in the QIS Agreement. The term of the QIS Agreement is November 1, 1998 to October 31, 1999. It is anticipated that the QIS agreement will remain in place until such time as Pinacor no longer needs these services. 8 EMPLOYEES GENERAL None of the Company's employees are represented by labor unions. The Company considers its employee relations to be good. MICROAGE IT SERVICES As of November 1, 1998, MicroAge IT Services employed approximately 4,500 persons, approximately 2,500 of whom were employed at over 40 branch locations. PINACOR As of November 1, 1998, Pinacor employed approximately 1,600 persons. GOVERNMENT REGULATION Although the Company is not presently offering or selling franchises, the Company remains subject to a substantial number of state laws regulating franchise operations. In certain cases, statutes and court-created doctrines apply substantive standards to the relationship between franchisor and franchisee, including restrictions on the Company's ability to terminate or refuse to renew a franchise agreement. The Company believes it is in substantial compliance with all such regulations. SEASONALITY Although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special vendor promotions and year-end business purchases. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the executive officers of the Company as of January 15, 1999: EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE POSITION - ---- --- -------- John H. Andrews 42 Executive Vice President - Operations James R. Daniel 51 Executive Vice President - Support, Chief Financial Officer, and Treasurer James H. Domaz 43 Vice President, Corporate Counsel, and Assistant Secretary Alan P. Hald 52 Secretary Christopher J. Koziol 38 Executive Vice President - Sales James G. Manton 51 President, Chief Operating Officer, and Secretary, Pinacor, Inc. Robert W. Mason 56 Vice President and Chief Information Officer Jeffrey D. McKeever 56 Chairman of the Board and Chief Executive Officer 9 Mark D. Mumford 37 Vice President - Finance, Pinacor, Inc. Robert G. O'Malley 53 Chief Executive Officer, Pinacor, Inc. Raymond L. Storck 38 Vice President - Controller and Assistant Treasurer JOHN H. ANDREWS has served as Executive Vice President-Operations since September 1998. Mr. Andrews served as President, Logistics Group of the Company from November 1996 to September 1998 and as President, MicroAge Logistics Services, MCCI, from July 1993 to September 1998. He also served as Vice President - Logistics of the Company from December 1995 to November 1996; Vice President - Operations from July 1993 to December 1995; Group Vice President, Operations from January 1993 to July 1993; Vice President and Chief Financial Officer from June 1990 to January 1993; and as Treasurer from June 1991 to January 1993. Mr. Andrews joined the Company in 1984 and served as Principal Accounting Officer from December 1988 to June 1990. Mr Andrews is a certified public accountant. JAMES R. DANIEL has served as Executive Vice President - Support since September 1998, as Chief Financial Officer of the Company since January 1993, and as Treasurer of the Company from January 1993 until December 1994. Mr. Daniel served as Senior Vice President from January 1993 to September 1998. He reassumed the title of Treasurer in September 1995. Prior to joining MicroAge, he served as Chief Financial Officer and Treasurer of Dell Computer Corporation from 1991 to 1993. Prior to Dell, he served as Chief Financial Officer and Treasurer for SCI Systems, Inc., an electronics contract manufacturer, from 1984 to 1991. Mr. Daniel is a certified public accountant. JAMES H. DOMAZ has served as Vice President since November 1997, Corporate Counsel and Assistant Secretary of the Company since November 1996, as Legal Counsel from April 1996 to November 1996, and Associate Counsel from May 1993 to April 1996. Prior to joining the Company he served as General Counsel for C&L Distributing, Inc. from May 1991 to May 1993. ALAN P. HALD has served as Secretary since February 1987. He also served as Vice-Chairman of the Board from October 1991 through April 1997. He co-founded the Company in August 1976 and served as a director of the Company from October 1976 to April, 1997. He also served as President from February 1993 to August 1993 and from October 1976 to February 1987, Chairman of the Board from February 1987 to October 1991 and Treasurer from February 1983 to February 1987. He has also served as Chairman, Image Choice since 1993. CHRISTOPHER J. KOZIOL has served as Executive Vice President - Sales since September 1998. Mr. Koziol served as President, Distribution Group from November 1996 to July 1998, and as Senior Vice President - Sales of the Company from May 1996 to September 1998. Mr. Koziol served as President, Pinacor, Inc. from March 1998 to August 1998. He served as President, MicroAge Infosystems Services, Inc. from October 1995 to January 1997, as President, MicroAge Infosystems Services, MCCI, from July 1993 to October 1995, and as Vice President, Sales, MCCI, from January 1992 to July 1993. He joined the Company in September 1985 and served as Director-Regional Support from March 1988 to December 1991. JAMES G. MANTON has served as President, Chief Operating Officer, and Secretary of Pinacor, Inc. since March 1998. Mr. Manton served as Senior Vice President - Operations of the Company from November 1996 to February 1998. He also served as Group Vice President - Technical Services, MicroAge Logistics Services, Inc. from September 1993 to November 1996 and as Vice President - Technical Services, MicroAge Logistics Services, MCCI from January 1993 to September 1993. Mr. Manton served as Executive Vice President from January 1987 to February 1989, at which time he left the Company to start his own companies. He served as President of Unizone, Inc., a systems integrator, from March 1989 to July 1993 and as Chairman of QualiTime Strategies, Inc., a consulting firm engaged in cycle time reduction, from July 1991 to December 1992. ROBERT W. MASON has served as Vice President and Chief Information Officer of the Company since September 1998, and served as President, Services Group, from June 1997 to September 1998. Prior to joining the Company, he served as Vice President and CIO at Anheuser-Busch from 1994 to 1997, Manager of Information Services for GE Lighting from 1986 to 1994, and Director of Information Services for several of Johnson & Johnson's companies from 1969 to 1986. Mr. Mason's experience with the Johnson & Johnson companies included five years with Johnson & Johnson-Brazil and several years as CFO of Johnson & Johnson's Orthopedics company. JEFFREY D. MCKEEVER has served as Chief Executive Officer since February 1987 and as Chairman of the Board since October 1991. Mr. McKeever co-founded the Company in August 1976 and has served as a director of the 10 Company since October 1976. He also served as President from June 1995 to January 1996, from January 1993 to February 1993, and from February 1987 to October 1991, as Chairman of the Board and Secretary from October 1976 to February 1987, and as Treasurer from October 1976 to February 1983 and from February 1987 to December 1988. MARK D. MUMFORD has served as Vice President - Finance of Pinacor, Inc. since March 1998. Mr. Mumford was Vice President of Supplier Finance and Pricing at MicroAge, Inc., from 1996 to 1998. Prior to that, he held various positions with the Company, including Controller from 1995 to 1996. Mumford joined MicroAge in 1990 as senior accounting manager. In 1992, he assumed the position of Director of Financial Accounting, Reporting and Acquisitions. Prior to joining the Company, Mr. Mumford held positions with PricewaterhouseCoopers and Deloitte & Touche. Mr. Mumford is a certified public accountant. ROBERT G. O'MALLEY has served as Chief Executive Officer of Pinacor, Inc. since March 1998. Mr. O'Malley served as President of the Company from November 1996 to March 1998 and as President, MicroAge Data Services, MCCI, from May 1995 to December 1995. He also served as Vice President - Services Marketing of the Company from January 1996 to November 1996. Prior to joining the Company, he held various positions with IBM Corporation since January 1976, including General Manager, PC Desktop Systems from September 1994 to February 1995; Vice President of Marketing & Brand Management - Americas from February 1994 to September 1994; Managing Director, Asia Pacific PC Operations from January 1992 to January 1994; Vice President, National Distribution Division, from August 1990 to December 1991; and Director, US Finance and Planning, from February 1988 to July 1990. RAYMOND L. STORCK has served as Vice President, Controller since July 1993 and Assistant Treasurer of the Company since October 1991. He joined the Company in 1986 and served in positions in accounting, reporting and analysis, including Director of Planning and Analysis from June 1990 to July 1991. ITEM 2. PROPERTIES GENERAL All facilities are leased. The Company believes that its properties and equipment are well-maintained, in good operating condition, and adequate for its present foreseeable needs. MICROAGE IT SERVICES MicroAge's executive offices are located in Tempe, Arizona and MicroAge IT Services occupies a commercial office building in Phoenix, Arizona. In addition, MicroAge IT Services shares its ISO-9001 certified Quality Integration Center in Tempe, Arizona with Pinacor. As of November 1, 1998, MicroAge IT Services operated 45 MicroAge-owned branches in the following cities: Anchorage, Alaska; Phoenix, Arizona; Cerritos, Irvine, Dublin, Santa Ana, Ventura, and Van Nuys, California; Westminster, Colorado; Hartford and Wilton, Connecticut; Boca Raton, Jacksonville, Miami, and Tampa, Florida; Atlanta, Georgia; Chicago and Rosemont, Illinois; Indianapolis, Indiana; Gaithersburg, Maryland; Burlington, Massachusetts; Novi, Michigan; Plymouth, Minnesota; Chesterfield, Missouri; Hampton, New Hampshire; Edison, New Jersey; Hauppauge and New York City, New York; Greensboro and Raleigh, North Carolina; Cincinnati and Columbus, Ohio; Oklahoma City and Tulsa, Oklahoma; Portland, Oregon; Exton and Pittsburgh, Pennsylvania; Greenville, South Carolina; Memphis and Nashville, Tennessee; Houston and Irving, Texas; Salt Lake City, Utah; Richmond, Virginia; and Bellevue, Washington. MicroAge IT Services also maintains Teleservices centers of approximately 58,000 square feet in Las Vegas, Nevada, approximately 67,000 square feet in Santa Maria, California, and approximately 125,000 square feet in Tempe, Arizona. PINACOR Pinacor's executive offices are located in Tempe, Arizona. Pinacor operates automated distribution and logistics centers in Tempe, Arizona and Cincinnati, Ohio, which occupy approximately 300,000 square feet each, and in Reno, Nevada, which occupies approximately 100,000 square feet. In addition, Pinacor has distribution centers occupying approximately 60,000 square feet in Miami, Florida, approximately 136,000 square feet in Paulsboro, New Jersey, and approximately 261,000 square feet in Allen, Texas. Combined, these facilities provide over 1,000,000 square feet of domestic warehouse space. Pinacor also has in-country distribution facilities in Columbia, Venezuela, Bolivia, and Ecuador. Pinacor shares MicroAge IT Services' 135,000 square foot ISO 9001-certified integration facility in Tempe, Arizona. Additionally, Pinacor maintains an ISO 9001-certified integration facility in Cincinnati, Ohio and an ISO 9002-certified integration facility in Allen, Texas. 11 ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine litigation incidental to the conduct of its business. There are currently no material pending proceedings to which the Company or any of its subsidiaries is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market under the symbol MICA and is quoted on the Nasdaq Stock Market. The following table sets forth the quarterly high and low sale prices for the common stock as reported by the Nasdaq Stock Market for the two most recent fiscal years: RANGE OF SALE PRICES -------------------- FISCAL 1997 HIGH LOW ----------- ---- --- First Quarter......................... $24 1/4 $12 3/4 Second Quarter........................ $15 3/8 $12 1/2 Third Quarter......................... $24 1/4 $13 7/16 Fourth Quarter........................ $29 1/4 $21 3/8 FISCAL 1998 HIGH LOW ----------- ---- --- First Quarter......................... $25 3/4 $10 9/16 Second Quarter........................ $16 $11 9/16 Third Quarter......................... $16 1/16 $13 Fourth Quarter........................ $15 11/16 $ 8 29/32 As of December 31, 1998, there were approximately 1,369 stockholders of record of the common stock. The Company believes that as of such date there were approximately 6,400 beneficial holders of the common stock. The Company has never declared or paid a cash dividend on its common stock and does not presently intend to do so. Future dividend policy will depend upon the Company's earnings, capital requirements, financial condition, and other factors deemed relevant by the Company's Board of Directors. 12 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five fiscal year periods ended November 1, 1998 are derived from the Company's Consolidated Financial Statements. During fiscal 1998, the Company made an acquisition that was accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the pooled company for all periods presented. In addition, a 1997 acquisition originally accounted for as a pooling of interests was restated under the purchase method of accounting - see Note 3 to the Consolidated Financial Statements. The selected financial data should be read in conjunction with the Company's Consolidated Financial Statements and related notes included elsewhere in this report. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations." INCOME STATEMENT DATA:
Fiscal years ended -------------------------------------------------------- Nov. 1, Nov. 2, Nov. 3, Oct. 29, Oct. 30, 1998(1) 1997 1996 1995(2) 1994 ------- ---- ---- ------- ---- (in thousands, except per share data) Revenue $5,520,031 $4,379,208 $3,608,230 $3,018,288 $2,297,150 Gross profit 353,241 297,465 206,981 162,608 125,449 Income (loss) before income taxes (7,418) 43,579 26,543 3,211 28,923 Net income (loss) (8,325) 25,197 15,529 1,862 17,782 Diluted net income (loss) per common share $ (0.42) $ 1.43 $ 0.94 $ 0.12 $ 1.19 Diluted weighted average common and common equivalent shares 19,783 17,635 16,452 15,910 14,953 BALANCE SHEET DATA: Nov. 1, Nov. 2, Nov. 3, Oct. 29, Oct. 30, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (in thousands) Working capital $ 78,610 $ 126,264 $ 114,965 $ 110,310 $ 115,711 Total assets 1,315,143 919,396 711,979 594,474 529,626 Long-term obligations 5,553 35,187 3,991 4,176 2,157 Stockholders' equity 290,486 262,325 191,580 171,908 168,626
(1) The fiscal year ended November 1, 1998 included $5,600,000 of restructuring and other one-time charges. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) The fiscal year ended October 29, 1995 included $9,029,000 of restructuring and other one-time charges. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During fiscal 1998, the Company made several acquisitions, one of which has been accounted for as a pooling of interests. In addition, one acquisition made during fiscal 1997 that had previously been accounted for as a pooling of interests is now accounted for under the purchase method. Accordingly, the Company's consolidated financial statements have been restated for all periods presented to include the accounts and operations of the pooled company acquired during fiscal 1998, and to exclude the accounts and operations (prior to the purchase date) of the company acquired during fiscal 1997 that is no longer accounted for as a pooling. See Note 3 to the Company's Consolidated Financial Statements in Part II, Item 8. In February 1998, the Company initiated a plan to restructure the Company into two independent businesses--a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc., and an integration business, MicroAge IT Services. Pinacor and MicroAge IT Services have separate management teams, operate autonomously in their respective marketplaces, and contract with MicroAge Headquarters for a limited number of services, such as payroll processing and employee benefits. See "Restructuring and Other One-Time Charges" below. In May, 1998, the Company announced that it had retained an investment banking firm to help explore financial options for Pinacor designed to enhance shareholder value. Certain statements in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; potential fluctuations in quarterly results; risks of declines in inventory values; no assurance of successful acquisitions or investments; capital intensive nature of the Company's business; dependence on information systems; dependence on independent shipping companies; rapid technological change; possible volatility of stock price; and the Company's future relationship with Pinacor. EXHIBIT 99.1 to this Annual Report on Form 10-K, which is attached hereto and incorporated by reference herein, discusses these important factors in greater detail. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 14 RESULTS OF OPERATIONS The following table sets forth, for the indicated periods, data as percentages of total revenue: Fiscal years ended -------------------------------------- Nov. 1, Nov. 2, Nov. 3, 1998 1997 1996 ---- ---- ---- Revenue $5,520,031 $4,379,208 $3,608,230 Cost of sales 93.6% 93.2% 94.3% Gross profit 6.4 6.8 5.7 Operating and other expenses Operating expenses 5.8 5.2 4.6 Restructuring and other one-time charges .1 -- -- ---------- ---------- ---------- Total 5.9 5.2 4.6 ---------- ---------- ---------- Operating income .5 1.6 1.1 Other expenses - net .7 .6 .4 ---------- ---------- ---------- Income (loss) before income taxes (.2) 1.0 .7 Provision for income taxes -- .4 .3 ---------- ---------- ---------- Net income (loss) (.2)% .6% .4% ========== ========== ========== FISCAL YEAR ENDED NOVEMBER 1, 1998 VERSUS FISCAL YEAR ENDED NOVEMBER 2, 1997 TOTAL REVENUE. Total revenue during fiscal 1998 was $5.5 billion. Pinacor (distribution business) revenues totaled $5.0 billion and MicroAge IT Services (integration) revenues totaled $1.8 billion. On a consolidated basis, these revenues were partially offset by eliminations of intercompany revenues of $1.3 billion. Total revenue increased $1.1 billion, or 26%, for the fiscal year ended November 1, 1998 as compared to the fiscal year ended November 2, 1997. This revenue increase included a $900 million, or 22%, increase, in Pinacor revenue and a $298 million, or 19%, increase in MicroAge IT Services revenue, partially offset by an increase in intercompany eliminations. The increase in consolidated revenue was attributable to sales to resellers added since November 2, 1997, increased demand for the Company's major suppliers' products, improved product availability, the Company's addition of new product offerings, the growth of the microcomputer products industry and acquisitions of reseller locations. GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.4% for the fiscal year ended November 1, 1998 and 6.8% for the fiscal year ended November 2, 1997. The decrease in the Company's gross profit percentage was due to lower margins on Pinacor sales combined with the fact that MicroAge IT Services revenues, which have higher gross margins, comprised a smaller percentage of total revenues. In Pinacor, gross margins on sales to reseller customers decreased due to increased competitive pressures. In addition, supplier incentive funds were lower as a percentage of total Pinacor revenue and net freight expense increased as a percentage of revenue. The freight expense increase as a percentage of revenue was primarily due to a decrease in the average selling price per pound of product shipped as well as an increase in the cost per pound 15 shipped. MicroAge IT Services margins increased due to an increase in service revenue, which has higher gross margins than product revenue margins. This increase was partially offset by lower margins on MicroAge IT Services product sales to end-user customers due to competitive pricing pressures. Future gross profit percentages may be affected by market pressures, the introduction of new Company initiatives, changes in revenue mix, future acquisitions, changes in supplier incentive funds, the Company's utilization of early payment discount opportunities, supplier pricing actions, and other competitive and economic pressures. See "Potential Fluctuations in Operating Results" below for information regarding industry trends that may affect future gross profit percentages. OPERATING EXPENSE PERCENTAGE. As a percentage of revenue, operating expenses increased to 5.8% for the fiscal year ended November 1, 1998, compared to 5.2% for the fiscal year ended November 2, 1997. The increase in operating expenses was primarily in MicroAge IT Services and was attributable to acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other businesses), the costs associated with assimilating these acquisitions, start-up costs of several new locations, and the build-up of infrastructure associated with MicroAge IT Services' increasing levels of service revenue. RESTRUCTURING AND OTHER ONE-TIME CHARGES. In connection with the restructuring plan discussed above, the Company recorded a $5.6 million charge for the second quarter of fiscal 1998. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations, and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and MicroAge IT Services as separate businesses. The charges associated with employee termination benefits consist primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company and have been completed. OTHER EXPENSES - NET. Other expenses - net increased to $33.4 million for the fiscal year ended November 1, 1998 from $27.6 million for the fiscal year ended November 2, 1997. This increase was due to higher average daily borrowings, primarily in the first two fiscal quarters of fiscal 1998, to support higher inventory and accounts receivable levels and to increased amortization expense associated with goodwill from acquisitions. FISCAL YEAR ENDED NOVEMBER 2, 1997 VERSUS FISCAL YEAR ENDED NOVEMBER 3, 1996 The fiscal year ended November 2, 1997 included 52 weeks, while the fiscal year ended November 3, 1996 included 53 weeks. See Note 2 to the Company's Consolidated Financial Statements in Part II, Item 8. TOTAL REVENUE. Total revenue during fiscal 1997 was $4.4 billion. Pinacor revenues totaled $4.1 billion and MicroAge IT Services revenues totaled $1.5 billion. On a consolidated basis, these revenues were partially offset by eliminations of intercompany revenues of $1.2 billion. Total revenue increased $771 million, or 21%, for the fiscal year ended November 2, 1997 as compared to the fiscal year ended November 3, 1996. This revenue increase included a $766 million, or 23%, increase in Pinacor revenue and a $313 million, or 26%, increase in MicroAge IT Services revenue, partially offset by an increase in intercompany eliminations. The increase in revenue was attributable to sales to resellers added since November 3, 1996, increased demand for the Company's major suppliers' products, improved product availability, the Company's addition of new product offerings, the growth of the microcomputer products industry and acquisitions of reseller locations. GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.8% for the fiscal year ended November 2, 1997 and 5.7% for the fiscal year ended November 3, 1996. The increase in the Company's gross profit percentage results primarily from a higher service content in revenues, which generates higher margins, the growth of the Company's integration business, including acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other business groups), and increasing supplier incentives and early pay discounts. OPERATING EXPENSE PERCENTAGE. As a percentage of revenue, operating expenses increased to 5.2% for the fiscal year ended November 2, 1997 compared to 4.6% for the fiscal year ended November 3, 1996. The increase in operating 16 expenses as a percentage of revenue was primarily due to acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other business groups) and to increased spending in support of electronic commerce initiatives and capacity expansion in personnel, systems and facilities. OTHER EXPENSES - NET. Other expenses - net increased to $27.6 million for the fiscal year ended November 2, 1997 from $14.0 million for the fiscal year ended November 3, 1996. The increase was primarily attributable to increases in average daily borrowings to support higher inventory and accounts receivable levels and to take advantage of early payment discount opportunities. The early pay discounts are reflected in the Company's gross profit. UPS STRIKE - IMPACT ON EARNINGS PER SHARE. On August 4, 1997, Teamsters union members went on strike against United Parcel Service (UPS). The strike lasted 15 days and impacted the Company through increased delivery times, increased transportation costs and decreased call center revenue and profit. Because of the brevity of the strike, the higher transportation costs were not passed on by the Company to its customers. The UPS strike resulted in approximately a $0.03 decrease in earnings per share for fiscal 1997. SUPPLIER INCENTIVE FUNDS The key vendors of the Company provide various incentives for promoting and marketing their product offerings. A large portion of the incentives are passed on to the Company's customers. However, a portion of the incentives positively impact the Company's income. Beginning in May 1998, the major manufacturers announced and/or instituted changes in their sales incentive programs and inventory management programs. Pursuant to these changes, the major manufacturers will (i) provide price protection for periods ranging from 2 to 4 weeks rather than the unlimited protection previously available, (ii) allow product returns on average of 2% to 3% of product sales per quarter, rather than the 5% of sales per quarter previously available, and (iii) provide incentives based on sales of the manufacturers' products, rather than on purchases of the products from the manufacturers. Further changes in these incentives could have a material adverse effect on the Company's operating results. POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services, the amount of supplier incentive funds received by the Company, the results of acquired businesses, product availability, competitive conditions, new product introductions, changes in customer order patterns and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments, and interest rates. See "Products and Suppliers" and "Competition" in Part I, Item 1 for additional information regarding certain of these factors. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special vendor promotions and year-end business purchases. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. If the Company is successful in achieving continued revenue growth, its working capital requirements will continue to increase. The Company has acquired or invested in, and intends to acquire or invest in, resellers to increase core service competencies, expand the Company's geographic coverage in key market areas, and strengthen the Company's direct relationships with end-user customers. During fiscal 1998, the Company completed eight acquisitions. In addition to cash and other consideration, the Company issued 2,167,454 shares of common stock in connection with the acquisitions. See Note 3 to the Company's Consolidated Financial Statements in Part II, Item 8 for additional information regarding these acquisitions. In addition to these 17 acquisitions, the Company made investments in or loans to companies totaling $3.8 million during fiscal 1998. See Note 13 to the Company's Consolidated Financial Statements in Part II, Item 8 for information regarding non-cash investment activities. The Company's future acquisitions or investments may be made utilizing cash, stock or a combination of cash and stock. Cash provided by operating activities was $104 million in 1998 as compared to $4 million in 1997. The increase was primarily due to a change in cash provided or used by accounts receivable, inventory, and accounts payable. During fiscal 1998, $63 million was provided by changes in accounts receivable, inventory and accounts payable compared to $45 million used by changes in accounts receivable, inventory and accounts payable during 1997. The cash provided in 1998 was the result of a decrease in days cost of sales in ending inventory from 35 days at the end of 1997 to 30 days at the end of 1998, while days cost of sales in ending accounts payable increased from 49 days to 60 days for the same period. This was partially offset by an increase in receivables days outstanding from 16 at November 2, 1997 to 30 at November 1, 1998. The increase in receivables days outstanding was due to a decrease in accounts receivable sold to a finance company from $279 million at November 2, 1997 to $39 million at November 1, 1998. The receivables days adjusted for sold receivables were 33 days at November 1, 1998 and 35 days at November 2, 1997. Cash used in investing activities increased from $37 million in 1997 to $50 million in 1998 due to a $7 million increase in purchases of property and equipment as a result of increased spending for electronic commerce initiatives and capacity expansion in systems and facilities, and a $6 million increase in purchases of businesses and investments in unconsolidated companies. Cash used by financing activities was $34 million in 1998 compared to cash provided in 1997 of $33 million. The change was primarily due to decreased borrowings under the Company's line of credit. The Company maintains three financing agreements (the "AGREEMENTS") with financing facilities totaling $800 million. The Agreements include an accounts receivable facility (the "A/R FACILITY") and inventory financing facilities (the "INVENTORY FACILITIES"). Under the A/R Facility, the Company has the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At November 1, 1998, the net amount of sold accounts receivable was $39 million. The Inventory Facilities provide for borrowings up to $450 million. Within the Inventory Facilities, the Company has lines of credit for the purchase of inventory from selected product suppliers ("INVENTORY LINES OF CREDIT") and a line of credit for general working capital requirements ("SUPPLEMENTAL LINE OF CREDIT"). Payments for products purchased under the Inventory Lines of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. Amounts borrowed under the Supplemental Line of Credit may remain outstanding until the expiration date of the Agreements (August 2000). No interest or finance charges are payable on the Inventory Lines of Credit if payments are made when due. At November 1, 1998, the Company had $386 million outstanding under the Inventory Lines of Credit (included in accounts payable in the accompanying Balance Sheets), and nothing outstanding under the Supplemental Line of Credit. Of the $800 million of financing capacity represented by the Agreements, $375 million was unused as of November 1, 1998. Utilization of the unused portion is dependent upon the Company's collateral availability at the time the funds would be needed. Borrowings under the Agreements are secured by substantially all of the Company's assets, and the Agreements contain certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. At November 1, 1998, the Company was in compliance with these covenants. In addition to the financing facilities discussed above, the Company maintains an accounts receivable purchase agreement (the "PURCHASE AGREEMENT") with a commercial credit corporation (the "BUYER") whereby the Buyer agrees to purchase, from time to time at its option, on a limited recourse basis, certain accounts receivable of the Company. Under the terms of the Purchase Agreement, 18 no finance charges are assessed if the accounts are settled within forty days. At November 1, 1998, the net amount of sold accounts receivable under the Purchase Agreement was $37 million. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. Several of the Company's major suppliers have announced their intention to change the terms within their credit arrangements with the Company. These changes include a decrease in the number of days the Company has to pay for product purchases and a decrease in the amount of reseller purchases from the Company that the suppliers are willing to subsidize. These changes, when implemented, will increase the Company's working capital requirements and will increase the Company's financing costs. There can be no assurance that the Company will be able to borrow adequate amounts on terms acceptable to the Company. The unavailability of a significant portion of, or the loss of, the Agreements or trade credit from suppliers would have a material adverse effect on the Company. Although the Company has no material capital commitments, the Company expects to make capital expenditures of approximately $30 to $35 million in the next fiscal year. INFLATION The Company believes that inflation has generally not had a material impact on its operations or liquidity to date. YEAR 2000 READINESS DISCLOSURE The term "Year 2000 problem" is a general term used to describe the various problems that may result from the improper processing of dates and date sensitive calculations by computers and other equipment as the year 2000 approaches and is reached. These problems generally arise from the fact that computers and equipment have historically used two-digit fields that recognize dates using the assumption that the first two digits are "19." On January 1, 2000, systems using two-digit date fields could recognize a date using "00" as the year 1900 rather than the year 2000. The Company started a Year 2000 awareness campaign in 1996. In 1996, a Year 2000 team was formed to address the Company's Year 2000 issues. In connection with this effort, the Company inventoried all critical systems with Year 2000 implications. The Company then assessed whether inventoried items were Year 2000 ready. The inventory and assessment phases are both 100% complete for all mission critical systems. The final step involves remediation of those systems that are not Year 2000 ready. The Company estimates that the remediation process is 90% complete, and the few remaining mission critical systems that are not ready are planned to be upgraded to a new vendor release, replaced, or retired in the first half of 1999. The Company also has surveyed its stocking manufacturers and obtained the manufacturer's Year 2000 readiness statements or warranty, where available. A database has been implemented to track this supplier information. Currently, a substantial majority of stocking manufacturers have stated that their currently-available products are capable of processing date sensitive information in the Year 2000 and beyond. Manufacturers are using various forms of terminology when referring to their product's Year 2000 status, such as "ready," "compliant," or "capable." The definitions are not consistent and do not guarantee that when the products are interfaced they will operate as represented by the manufacturer. The Company is a distributor and integrator of computer systems, not a manufacturer. Therefore, and generally, the Company does not provide any additional warranty or certification and does not assume any liability in the event the product does not perform according to the supplier's warranty or statement. With respect to external parties that provide critical goods and services to the Company, including utility companies, telecommunication service companies, shipping companies, and other service providers outside the Company's control, the Company is seeking assurances, either through formal communications or otherwise, that such parties will be Year 2000 ready. The Company estimates that it has spent $1.3 million upgrading its computer systems to be Year 2000 ready. The future anticipated cost to finish implementing Year 2000 readiness is projected to be less than $1 million. These estimates include only such expenditures for converting the Company's mainframe and modifications to desktops and applications that directly interface with the mainframe unit to be Year 2000 ready and exclude other expenses incurred for regularly scheduled updates that would have been undertaken regardless of the Year 2000 problem, but result in a system being Year 2000 ready. None of these upgrades were accelerated by the need to make certain systems Year 2000 ready. 19 Despite the efforts of the Company to become Year 2000 ready, no assurance can be given that the Company's computer systems will be Year 2000 compliant in a timely manner or that the Company will not incur significant additional expenses pursuing Year 2000 compliance. Moreover, even if the Company's systems are Year 2000 compliant, there can be no assurance that the Company will not be adversely affected by the failure of others to become Year 2000 compliant or by the failure of the Company's suppliers to provide Year 2000 compliant products for resale by the Company. The Company believes that its most reasonably likely worst-case scenario is the failure of a third party to achieve Year 2000 compliance. Such a failure could result in, for example, the inability of the Company to ship product, a telecommunications failure at one or more of the Company's facilities, a decrease in customer orders, delays in product deliveries from vendors, or power outages at one or more of the Company's facilities. The Company's Year 2000 readiness effort is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and readiness of material external third parties. The Company believes that, with the completion of its Year 2000 readiness effort as scheduled, the possibility of significant interruptions of normal business operations should be minimized. The Company is in the process of developing a contingency plan for the Year 2000 problem. It is anticipated that this plan will be complete by the middle of 1999. The plan includes the evaluation of potential disruptions in business operations and plans for emergency power sources, manual procedures, remediation of systems scheduled to be replaced, or other viable alternatives. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated Financial Statements of the Company listed in the index appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on Form 10-K and are hereby incorporated by reference in this Item 8. See also "Index to Financial Statements" on page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Company's directors is incorporated herein by reference to the information furnished under the captions "Election Of Directors" and "Section 16 Requirements" in the Company's Proxy Statement relating to its 1999 Annual Meeting of Stockholders (the "1999 PROXY STATEMENT"). Information regarding executive officers of the Company is included in Item I of this report, furnished under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein by reference to the information furnished under the captions "Executive Compensation" and "Other Information Regarding the Board of Directors" in the 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information furnished under the captions "Security Ownership of Management" and "Principal Stockholders" in the 1999 Proxy Statement. 20 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the information furnished under the caption "Certain Relationships and Related Transactions" in the 1999 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements: Page No. -------- Report of Independent Accountants F-2 Consolidated Balance Sheets at November 1, 1998 and November 2, 1997 F-3 Consolidated Statements of Operations for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-4 Consolidated Statements of Cash Flows for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-5 Consolidated Statements of Stockholders' Equity for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-6 Notes to Consolidated Financial Statements F-7 (2) Consolidated Financial Statement Schedules: Schedule I - Valuation and Qualifying Accounts and Reserves S-1 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) The Exhibits which are filed with this Annual Report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on page E-1 hereof, which Exhibit Index is incorporated herein by reference. E-1 (b) Reports filed on Form 8-K during the quarter ended November 1, 1998: None. (c) See Item 14(a)(3) above. (d) See "Index to Consolidated Financial Statements" included under Item 8 to this Annual Report on Form 10-K. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 28th day of January, 1999. MICROAGE, INC. (Registrant) /s/ Jeffrey D. McKeever ------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Jeffrey D. McKeever - ---------------------------- Director, Chairman of the Board January 28, 1999 Jeffrey D. McKeever and Chief Executive Officer (Principal Executive Officer) /s/ Lynda M. Applegate - ---------------------------- Director January 28, 1999 Lynda M. Applegate /s/ Cyrus F. Freidheim, Jr. - ---------------------------- Director January 28, 1999 Cyrus F. Freidheim, Jr. /s/ Roy A. Herberger, Jr. - ---------------------------- Director January 28, 1999 Roy A. Herberger, Jr. /s/ William H. Mallender - ---------------------------- Director January 28, 1999 William H. Mallender /s/ Steven G. Mihaylo - ----------------------------- Director January 28, 1999 Steven G. Mihaylo /s/ Dianne C. Walker - ----------------------------- Director January 28, 1999 Dianne C. Walker /s/ James R. Daniel - ----------------------------- Executive Vice President, Chief January 28, 1999 James R. Daniel Financial Officer and Treasurer (Principal Financial Officer) /s/ Raymond L. Storck - ----------------------------- Vice President - Controller January 28, 1999 Raymond L. Storck and Assistant Treasurer (Principal Accounting Officer) 22 MICROAGE, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants F-2 Consolidated Balance Sheets at November 1, 1998 and November 2, 1997 F-3 Consolidated Statements of Operations for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-4 Consolidated Statements of Cash Flows for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-5 Consolidated Statements of Stockholders' Equity for each of the fiscal years ended November 1, 1998, November 2, 1997 and November 3, 1996 F-6 Notes to Consolidated Financial Statements F-7 Schedule I - Valuation and Qualifying Accounts and Reserves S-1 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of MicroAge, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a) (1) and (2) present fairly, in all material respects, the financial position of MicroAge, Inc. and its subsidiaries at November 1, 1998 and November 2, 1997, and the results of their operations and their cash flows for the fiscal years ended November 1, 1998, November 2, 1997, and November 3, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 3, the consolidated financial statements as of and for the year ended November 2, 1997 have been restated to reflect an acquisition utilizing the purchase method of accounting. PricewaterhouseCoopers LLP Phoenix, Arizona January 8, 1999 F-2 MICROAGE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS November 1, November 2, 1998 1997 ------------ ------------ Current assets: Cash and cash equivalents $ 41,894 $ 22,279 Accounts and notes receivable, net 529,877 233,942 Inventory, net 486,150 479,332 Other 24,432 11,356 ------------ ------------ Total current assets 1,082,353 746,909 Property and equipment, net 92,147 73,975 Intangible assets, net 126,105 85,903 Other 14,538 12,609 ------------ ------------ Total assets $ 1,315,143 $ 919,396 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 967,501 $ 591,538 Accrued liabilities 24,279 22,527 Current portion of long-term obligations 3,095 2,744 Other 8,868 3,836 ------------ ------------ Total current liabilities 1,003,743 620,645 Line of credit -- 30,650 Long-term obligations 5,553 4,537 Other long-term liabilities 15,361 1,239 Stockholders' equity: Preferred stock, par value $1.00 per share -- -- Shares authorized: 5,000,000 Issued and outstanding: none Common stock, par value $.01 per share 203 184 Shares authorized: 40,000,000 Issued: November 1, 1998 -- 20,284,789 November 2, 1997 -- 18,451,653 Additional paid-in capital 206,720 170,829 Retained earnings 83,729 92,129 Treasury stock, at cost (166) (817) Shares: November 1, 1998 -- 16,378 November 2, 1997 -- 80,378 ------------ ------------ Total stockholders' equity 290,486 262,325 ------------ ------------ Total liabilities and stockholders' equity $ 1,315,143 $ 919,396 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-3 MICROAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Fiscal years ended ------------------------------------------ November 1, November 2, November 3, 1998 1997 1996 ----------- ----------- ----------- Revenue $5,520,031 $4,379,208 $3,608,230 Cost of sales 5,166,790 4,081,743 3,401,249 ---------- ---------- ---------- Gross profit 353,241 297,465 206,981 Operating and other expenses Operating expenses 321,683 226,260 166,440 Restructuring and other one-time charges 5,600 -- -- ---------- ---------- ---------- Total 327,283 226,260 166,440 ---------- ---------- ---------- Operating income 25,958 71,205 40,541 Other expenses - net 33,376 27,626 13,998 ---------- ---------- ---------- Income (loss) before income taxes (7,418) 43,579 26,543 Provision for income taxes 907 18,382 11,014 ---------- ---------- ---------- Net income (loss) $ (8,325) $ 25,197 $ 15,529 ========== ========== ========== Net income (loss) per common and common equivalent share Basic $ (0.42) $ 1.51 $ 0.97 ========== ========== ========== Diluted $ (0.42) $ 1.43 $ 0.94 ========== ========== ========== Weighted average common and common equivalent shares outstanding Basic 19,783 16,731 15,978 Diluted 19,783 17,635 16,452 The accompanying notes are an integral part of these consolidated financial statements. F-4 MICROAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Fiscal years ended ------------------------------------- November 1, November 2, November 3, 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ (8,325) $ 25,197 $ 15,529 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 40,602 24,002 20,337 Provision for losses on accounts and notes receivable 13,640 9,208 7,629 Changes in assets and liabilities net of business acquisitions: Accounts and notes receivable (275,115) 63,390 (76,781) Inventory (1,759) (143,786) (26,472) Other current assets (13,468) 21 1,907 Other assets (483) (5,547) (3,772) Accounts payable 340,200 35,198 88,541 Accrued liabilities (639) (4,345) 10,036 Other liabilities 8,897 679 228 --------- --------- -------- Net cash provided by operating activities 103,550 4,017 37,182 Cash flows from investing activities: Purchases of property and equipment (42,258) (34,988) (24,101) Purchases of businesses and investments in unconsolidated companies, net of cash acquired (7,259) (1,810) (4,150) --------- --------- -------- Net cash used in investing activities (49,517) (36,798) (28,251) Cash flows from financing activities: Amounts received from ESOT -- 207 561 Proceeds from issuance of stock, net of issuance costs 3,412 5,886 1,873 Net borrowings (repayments) under lines of credit (30,650) 30,650 -- Shareholder distributions - pooled companies (128) (953) (291) Principal payments on long-term obligations (7,052) (2,665) (3,282) --------- --------- -------- Net cash provided by (used in) financing activities (34,418) 33,125 (1,139) --------- --------- -------- Net increase in cash and cash equivalents 19,615 344 7,792 Cash and cash equivalents at beginning of period 22,279 21,935 14,143 --------- --------- -------- Cash and cash equivalents at end of period $ 41,894 $ 22,279 $ 21,935 ========= ========= ======== Supplemental disclosure to cash flows - See Note 13
The accompanying notes are an integral part of these consolidated financial statements. F-5 MICROAGE, INC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
For the fiscal years ended November 1, 1998, November 2, 1997, and November 3, 1996 ----------------------------------------------------------------------------------- Additional Note-stock Total Preferred Common paid-in Retained Loan to purchase Treasury stockholders' stock stock capital earnings ESOT agreement stock equity ----- ----- ------- -------- ---- --------- ----- ------ BALANCE at October 29, 1995 -- 160 122,731 52,647 (768) (2,000) (862) 171,908 Options for 108,861 common shares exercised -- 1 934 -- -- -- -- 935 Contribution of 18,415 treasury shares to employee benefit plan -- -- 5 -- -- -- 138 143 Issuance of 110,932 shares under the employee stock purchase plan -- 1 777 -- -- -- -- 778 Contributed capital - pooled company -- -- 17 -- -- -- -- 17 Cancellation of convertible subordinated debentures due to acquisition -- -- -- -- -- 2,000 -- 2,000 Loan payments from ESOT -- -- -- -- 561 -- -- 561 Distributions to shareholders - pooled companies -- -- -- (291) -- -- -- (291) Net income -- -- -- 15,529 -- -- -- 15,529 ---- ---- -------- ------- ----- ------ ----- ------- BALANCE at November 3, 1996 -- 162 124,464 67,885 (207) -- (724) 191,580 Options for 445,579 common shares exercised -- 5 4,050 -- -- -- -- 4,055 Contribution of 31,731 treasury shares to employee benefit plan -- -- 205 -- -- -- 262 467 Issuance of 99,703 shares under the employee stock purchase plan -- 1 1,353 -- -- -- -- 1,354 Loan payments from ESOT -- -- -- -- 207 -- -- 207 Issuance of 108,417 shares to acquire KNB, Inc. -- 1 2,002 -- -- -- -- 2,003 Issuance of 609,779 shares to cquire Access MicroSystems, Inc. -- 6 15,894 -- -- -- -- 15,900 Issuance of 8,000 restricted common shares to outside directors -- -- 122 -- -- -- -- 122 Issuance of 932,039 shares to acquire Pride Technologies, Inc. -- 9 22,496 -- -- -- -- 22,505 Unearned compensation - restricted common shares issued to directors -- -- (122) -- -- -- -- (122) Compensation expense- restricted common shares issued to directors -- -- 40 -- -- -- -- 40 Compensation expense-stock option excercise -- -- 325 -- -- -- -- 325 15,080 shares of treasury stock acquired through cashless stock option exercises -- -- -- -- -- -- (355) (355) Distributions to shareholders - pooled companies -- -- -- (953) -- -- -- (953) Net income -- -- -- 25,197 -- -- -- 25,197 ---- ---- -------- ------- ----- ------ ----- ------- BALANCE at November 2, 1997 -- 184 170,829 92,129 -- -- (817) 262,325 Compensation expense- restricted common shares issued to directors -- -- 85 -- -- -- -- 85 Compensation expense-stock options -- -- 500 -- -- -- -- 500 Options for 79,936 common shares exercised -- 1 534 -- -- -- -- 535 Issuance of 5,000 restricted common shares to outside directors -- -- 110 -- -- -- -- 110 Unearned compensation - restricted common shares issued to directors -- -- (110) -- -- -- -- (110) Issuance of 1,565,730 shares for business acquisitions -- 16 32,484 -- -- -- -- 32,500 Issuance of 182,470 common shares under the employee stock purchase plan -- 2 2,254 -- -- -- -- 2,256 Contribution of 64,000 shares of treasury stock to employee benefit plan -- -- 34 -- -- -- 651 685 Distributions to shareholders - pooled companies -- -- -- (128) -- -- -- (128) Unrealized translation gain -- -- -- 53 -- -- -- 53 Net loss -- -- -- (8,325) -- -- -- (8,325) ---- ---- -------- ------- ----- ------ ----- -------- BALANCE at November 1, 1998 $ -- $203 $206,720 $83,729 $ -- $ -- $(166) $290,486 ==== ==== ======== ======= ===== ====== ===== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 MICROAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS The Company is a global provider of efficient technology solutions. The Company is composed of information technology businesses that deliver technology solutions through ISO 9001-certified, multi-vendor integration services and distributed computing solutions to large organizations and computer resellers worldwide. In February 1998, the company initiated a plan to restructure the Company into two independent businesses - an integration business ("MicroAge IT Services") and a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc. ("Pinacor"). MicroAge IT Services provides ISO 9001-certified multi-supplier integration services and distributed computing solutions to large organizations worldwide. MicroAge IT Services serves corporations, institutions and government agencies through its network of more than forty company-owned locations, in addition to owner-managed branches and alliance partners spanning more than forty countries. Pinacor delivers market-leading technology products and innovative services (including product financing, technical support and distribution) to reseller customers worldwide. The customer group consists of franchised resellers and non-franchised resellers, including value-added resellers ("VARs"). Pinacor provides products and a variety of services, including technical, financial and account management offerings, to more than 25,000 resellers. Using electronic commerce to streamline the delivery of efficient technology solutions and services, Pinacor supports customers worldwide from strategic distribution hubs in the United States and Latin America. Unless the context otherwise requires, references to the "Company" include MicroAge, Inc. and its consolidated subsidiaries. During fiscal 1998, the Company made an acquisition which has been accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the acquired company for all periods presented. In addition, a 1997 acquisition originally accounted for as a pooling of interests has been restated under the purchase method of accounting (see Note 3 below). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. FISCAL YEAR The Company's fiscal year ends on the Sunday nearest October 31 in each calendar year. The fiscal years ended November 1, 1998 and November 2, 1997 included 52 weeks. The fiscal year ended November 3, 1996 included 53 weeks. F-7 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments that are subject to fair value disclosure requirements are carried in the consolidated financial statements at amounts that approximate fair value. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. CASH OVERDRAFTS Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes. Such amounts, aggregating $158.5 and $45.4 million at November 1, 1998 and November 2, 1997, respectively, are included as a component of accounts payable in the accompanying consolidated balance sheets. ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable are comprised of amounts due from financing companies, end-users, and resellers and are net of an allowance for doubtful accounts of $20,418,000 and $10,966,000 at November 1, 1998 and November 2, 1997, respectively. INVENTORY Inventory consisting of resale merchandise is stated at lower of cost (first-in, first-out method) or market. International Business Machines Corporation ("IBM") products totaling $65,775,000 and $79,436,000 included in inventory at November 1, 1998 and November 2, 1997, respectively, are subject to a reservation of the title in IBM for the purpose of assuring that such products are sold and delivered only to IBM-authorized personal computer dealers; such reservation does not prohibit the Company from granting security interests to other parties. During the fiscal year ended November 1, 1998, sales of COMPAQ Computer Corporation, Hewlett-Packard Company and IBM products accounted for approximately 26%, 19% and 13%, respectively, of the Company's revenue from sales of merchandise. The sales of no other individual supplier's products accounted for more than 10% of such revenue during the fiscal year ended November 1, 1998. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated on the straight-line method over their estimated useful lives. Equipment under capital lease is recorded at the lower of fair market value or the present value of future lease payments and is amortized on the straight-line method over the estimated useful life or the term of the lease, whichever is less. The following reflects the estimated lives by category of property and equipment: Furniture, fixtures, equipment and software 3 to 7 years Equipment under capital lease 3 to 5 years Leasehold improvements 3 to 5 years Expenditures for maintenance and repairs are charged to operations in the year in which the expense is incurred. F-8 INTANGIBLE ASSETS Intangible assets are amortized over their economic lives ranging from three to fifteen years using the straight-line method. For acquisitions accounted for under the purchase method, the excess of cost over the fair value of net identifiable assets acquired is classified as goodwill and is included in intangible assets. On an ongoing basis, the Company reviews the valuation and amortization of goodwill. As part of this review, the Company estimates the net realizable value of goodwill and assesses whether the unamortized balance could be recovered through expected future cash flows over the remaining life of the asset. At November 1, 1998 and November 2, 1997, no impairment was indicated. Intangible assets are net of $16,594,000 and $7,264,000 of accumulated amortization at November 1, 1998, and November 2, 1997, respectively. REVENUE RECOGNITION Revenue from product sales is recognized at the time of shipment. Revenue from services is recognized as services are performed, or ratably if performed over a service contract period. SUPPLIER INCENTIVE FUNDS In general, suppliers provide the Company with various incentive programs. The funds received under these programs are generally determined based on the Company's purchases and/or sales of the suppliers' product. The funds are earned through marketing programs or meeting purchasing or other objectives established by the suppliers. Once earned, the funds are applied against product cost or operating expenses. ACCOUNTING FOR STOCK BASED COMPENSATION As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), the Company measures compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") but provides pro forma disclosures of net income and earnings per share as if the fair value method (as defined in SFAS 123) had been applied beginning in 1996 (see Note 8). INCOME TAXES Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. F-9 INCOME PER COMMON SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which replaced the previous presentation of earnings per share with a dual presentation of basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding. Dilutive common equivalent shares consist of stock options and warrants using the treasury stock method. For fiscal 1998, the effect of stock options and warrants is not included as it would be anti-dilutive. The weighted average common and common equivalent shares consist of the following: Fiscal years ended -------------------------------------- November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- (in thousands) Weighted average common shares 19,783 16,731 15,978 Dilutive effect of stock options and warrants -- 904 474 ------ ------ ------ Weighted average common and common equivalent shares outstanding 19,783 17,635 16,452 ====== ====== ====== RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with current year financial statement presentation. Certain amounts receivable from vendors have been reclassified to accounts payable to conform with current year presentation and industry practice. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. NOTE 3 - ACQUISITIONS POOLINGS OF INTEREST During fiscal 1998, the Company completed an acquisition of Gaines Computer Service, Inc. ("Gaines"), a reseller, that was accounted for as a pooling of interests. The Company issued 601,724 common shares in exchange for all of the outstanding shares of Gaines. The Company's consolidated financial statements have been restated to include the accounts and operations of Gaines for all periods presented. In addition, fiscal years 1996 and 1997 have been restated for a fiscal 1997 acquisition. This acquisition was originally accounted for on a pooling of interests basis. Subsequent information came to light indicating that actions taken by the former owners of the acquired business rendered the pooling of interests accounting inappropriate. The Company has restated the fiscal 1997 and 1996 financial statements to reflect such acquisition using the purchase method of accounting. The Company has also restated the previously issued consolidated results for each of the first three fiscal quarters of 1998 to reflect such acquisition using the purchase method of accounting. The restatement resulted in a charge of $702,000 per quarter of additional goodwill amortization shown as F-10 other expense in the consolidated statement of operations. See Note 16 for Selected Quarterly Financial Data (Unaudited). The results of operations previously reported by the Company and Gaines and the combined amounts presented in the accompanying consolidated financial statements are summarized below (in thousands). Pooling Converted MicroAge Gaines to Purchase Combined -------- ------ ----------- -------- Fiscal year 1997: Revenue $4,446,308 $45,560 $(112,660) $4,379,208 Net income $ 24,965 $ 668 $ (436) $ 25,197 Fiscal year 1996: Revenue $3,696,160 $45,580 $(133,510) $3,608,230 Net income $ 14,110 $ 989 $ 430 $ 15,529 PURCHASES During fiscal 1998, the Company completed seven separate acquisitions that were accounted for using the purchase method of accounting. In each case, the purchase price was allocated to the assets purchased and the liabilities assumed based on fair values at the date of acquisition. These acquisitions are as follows: In November 1997, the Company acquired Microretailing, Inc., a Miami-based distributor, for consideration of $25 million consisting of 1,194,055 common shares. The excess of the purchase price over the fair value of net assets acquired was approximately $23.9 million and is being amortized using the straight-line method over 15 years. Also in November 1997, the Company acquired Advanced Information Services, Inc., a reseller, for consideration of $5 million consisting of 207,200 common shares, plus an earnout agreement with a guaranteed minimum payment of $7.5 million. The excess of the purchase price over the fair value of net assets acquired was approximately $12.6 million and is being amortized using the straight-line method over 15 years. In December 1997, July 1998 and August 1998, the Company acquired resellers in four separate transactions for consideration of $6 million consisting of $2 million in cash, a total of 164,475 common shares and an earnout with a guaranteed minimum payment of $1.5 million. The excess of the purchase price over the fair value of net assets acquired was approximately $4.5 million and is being amortized using the straight-line method over 15 years. In June 1998, the Company acquired a reseller for consideration of $4.8 million consisting of cash. The excess of the purchase price over the fair value of net assets acquired was approximately $4.2 million and is being amortized using the straight-line method over 15 years. F-11 NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consist of the following: November 1, November 2, 1998 1997 ---- ---- (in thousands) Equipment, furniture, fixtures and software $157,431 $115,840 Equipment under capital lease 20,587 15,948 Leasehold improvements 19,476 16,235 Land 3,112 1,839 -------- -------- 200,606 149,862 Less: accumulated depreciation and amortization 108,459 75,887 -------- -------- $ 92,147 $ 73,975 ======== ======== NOTE 5 - LEASES The following is a schedule by year of future minimum lease obligations under noncancelable leases together with the present value of the net minimum capital lease obligations as of November 1, 1998: Operating Capital leases leases ------ ------ Fiscal year ending in: (in thousands) 1999 $14,413 $ 3,705 2000 12,438 2,805 2001 11,378 2,392 2002 9,615 995 2003 7,354 50 Thereafter 5,189 -- ------- ------- Total minimum lease obligations $60,387 9,947 ======= Less: amount representing interest 1,299 ------- Present value of minimum lease obligations $ 8,648 ======= None of the leases contain significant restrictive provisions; however, some of the leases contain renewal options and provisions for payment by the Company of real estate taxes, insurance and maintenance costs. Total rent expense was (in thousands): Fiscal year ended: November 3, 1996 $10,721 November 2, 1997 $15,007 November 1, 1998 $23,239 F-12 NOTE 6 - FINANCING ARRANGEMENTS The Company maintains three financing agreements (the "Agreements") with financing facilities totaling $800 million. The Agreements include an accounts receivable facility (the "A/R Facility") and inventory financing facilities (the "Inventory Facilities"). Under the A/R Facility, the Company has the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At November 1, 1998, the net amount of sold accounts receivable was $39 million and the effective funding rate was LIBOR plus 1.85% (7.07% at November 1, 1998). The Inventory Facilities provide for borrowings up to $450 million. Within the Inventory Facilities, the Company has lines of credit for the purchase of inventory from selected product suppliers ("Inventory Lines of Credit") and a line of credit for general working capital requirements ("Supplemental Line of Credit"). Payments for products purchased under the Inventory Lines of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. Amounts borrowed under the Supplemental Line of Credit may remain outstanding until the expiration date of the Agreements (August 2000). No interest or finance charges are payable on the Inventory Lines of Credit if payments are made when due. At November 1, 1998, the Company had $386 million outstanding under the Inventory Lines of Credit (included in accounts payable in the accompanying Balance Sheets) and nothing outstanding under the Supplemental Line of Credit. Borrowings under the Agreements are secured by substantially all of the Company's assets, and the Agreements contain certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. At November 1, 1998, the Company was in compliance with these covenants. In addition to the financing facilities discussed above, the Company maintains an accounts receivable purchase agreement (the "Purchase Agreement") with a commercial credit corporation (the "Buyer") whereby the Buyer agrees to purchase, from time to time at its option, on a limited recourse basis, certain accounts of the Company. Under the terms of the Purchase Agreement, no finance charges are assessed if the accounts are settled within forty days. At November 1, 1998, the net amount of sold accounts receivable under the Purchase Agreement was $37 million. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. F-13 NOTE 7 - LONG-TERM OBLIGATIONS Long-term obligations consist of the following: November 1, November 2, 1998 1997 ---- ---- (in thousands) Capital lease obligations $8,648 $7,281 Less: current portion 3,095 2,744 ------ ------ $5,553 $4,537 ====== ====== Following are the annual maturities of long-term obligations (in thousands): Fiscal year ending in: 1999 $3,095 2000 2,346 2001 2,198 2002 959 2003 50 ------ $8,648 ====== NOTE 8 - STOCKHOLDERS' EQUITY EMPLOYEE STOCK OPTION AND AWARD PLANS The Company maintains two incentive plans for officers and other key employees of the Company: the MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1994 and the 1997 MicroAge Inc. Long-Term Incentive Plan, approved in fiscal 1998 (the "Incentive Plans"). The Incentive Plans authorize grants of Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), Stock Appreciation Rights, Performance Shares, Restricted Stock, Dividend Equivalents and other Common Stock based awards. The total number of shares of common stock available for awards under the Incentive Plans is 3,800,000. The Company has issued NQSOs and ISOs under the Incentive Plans at prices representing the fair market value of the Company's common stock on the date of the grant. The NQSOs and ISOs are granted for terms of five years and become exercisable on a pro-rata basis on each anniversary of the grant over a five-year period as long as the holder remains an employee of the Company. NQSOs under the Incentive Plans were also granted in fiscal 1994 and fiscal 1997 to selected employees in exchange for the employees' irrevocable waiver of a specific amount of base salary or bonus otherwise payable by the Company during a specific period. The options will vest in one-third increments beginning on the January 1 which is three years following the January 1 of the calendar year in which the participant elects to waive compensation. No other awards have been made under the Incentive Plans. In addition to the Incentive Plans, stock options are available under four plans for grant to certain officers and employees of the Company at prices representing the fair market value of the Company's common stock on the date of the grant. Options under these plans are granted for terms of five years and become exercisable on a pro-rata basis on each anniversary date of the grant over a five-year period as long as the holder remains an employee of the Company. F-14 Changes during fiscal 1996, 1997 and 1998 in options outstanding under the employee stock option plans (including the Incentive Plans) were as follows: Weighted Average Number Exercise Price of Options per Share ---------- --------- Outstanding at October 29, 1995 1,771,898 $ 9.51 Granted 339,000 $10.29 Exercised (97,125) $ 8.61 Canceled or expired (157,630) $10.93 --------- Outstanding at November 3, 1996 1,856,143 $ 9.58 Granted 788,379 $20.12 Exercised (438,079) $ 9.44 Canceled or expired (107,474) $14.02 --------- Outstanding at November 2, 1997 2,098,969 $13.28 Granted 1,081,575 $13.99 Exercised (79,936) $ 6.65 Canceled or expired (238,376) $17.63 --------- Outstanding at November 1, 1998 2,862,232 $13.41 ========= Exercisable at November 1, 1998 514,700 ========= The following table summarizes information about the Company's stock options at November 1, 1998: Options Outstanding Options Exercisable ------------------------------------ ------------------------- Weighted Weighted Avg. Avg. Number Contractual Exercise Number Exercise Range of Outstanding Years Price Exercisable Price Exercise Prices (in thousands) Remaining per share (in thousands) per share - --------------- -------------- --------- --------- -------------- --------- $6.00 to $9.25 902 1.72 $ 8.69 163 $ 8.28 $10.42 to $19.44 1,648 4.48 $14.11 288 $11.47 $20.38 to $31.75 312 3.86 $23.36 64 $24.05 ----- --- $6.00 to $31.75 2,862 3.55 $13.41 515 $11.99 ===== === F-15 As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), the Company measures compensation cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Had the Company determined compensation cost in accordance with SFAS No. 123, the Company's net income (loss) per share would have been reduced to the pro-forma amounts indicated below (in thousands except per share data): Fiscal year ended ---------------------------------------- November 1, November 2, November 3, 1998 1997 1996 Net income (loss) As reported $ (8,325) $25,197 $15,529 Pro-forma $(11,009) $23,374 $14,533 Diluted net income (loss) per common share As reported $ (0.42) $ 1.43 $ 0.94 Pro-forma $ (0.56) $ 1.33 $ 0.88 Pro forma net income (loss) reflects only options granted during the fiscal years ended November 3, 1996, November 2, 1997 and November 1, 1998. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro-forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period and compensation for options granted prior to October 30, 1995 is not considered. The per share weighted-average fair value of the stock options granted under the plan for the years ended November 3, 1996, November 2, 1997 and November 1, 1998 was $5.11, $8.35 and $11.71 respectively, based on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for all years: expected dividend yield of 0%, expected volatility of .622, a risk free interest rate of 5.97%, and an expected life of 3.31 years. PINACOR STOCK OPTION Effective as of May 2, 1998, an option was granted to an associate of the Company to purchase a total of 60 shares of Pinacor's common stock, representing six percent of Pinacor's total outstanding shares, at an exercise price of $150,000 per share. The option vests in installments over a three year period (unless accelerated under certain conditions) and terminates on the earliest to occur of (1) May, 2, 2008, (2) the date the associate ceases to be employed by the Company or any of its subsidiaries for any reason other than retirement, death or disability, or (3) one year after the date the associate ceases to be employed by the Company or any of its subsidiaries by reason of his retirement, death or disability. DIRECTOR STOCK PLANS In March 1995, the Board of Directors and stockholders approved an incentive plan for those Directors who are not officers or employees of the Company or its subsidiaries (the "1995 Director Plan"). Under the 1995 Director Plan, on November 1 of each year, commencing in 1995 and ending in 2004, each eligible Director will automatically be granted (i) 1,000 shares of the Company's common stock subject to certain restrictions and (ii) options to purchase 1,000 shares of the Company's common stock. The options vest over three years and are subject to certain stock price hurdles after each vesting date. As of November 1, 1998, 19,000 options had been granted under this plan at prices ranging from $8.38 to $22.75 per share. There were 8,000 options exercisable as of November 1, 1998. The aggregate number of shares of the Company's common stock available for awards under the 1995 Director Plan is 80,000. F-16 RESTRICTED STOCK PLAN In accordance with the provisions of a restricted stock plan approved in fiscal 1982, 45,000 shares of common stock were reserved for issuance. At November 1, 1998, 39,938 shares had been awarded under the plan, and 5,062 additional shares may be awarded under the plan. PREFERRED STOCK PURCHASE RIGHTS In February 1989, as amended in November 1994, the Company's Board of Directors adopted a Stockholder Rights Agreement (the "Rights Plan") and declared a dividend distribution of one Right for each share of the Company's common stock outstanding as of the close of business on March 7, 1989 and intends to issue one Right for each share of common stock issued between March 7, 1989 and the date of the distribution of the Rights. As amended, the Rights Plan provides that when exercisable, each Right will entitle its holder to purchase from the Company one one-hundredth (.01) of a share of Series C Junior Participating Preferred stock at a price of $19.90. The Company has reserved 500,000 preferred shares for issuance upon exercise of the Rights. Generally, the Rights become exercisable on the earlier of the date a person or group of affiliated or associated persons acquires or obtains the rights to acquire securities representing fifteen percent (15%) or more of the common stock of the Company or on the tenth day following the commencement of a tender or exchange offer which would result in the offeror beneficially owning fifteen percent (15%) or more of the Company's common stock without the prior consent of the Company. In the event that an unauthorized person or group of affiliated persons becomes the beneficial owner of fifteen percent (15%) or more of the common stock of the Company, proper provision shall be made so that each holder of a Right will have the right to receive, upon exercise thereof and the payment of the exercise price, that number of shares of common stock having a market value of two times the exercise price of the Right. The Rights will expire on February 23, 1999, unless redeemed earlier by the Company pursuant to authorization by the Board of Directors. Generally, in the event that the Company is involved in a merger or other business combination transaction after the Rights become exercisable, provision shall be made so that each holder of a Right shall have the right to receive, upon the exercise thereof and the payment of the exercise price, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the Right. ASSOCIATE STOCK PURCHASE PLAN In March 1995, the Board of Directors and stockholders approved an associate stock purchase plan (the "Associate Plan"). The Associate Plan provides a means for the Company's employees to authorize payroll deductions up to 10% of their earnings to be used for the periodic purchase of the Company's common stock. Under the Associate Plan, the Company will initially sell shares to participants at a price equal to the lesser of 85% of the fair market value of the common stock at the beginning of a six month subscription period or 85% of fair market value at the end of the subscription period. The Associate Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The maximum number of shares that may be purchased under the Associate Plan is 500,000. The initial subscription period began July 1, 1995. As of November 1, 1998, 393,004 shares had been purchased under the Associate Plan. F-17 NOTE 9 - OTHER EXPENSES - NET Other expenses - net consists of the following: Fiscal years ended ----------------------------------------- November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- (in thousands) Interest expense $ 4,357 $ 6,142 $ 1,967 Expenses from the sale of accounts receivable 16,468 18,769 11,438 Amortization expense 8,629 1,871 1,103 Other 3,922 844 (510) -------- -------- -------- $ 33,376 $ 27,626 $ 13,998 ======== ======== ======== NOTE 10 - INCOME TAXES The provision for income taxes consists of the following: Fiscal years ended ----------------------------------------- November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- (in thousands) Current Federal $ 1,698 $ 16,908 $ 7,736 State and Foreign 249 4,241 1,927 Deferred (1,040) (2,767) 1,351 -------- -------- -------- $ 907 $ 18,382 $ 11,014 ======== ======== ======== The components of deferred income tax expense (benefit) from operations are as follows: Fiscal years ended ----------------------------------------- November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- (in thousands) Allowance for doubtful accounts $(2,839) $ (209) $ 1,440 Software development costs 2,616 338 433 Depreciation and amortization (863) (1,075) (429) Restructuring reserves -- 210 358 Inventory valuation allowance (709) (190) (300) State deferral, net of federal benefit 389 (488) 168 All other - net 366 (1,353) (319) ======= ======= ======= $(1,040) $(2,767) $ 1,351 ======= ======= ======= F-18 Deferred tax assets, which are recorded as a component of other assets or other current assets, are comprised of the following: November 1, November 2, 1998 1997 ---- ---- Gross deferred tax assets: (in thousands) Depreciation and amortization $ -- $ 3,111 Allowance for doubtful accounts 8,282 3,736 Inventory valuation 3,448 2,945 Deferred service revenue -- 918 Other 9,324 5,581 ------- ------- Total gross deferred tax assets 21,054 16,291 ------- ------- Gross deferred tax liabilities: Depreciation and amortization 2,904 -- Other 264 370 ------- ------- Total gross deferred tax liabilities 3,168 370 ------- ------- Net deferred tax asset $17,886 $15,921 ======= ======= In light of the Company's history of profitable operations, management has concluded that it is more likely than not that the Company will ultimately realize the full benefit of its deferred tax assets related to future deductible items. Accordingly, the Company believes that no valuation allowance is required for the deferred tax assets in excess of deferred tax liabilities. The effective tax rate applied to income before income taxes differs from the expected federal statutory rate as follows: Fiscal years ended November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- Federal statutory rate (34.0)% 35.0% 35.0% Addition (reduction) in taxes resulting from: State income taxes, net of federal tax benefit 7.4 5.5 5.6 Non-deductible meals and entertainment 6.3 0.7 0.7 Non-deductible goodwill amortization 31.8 0.3 0.2 Impact of pooling of interests with subchapter S corp -- (0.5) (1.2) Other 0.7 1.2 1.2 ----- ---- ---- 12.2% 42.2% 41.5% ===== ==== ==== F-19 NOTE 11 - COMMITMENTS The Company has arrangements with major vendors and certain financing companies to develop inventory and accounts receivable financing facilities for certain reseller customers. These arrangements include repurchase agreements that would require the Company to repurchase inventory which might be repossessed from a reseller by the vendor or the financing company. As of November 1, 1998, such repurchases have been insignificant. The Company also provides a program whereby the Company may guarantee an addition to a reseller's credit facility with certain finance companies. The Company's maximum exposure for guaranteed amounts at November 1, 1998 is $28 million. On an ongoing basis, the Company assesses the exposure under the guarantee program and provides a reserve for potential losses. As of November 1, 1998, losses and reserves related to the guarantee program have not been material. NOTE 12 - EMPLOYEE BENEFIT PLAN In July 1988, a deferred compensation plan (the "Savings Plan") became effective for all eligible employees of the Company under the provisions of Section 401(k) of the Internal Revenue Code. Employees are eligible to participate after one year of service and may contribute a percentage of their salary subject to certain limitations. Subject to certain profitability requirements, the Company has historically matched 25% of the employee contribution up to a maximum employee contribution of 6%, as defined in the Savings Plan. Participants are at all times fully vested in their contributions, and the Company contributions, if any, become fully vested to the participant after five years of employment. In addition to the Savings Plan, the Company has also adopted a supplemental deferred compensation plan (the "Supplemental Savings Plan") for employees holding key management positions or highly compensated employees for purposes of Title I of ERISA. Eligible employees may contribute a percentage of their salary subject to certain limitations as established by the Plan Administrator. The Company has historically matched 25% of the employee contribution. Participants are at all times fully vested in their contributions, and the company contributions, if any, become fully vested to the participant after five years of employment. Contributions to the Supplemental Savings Plan are held by a Trustee, however it is not qualified under the provisions of Section 401(k) of the Internal Revenue Code. All benefits payable under the Supplemental Savings Plan therefore are unsecured obligations of the Company. The Company recognized matching contribution expense for the Savings Plan and the Supplemental Savings Plan of $1.0 million, $740,000 and $570,000 in fiscal years 1998, 1997 and 1996, respectively. F-20 NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows: Fiscal years ended ----------------------------------------- November 1, November 2, November 3, 1998 1997 1996 ---- ---- ---- (in thousands) Details of acquisitions: Fair value of assets acquired $53,793 $47,816 $ 2,000 Liabilities assumed and acquisition- related accruals $59,080 $73,321 $ -- Cash acquired $ 101 $ 76 $ -- Note forgiven $ -- $ 124 $ 2,000 Purchase obligation forgiven $ -- $ -- $ 1,029 Details of other financing activities: Capital lease obligations executed for equipment $ 4,875 $ 3,834 $ 2,303 Cash paid for: Interest $ 5,041 $ 4,635 $ 2,000 Income taxes $ 3,332 $27,301 $ 6,029 NOTE 14 - RESTRUCTURING AND OTHER ONE-TIME CHARGES In February 1998, the Company initiated a plan to restructure the Company into two independent businesses - an integration business ("MicroAge IT Services") and a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc. ("Pinacor"). These businesses now have separate management teams, operate autonomously in their respective marketplaces, and contract with headquarters for a limited number of services. In connection with the restructuring plan discussed above, the Company recorded a $5.6 million charge. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations, and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and MicroAge IT Services as separate businesses. The charges associated with employee termination benefits consist primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company and have been completed. As of November 1, 1998, the remaining liability for restructuring activities was not material. NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") to establish standards for reporting information about operating segments in annual financial statements, selected information about operating segments in interim financial reports and disclosures about products and services, geographic areas and major customers. SFAS 131 may require the Company to report financial information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments, which may result in more detailed information in the notes to the Company's consolidated financial statements than is currently required and provided under FASB Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. F-21 NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Consolidated quarterly financial information for fiscal 1998 and 1997, restated to reflect acquisitions accounted for as poolings of interests, is as follows (in thousands except per share data): Fiscal 1998 ----------------------------------------------- Quarter ended February 1 May 3 August 2 November 1 ---------- ----- -------- ---------- Revenue As previously reported $1,179,011 $1,326,950 $1,441,246 $1,572,824 Pooling converted to purchase -- -- -- -- ---------- ---------- ---------- ---------- Combined $1,179,011 $1,326,950 $1,441,246 $1,572,824 Gross profit As previously reported $ 73,825 $ 84,581 $ 86,671 $ 108,164 Pooling converted to purchase -- -- -- -- ---------- ---------- ---------- ---------- Combined $ 73,825 $ 84,581 $ 86,671 $ 108,164 Operating income (loss) As previously reported $ 764 $ (671) $ 8,884 $ 16,981 Pooling converted to purchase -- -- -- -- ---------- ---------- ---------- ---------- Combined $ 764 $ (671) $ 8,884 $ 16,981 Net income (loss) As previously reported $ (5,414) $ (5,255) $ 728 $ 3,722 Pooling converted to purchase (702) (702) (702) -- ---------- ---------- ---------- ---------- Combined $ (6,116) $ (5,957) $ 26 $ 3,722 ========== ========== ========== ========== Diluted net income (loss) per common and common equivalent share, combined $ (0.31) $ (0.30) $ 0.00 $ 0.18 ========== ========== ========== ========== F-22 Fiscal 1997 ----------------------------------------------- Quarter ended February 2 May 4 August 3 November 2 ---------- ----- -------- ---------- Revenue As previously reported $890,748 $1,086,018 $1,147,632 $1,321,910 Pooled enterprise 6,672 15,089 14,207 9,592 Pooling converted to purchase (12,662) (42,803) (44,564) (12,631) -------- ---------- ---------- ---------- Combined $884,758 $1,058,304 $1,117,275 $1,318,871 Gross profit As previously reported $ 62,103 $ 75,982 $ 82,302 $ 89,293 Pooled enterprise 807 2,187 2,069 1,997 Pooling converted to purchase (2,370) (7,218) (7,718) (1,969) -------- ---------- ---------- ---------- Combined $ 60,540 $ 70,951 $ 76,653 $ 89,321 Operating income As previously reported $ 13,412 $ 18,113 $ 18,727 $ 20,451 Pooled enterprise 225 444 199 129 Pooling converted to purchase 33 (172) (328) (28) -------- ---------- ---------- ---------- Combined $ 13,670 $ 18,385 $ 18,598 $ 20,552 Net income As previously reported $ 4,857 $ 6,244 $ 6,484 $ 7,380 Pooled enterprise 180 323 122 43 Pooling converted to purchase 33 (191) (253) (25) -------- ---------- ---------- ---------- Combined $ 5,070 $ 6,376 $ 6,353 $ 7,398 ======== ========== ========== ========== Diluted net income per common and common equivalent share, combined $ 0.29 $ 0.38 $ 0.37 $ 0.39 ======== ========== ========== ========== F-23 MicroAge, Inc. Schedule 1 Valuation and Qualifying Accounts and Reserves (in thousands) Years ended November 1, 1998, November 2, 1997 and November 3, 1996
Balance at Charged to Charged to of beginning costs and other Dedcutions/ Balance at end Description period expenses accounts write-offs of period ----------- ------ -------- -------- ---------- --------- Allowance for doubtful accounts: Year ended November 3, 1996 12,394 7,629 - (11,618) 8,405 ======= ======= === ======= ======= Year ended November 2, 1997 8,405 9,208 - (6,647) 10,966 ======= ======= === ======= ======= Year ended November 1, 1998 10,966 13,640 - (4,188) 20,418 ======= ======= === ======= =======
S-1 1998 10-K EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation of MicroAge, Inc. (Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 3.2 By-Laws of MicroAge, Inc., amended and restated as of July 16, 1998 (Incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-62763, filed on September 2, 1998) 4.1 Specimen Common Stock Certificate (reference is also made to Exhibits 3.1 and 3.2) (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-45510) 4.2 Amended and Restated Rights Agreement, dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (Incorporated by reference to Exhibit 1.1 to the Form 8-A filed January 13, 1994) 4.2.1 First Amendment, dated as of November 5, 1996, by and between MicroAge, Inc. and American Stock Transfer and Trust Company to Amended and Restated Rights Agreement, dated as of September 28, 1994, between MicroAge, Inc. and First Interstate Bank of California (Incorporated by reference to Exhibit 4.2.1 to the Annual Report on Form 10-K for year ended November 3, 1996) 10.1 MicroAge, Inc. Executive Supplemental Savings Plan (1), amended and restated as of October 31, 1997 (Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.2 Form of MicroAge 1994 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.2.1 Form of First Amendment, dated as of December 14, 1995, to the MicroAge 1994 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.2.1 to the Annual Report on Form 10-K for the year ended November 3, 1996) 10.3 MicroAge, Inc. 1998 Associate Stock Award Plan, effective as of September 24, 1998 (1) 10.4 Form of MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.5 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Jeffrey D. McKeever and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) E-1 10.6 Supplemental Executive Retirement Plan, dated as of October 1, 1992 (1) (Incorporated by reference to Exhibit 10.65.2 to Registration Statement No. 33-33094) 10.6.1 First Amendment to Supplemental Executive Retirement Plan, dated September 26, 1996 (1) (Incorporated by reference to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year ended November 2, 1997) 10.6.2 Second Amendment to Supplemental Executive Retirement Plan, dated October 1, 1997 (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual Report on Form 10-K for fiscal year ended November 2, 1997) 10.7 Amended and Restated Split-Dollar Insurance Agreement, dated as of December 14, 1994, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.8 Endorsement Split-Dollar Insurance Agreement, dated November 25, 1997, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended February 1, 1998) 10.9 MicroAge, Inc. Compensation Trust, dated February 1, 1998, by and between MicroAge, Inc. and Northern Trust Bank of Arizona, N.A. (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended February 1, 1998) 10.10 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.10.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Jeffrey D. McKeever (1) (Incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.11 Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and MCCI Holding Company, effective as of May 2, 1998 (1) 10.11.1 First Amendment, dated as of December 31, 1998, to Non-Qualified Stock Option Agreement between Jeffrey D. McKeever and MCCI Holding Company (1) 10.12 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Alan P. Hald and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.13 Split-Dollar Insurance Agreement, dated as of January 29, 1997, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.1 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) E-2 10.14 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.14.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Alan P. Hald (1) (Incorporated by reference to Exhibit 10.6.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.15 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.16 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by and between James R. Daniel and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the fiscal year ended October 29, 1995) 10.17 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and James R. Daniel (1) (Incorporated by reference to Exhibit 10.7.2 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.17.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and James R. Daniel (1) (Incorporated by reference to Exhibit 10.7.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.18 Employment Agreement, dated as of January 4, 1999, by and between Robert G. O'Malley and Pinacor Inc. 10.19 Split-Dollar Insurance Agreement, dated as of September 1, 1995, by and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.8.1 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.20 Split-Dollar Insurance Agreement, dated as of January 27, 1997, by and between Robert G. O'Malley and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.8.2 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.21 MicroAge, Inc. 1997 Management Equity Program Award Agreement by and between MicroAge, Inc. and Robert G. O'Malley (1) (Incorporated by reference to Exhibit 10.8.3 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.22 Amended and Restated Employment Agreement, dated as of November 4, 1996, by and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) E-3 10.23 Split Dollar Insurance Agreement, dated as of September 1, 1995, by and between Christopher J. Koziol and MicroAge, Inc. (1) (Incorporated by reference to Exhibit 10.9.1 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.24 MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Christopher J. Koziol (1) (Incorporated by reference to Exhibit 10.9.2 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.24.1 First Amendment, dated December 14, 1995, to the MicroAge, Inc. 1994 Management Equity Program Award Agreement, dated as of December 14, 1993, by and between MicroAge, Inc. and Christopher J. Koziol (1) (Incorporated by reference to Exhibit 10.9.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.25 Form of Employment Agreement, dated as of November 4, 1996, by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.26 Form of Split-Dollar Insurance Agreement, dated September 1, 1995, by and between MicroAge, Inc. and certain executives (1) (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended October 29, 1995) 10.27 The Amended and Restated MicroAge, Inc. 1989 Stock Option Plan (1) (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended January 30, 1994) 10.28 The Amended and Restated MicroAge, Inc. Directors' Stock Option Plan (1) (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended January 30, 1994) 10.29 Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.29.1 First Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended April 30, 1995) 10.29.2 Second Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated March 14, 1996 (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 28, 1996) 10.29.3 Third Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated October 28, 1996 (1) (Incorporated by reference to Exhibit 10.22.3 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) E-4 10.29.4 Fourth Amendment to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement, dated December 4, 1996 (1) (Incorporated by reference to Exhibit 10.23.4 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) 10.29.5 Fifth Amendment, dated January 31, 1997, to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended February 2, 1997). 10.29.6 Sixth Amendment, dated August 1, 1997, to the Amended and Restated MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended August 3, 1997). 10.29.7 Seventh Amendment to the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998). 10.29.8 Eighth Amendment to the MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust, dated April 2, 1998 (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998). 10.30 MicroAge 1994 Long-Term Incentive Plan (1) (Incorporated by reference to Exhibit A to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 23, 1994, File No. 0-15995) 10.31 MicroAge, Inc. 1997 Long-Term Incentive Plan (1) (Incorporated by reference to Appendix B to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on April 1, 1998, File No. 0-15995) 10.32 1995 MicroAge, Inc. Director Incentive Plan, as amended and restated (1) (Incorporated by reference to Appendix C to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on April 1, 1998, File No. 0-15995) 10.33 MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Appendix B to the Proxy Statement for the Annual Meeting of Stockholders of MicroAge, Inc. held on March 15, 1995, File No. 0-15995) 10.33.1 First Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Exhibit 99.1 to Registration Statement No. 33-58901) 10.33.2 Second Amendment to the MicroAge, Inc. 1995 Associate Stock Purchase Plan (1) (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for fiscal quarter ended January 28, 1996) E-5 10.34 Inventory Financing Agreement, dated as of July 9, 1993, by and between MicroAge Computer Centers, Inc. and IBM Credit Corporation (Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.34.1 First Amendment, dated January 27, 1994, to Inventory Financing Agreement by and between MicroAge Computer Centers, Inc. and IBM Credit Corporation dated as of July 9, 1993 (Incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.35 Agreement For Wholesale Financing, dated December 17, 1993, by and between IBM Credit Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.36 Second Restated Agreement for Wholesale Financing Agreement, dated as of December 17, 1993, by MicroAge Computer Centers, Inc. and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.3.1 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.36.1 Amendment to Second Restated Agreement for Wholesale Financing, dated as of March 3, 1997, by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended May 4, 1997) 10.36.2 Amendment to Second Restated Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 31st day of March, 1997 (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.36.3 Amendment to Second Restated Agreement for Wholesale Financing, dated as of July 31, 1997, by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended August 3, 1997) 10.36.4 Amendment to Second Restated Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 31st day of October, 1997 (Incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.36.5 Amendment to Second Restated Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 28th day of January, 1998 (Incorporated by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.36.6 Amendment to Second Restated Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 5th day of February, 1998 (Incorporated by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) E-6 10.36.7 Amendment to Second Restated Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 30th day of April, 1998 (Incorporated by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.37 Restated and Amended Purchase Agreement, dated as of August 3, 1995, by and among MicroAge Computer Centers, Inc., et al, and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.37.1 Amendment to Restated and Amended Purchase Agreement, dated as of March 31, 1997, by and among MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended May 4, 1997) 10.37.2 Amendment to Restated and Amended Purchase Agreement, dated as of July 31, 1997, by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended August 3, 1997) 10.37.3 Amendment to Restated and Amended Purchase Agreement by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 31st day of October, 1997 (Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.37.4 Amendment to Restated and Amended Purchase Agreement by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 28th day of January, 1998 (Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.37.5 Amendment to Restated and Amended Purchase Agreement by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 5th day of February, 1998 (Incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.37.6 Amendment to Restated and Amended Purchase Agreement by and between MicroAge Computer Centers, Inc., et. al., and Deutsche Financial Services Corporation, dated as of the 30th day of April, 1998 (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.38 Agreement For Wholesale Financing, dated as of December 17, 1993, by and between MicroAge Computer Centers, Inc. and IBM Credit Corporation (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.38.1 Amendment No. 1 to Addendum, dated as of August 3, 1995, to the Agreement For Wholesale Financing dated as of December 17, 1993, by and between MicroAge Computer Centers, Inc. and IBM Credit Corporation (Incorporated by reference to Exhibit 10.4.1 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) E-7 10.38.2 Amendment #2 to Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc. and IBM Credit Corporation, dated as of August 25, 1997 (Incorporated by reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.38.3 Amendment #3 to Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc. and IBM Credit Corporation, dated as of March 13, 1998 (Incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.38.4 Amendment #4 to Agreement for Wholesale Financing by and between MicroAge Computer Centers, Inc., MicroAge Logistics Services, Inc., Pinacor, Inc., and IBM Credit Corporation, dated as of April 30, 1998 (Incorporated by reference to Exhibit 10.17 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 1998) 10.39 COMPAQ Computer Corporation Dealer Agreement, dated April 1, 1984, by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.1 to Registration Statement No. 33-14333) 10.40 COMPAQ Computer Corporation Central Purchase Agreement, dated November 21, 1983, by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.2 to Registration Statement No. 33-14333) 10.40.1 Amendment, dated June 15, 1992, to the COMPAQ Computer Corporation Central Purchase Agreement dated November 21, 1983 by and between COMPAQ Computer Corporation and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) 10.41 IBM Business Partner Agreement, effective October 1, 1998, by and between International Business Machines Corporation and Pinacor Inc. 10.42 IBM Business Partner Agreement for Resellers, by and between IBM and MicroAge Integration Co. 10.43 Apple Authorized Dealer Sales Agreement, dated as of April 1, 1989, by and between Apple Computer, Inc. and MicroAge Computer Stores, Inc. (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for the fiscal year ended September 30, 1989) 10.43.1 Amendment, dated April 1, 1989, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.4.1 to the Annual Report on Form 10-K for the fiscal year ended September 30, 1990) 10.43.2 Letter Agreement, dated September 30, 1992, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1993) E-8 10.43.3 Letter Agreement, dated February 28, 1994, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24.3 to the Annual Report on Form 10- K for the fiscal year ended October 30, 1994) 10.43.4 Letter Agreement, dated June 23, 1994, to the Apple Authorized Dealer Sales Agreement dated as of April 1, 1989 by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24.4 to the Annual Report on Form 10- K for the fiscal year ended October 30, 1994) 10.44 Authorized Apple Wholesaler U.S. Sales Agreement, dated April 2, 1998, by and between Apple Computer, Inc. and MicroAge Computer Centers, Inc. 10.45 U.S. First Tier Reseller Agreement, dated as of March 1, 1997, by and between Hewlett-Packard Company and MicroAge, Inc. (Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.46 Hewlett-Packard Company U.S. Agreement for Authorized Distributors, effective April 1, 1998, by and between Hewlett-Packard Company and MicroAge Computer Centers, Inc. 10.47 U.S. Reseller Agreement by and between Hewlett-Packard Company and MicroAge Integration Co. 10.48 Form of Franchise Agreement, effective December 8, 1993, by and between MicroAge, Inc. and its franchisees (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.48.1 Rider to Franchise Agreement, effective December 1993, by and between MicroAge, Inc. and its existing franchisees (Incorporated by reference to Exhibit 10.26.1 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.48.2 Rider to Franchise Agreement, effective December 1993, by and between MicroAge, Inc. and its new franchisees (Incorporated by reference to Exhibit 10.26.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.49 Form of Franchise Agreement by and between MicroAge, Inc. and its franchisees effective as to franchise agreements executed after March 1997 (Incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.50 Form of Purchasing Agreement, effective January 1997, by and between MicroAge, Inc. and its Independent Computer Dealers (Incorporated by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.51 Form of Purchase Agreement, effective January 1997, by and between MicroAge, Inc. and its resellers (Incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for fiscal year ended November 3, 1996) E-9 10.52 Triple Net Industrial Lease, dated as of December 21, 1993, by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.53 Triple Net Industrial Lease, dated July 28, 1993, by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.53.1 Amendment No. One, dated December 21, 1993, to Triple Net Industrial Lease dated July 28, 1993 by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for the quarter ended May 1, 1994) 10.53.2 Lease Amendment, dated September 9, 1994, to Triple Net Industrial Leases dated July 16, 1985, July 28, 1993, and December 21, 1993 by and between Catellus Development Corporation and MicroAge Computer Centers, Inc. (Incorporated by reference to Exhibit 10.34.2 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) 10.54 Lease Agreement, dated November 18, 1994, by and between Duke Realty Limited partnership and Kenco Group, Inc. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.54.1 Assignment and Assumption of Lease Agreement, dated July 18, 1994, to Lease dated November 18, 1994 by and between Duke Realty Limited partnership and Kenco Group, Inc. (Incorporated by reference to Exhibit 10.2.1 to the Quarterly Report on Form 10-Q for the quarter ended July 30, 1995) 10.55 Standard Industrial Lease, dated September 27, 1996, by and between Dermody Properties and MicroAge Logistics Services, Inc. (Incorporated by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the fiscal year ended November 3, 1996) 10.56 Industrial Lease, dated August 28, 1996, by and between MICC Venture and MicroRetailing Inc., d/b/a Inter PC and d/b/a Micro Age (Incorporated by reference to Exhibit 10.55 to the Annual Report on Form 10-K for the fiscal year ended November 2, 1997) 10.57 Standard Commercial Lease Agreement, dated September 28, 1998, by and between Riggs & Company and Pinacor, Inc. 11 EPS Calculation 21 List of Subsidiaries of MicroAge, Inc. 23 Consent of Independent Accountants 27.1 Financial Data Schedule for the fiscal year ended November 1, 1998 27.2 Restated Financial Data Schedule for the 1997 three quarters and fiscal year ended November 2, 1997 27.3 Restated Financial Data Schedule for the fiscal year ended November 3, 1996 E-10 99.1 Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements. 99.2 Common Stock Purchase and Sale Agreement, dated as of April 27, 1990, by and among MicroAge, Inc., Olivetti Holding N.V., Banstock Company Limited, The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust and Citizens and Southern Trust Company (Georgia), N.A., solely as Trustee of the ESOT and not in its individual capacity (Incorporated by reference to Exhibit 28.2 to the Current Report on Form 8-K dated May 7, 1990) 99.3 Company and Purchasers Rights Agreement, dated as of April 27, 1990, by and between MicroAge, Inc., Banstock Company Limited and Fred Israel (Incorporated by reference to Exhibit 28.3 to the Current Report on Form 8-K dated May 7, 1990) 99.4 Company and ESOT Rights Agreement, dated as of April 27, 1990, by and between MicroAge, Inc., The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust and Citizens and Southern Trust Company (Georgia), N.A., solely as Trustee of the ESOT and not in its individual capacity (Incorporated by reference to Exhibit 28.4 to the Current Report on Form 8-K dated May 7, 1990) 99.5 Parent Agreement, dated as of April 27, 1990, by and among MicroAge, Inc., Olivetti Holding N.V. and Kokudo Sangyo, Inc. (Incorporated by reference to Exhibit 28.5 to the Current Report on Form 8-K dated May 7, 1990) 99.6 Loan Agreement, dated as of April 27, 1990, by and between MicroAge, Inc., and Citizens and Southern Trust Company (Georgia), N.A., as Trustee for The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust (Incorporated by reference to Exhibit 28.7 to the Current Report on Form 8-K dated May 7, 1990) 99.7 Nonrecourse Promissory Note, dated as of April 27, 1990, made by Citizens and Southern Trust Company as Trustee on behalf of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust (Incorporated by reference to Exhibit 28.8 to the Current Report on Form 8-K dated May 7, 1990) 99.8 Stock Pledge Agreement, dated as of April 27, 1990, by and between MicroAge, Inc. and Citizens and Southern Trust Company (Georgia), N.A., as Trustee on behalf of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Trust (Incorporated by reference to Exhibit 28.9 to the Current Report on Form 8-K dated May 7, 1990) 99.9 Trust Agreement, dated December 30, 1994, by and between MicroAge, Inc. and First Interstate Bank of Arizona, N.A., as Trustee on behalf of The MicroAge, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust (Incorporated by reference to Exhibit 99.8 to the Annual Report on Form 10-K for the fiscal year ended October 30, 1994) - ---------- (1) Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. E-11 EX-10.3 2 1998 ASSOCIATE STOCK AWARD PLAN MICROAGE, INC. 1998 ASSOCIATE STOCK AWARD PLAN ARTICLE 1 PURPOSE 1.1 GENERAL. The purpose of the MicroAge, Inc. 1998 Associate Stock Award Plan (the "Plan") is to promote the success, and enhance the value, of MicroAge, Inc. (the "Company") by linking the personal interests of its associates to those of Company shareholders and by providing its associates with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of such individuals upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the Plan permits the grant of stock awards from time to time to associates. ARTICLE 2 EFFECTIVE DATE 2.1 EFFECTIVE DATE. The Plan is effective as of September 24, 1998 (the "Effective Date"). ARTICLE 3 DEFINITIONS AND CONSTRUCTION. 3.1 DEFINITIONS. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) "Associate" means an individual, including an officer, who is characterized by the Company as a common law employee of the Company or any of its Subsidiaries. (b) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, or Performance Share Award granted to a Participant under the Plan. (c) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (d) "Board" means the Board of Directors of the Company. (e) "Change of Control" means and includes each of the following: (1) A change of control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of the Securities Exchange Act of 1934, as amended ("1934 Act") regardless of whether the Company is subject to such reporting requirement; (2) A change of control of the Company through a transaction or series of transactions, such that any person (as that term is used in Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates of the Company as of the Effective Date, is or becomes the beneficial owner (as that term is used in Section 13(d) of the 1934 Act) directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (3) The individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least 80% of the Board; provided, however, that any person becoming a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least 80% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act or any successor provision thereto) shall be, for purposes of this paragraph, considered as though such person were a member of the Incumbent Board; (4) Any consolidation or liquidation of the Company in which the Company is not the continuing or surviving corporation or pursuant to which Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the shares of Stock immediately before the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (5) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (6) Substantially all of the assets of the Company are sold or otherwise transferred to parties that are not within a "controlled group of corporations" (as defined in Section 1563 of the Code) in which the Company is a member. 2 (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the committee of the Board described in Article 4. (h) "Disability" shall mean any illness or other physical or mental condition of a Participant which renders the Participant incapable of performing his customary and usual duties for the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which in the judgment of the Committee is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participant's condition. (i) "Fair Market Value" means, as of any given date, the fair market value of Stock or other property determined by such methods or procedures as may be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of Stock as of any date shall be the closing price for the Stock as reported on the NASDAQ National Market System (or on any national securities exchange on which the Stock is then listed) for that date or, if no closing price is so reported for that date, the closing price on the next preceding date for which a closing price was reported. (j) "Incentive Stock Option" means an option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (k) "Non-Employee Director" means a member of the Board who qualifies as a "Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board. (l) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. (m) "Participant" means an Associate who has been granted an Award under the Plan. (n) "Performance Share" means a right granted to a Participant under Article 9 to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee. (o) "Plan" means the MicroAge, Inc. 1998 Associate Stock Award Plan, as amended from time to time. 3 (p) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (q) "Retirement" means a Participant's termination of employment with the Company after attaining any normal or early retirement age specified in any pension, profit sharing or other retirement program sponsored by the Company. (r) "Stock" means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 12. (s) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8. (t) "Subsidiary" means any corporation of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. ARTICLE 4 ADMINISTRATION 4.1 COMMITTEE. The Plan shall be administered by a Committee that is appointed by, and shall serve at the discretion of, the Board. The Committee shall consist of at least two individuals, each of whom qualifies as a Non-Employee Director. Subject to the foregoing, the Compensation Committee of the Board shall constitute the Committee, unless the Board determines otherwise. 4.2 ACTION BY THE COMMITTEE. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and acts approved in writing by a majority of the Committee in lieu of a meeting shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other associate of the Company or any Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power, authority and discretion to: (a) Designate Participants to receive Awards; (b) Determine the type or types of Awards to be granted to each Participant; 4 (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; (d) Determine the terms and conditions of any Award granted under the Plan including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; (e) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (f) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (g) Decide all other matters that must be determined in connection with an Award; (h) Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; and (i) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan. 4.4 DECISIONS BINDING. All decisions and determinations made by the Committee with respect to any Award granted under the Plan, any Award Agreement, or the interpretation of the Plan are final, binding and conclusive on all parties. ARTICLE 5 SHARES SUBJECT TO THE PLAN 5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 12.1, the aggregate number of shares of Stock reserved and available for grant under the Plan shall be 2,000,000. 5.2 LAPSED AWARDS. To the extent that an Award terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan and shares subject to SARs or other Awards settled in cash will be available for the grant of an Award under the Plan. 5 5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. ARTICLE 6 ELIGIBILITY AND PARTICIPATION 6.1 ELIGIBILITY. Persons eligible to participate in this Plan include all Associates, as determined by the Committee, but excluding those Associates who are also members of the Board. 6.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible Associates those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Associate shall have any right to be granted an Award under this Plan. ARTICLE 7 STOCK OPTIONS 7.1 GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions: (a) EXERCISE PRICE. The exercise price per share of Stock under an Option shall be determined by the Committee and set forth in the Award Agreement. The exercise price for any Option shall not be less than the Fair Market Value as of the date of grant. (b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part. The Committee also shall determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. (c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, shares of Stock, or other property (including broker-assisted "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. (d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such provisions as may be specified by the Committee. (e) LIMITATION ON NUMBER OF OPTIONS GRANTED TO OFFICERS. Notwithstanding any provision in the Plan to the contrary, the total number of Options granted to those Associates who are officers of the Company during any fiscal year of the 6 Company shall not exceed 20% of the total number of Options granted to all Associates (including officers) during such fiscal year. 7.2 INCENTIVE STOCK OPTIONS. None of the Options granted pursuant to the Plan shall be Incentive Stock Options. ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1 GRANT OF SARS. The Committee is authorized to grant SARs to Participants on the following terms and conditions: (a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of: (1) The Fair Market Value of a share of Stock on the date of exercise; over (2) The grant price of the Stock Appreciation Right as determined by the Committee. (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Agreement. ARTICLE 9 PERFORMANCE SHARES 9.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant Performance Shares to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Shares granted to each Participant. All Awards of Performance Shares shall be evidenced by an Award Agreement. 9.2 RIGHT TO PAYMENT. Upon the Award of a Performance Share, the Participant has the right to receive the cash, stock, or other property evidenced by the Award Agreement. The Committee shall set performance goals and other terms or conditions to payment of the Performance Shares in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant, provided that the time period during which the performance goals must be met shall, in all cases, exceed six months. 7 9.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Agreement. ARTICLE 10 RESTRICTED STOCK AWARDS 10.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement. 10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. 10.3 FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company, provided, however, that the Committee may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate until such time as all applicable restrictions lapse. ARTICLE 11 PROVISIONS APPLICABLE TO AWARDS 11.1 STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Committee may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other 8 Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 11.2 EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award (subject to Section 11.1), based on the terms and conditions the Committee determines and communicates to the Participant at the time the offer is made. 11.3 TERM OF AWARD. The term of each Award shall be for the period as determined by the Committee. 11.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Company or a Subsidiary on the grant or exercise of an Award may be made in such forms as the Committee determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee. 11.5 LIMITS ON TRANSFER. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution. 11.6 BENEFICIARIES. Notwithstanding Section 11.5, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married, a designation of a person other than the Participant's spouse as his beneficiary with respect to more than 50% of the Participant's interest in the Award shall not be effective without the written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto under the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee. 9 11.7 STOCK CERTIFICATES. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on with the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. 11.8 TENDER OFFERS. In the event of a public tender for all or any portion of the Stock, or in the event that a proposal to merge, consolidate, or otherwise combine with another company is submitted for shareholder approval, the Committee may in its sole discretion declare previously granted Options to be immediately exercisable. 11.9 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other provision in the Plan or any Participant's Award Agreement to the contrary, upon the Participant's death or Disability, all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on outstanding Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then lapse in accordance with the other provisions of this Plan and the Award Agreement. 11.10 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control occurs, all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on outstanding Awards shall lapse. In the event that the Committee becomes aware of an event that will cause a Change of Control to occur, the Committee may give each Participant the right to exercise Awards prior to the occurrence of the event over such period as the Committee, in its sole and absolute discretion, shall determine. ARTICLE 12 ADJUSTMENTS 12.1 GENERAL. The Committee may make or provide for such adjustments in the (a) number of shares of Stock covered by outstanding Awards granted hereunder, (b) prices per share applicable to outstanding Awards and (c) kind of shares covered thereby, as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of the rights of Participants that otherwise would result from (x) any stock dividend, stock split, combination or exchange of shares of Stock, recapitalization or other change in the capital structure of the Company, (y) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation, or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities, or (z) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Awards under this Plan such alternative consideration as it may in good faith 10 determine to be equitable under the circumstances and may require in connection therewith the surrender of all Awards so replaced. The Committee may also make or provide for such adjustments in the number of shares of Stock specified in Section 5.1 as the Committee in its sole discretion may in good faith determine to be appropriate in order to reflect any transaction or event described in this Section 12.1. Any adjustment pursuant to this Section 12.1 will be conclusive and binding for all purposes of the Plan. ARTICLE 13 AMENDMENT, MODIFICATION AND TERMINATION 13.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan. 13.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant. The Committee also may modify the terms of a previously granted Award; provided, however, that the Committee may not amend a previously granted Award to the detriment of the Participant without the Participant's consent. ARTICLE 14 GENERAL PROVISIONS 14.1 NO RIGHTS TO AWARDS. No Participant or employee shall have any claim to be granted any Award under the Plan, and neither the Company nor the Committee is obligated to treat Participants and Associates uniformly. 14.2 NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award. 14.3 WITHHOLDING. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of this Plan. 14.4 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary. 14.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant 11 pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary. 14.6 INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 14.7 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary. 14.8 EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries. 14.9 TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 14.10 FRACTIONAL SHARES. No fractional shares of stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 14.11 SECURITIES LAW COMPLIANCE. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the 1934 Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Committee. 14.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall 12 be under no obligation to register under the Securities Act of 1933, as amended (the "1933 Act"), any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the 1933 Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 14.13 GOVERNING LAW. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware. 13 EX-10.11 3 NON-QUALIFIED STK OPT AGR. -JEFFREY MCKEEVER NON-QUALIFIED STOCK OPTION AGREEMENT (JEFFREY D. MCKEEVER) Mr. Jeffrey D. McKeever 2400 South MicroAge Way Tempe, Arizona 85282 Dear Jeff: Pursuant to action taken by the Compensation Committee (the "COMMITTEE") of the Board of Directors of MicroAge, Inc. ("MICROAGE") on May 2, 1998 (the "GRANT DATE") and action by written consent of the sole director of MCCI Holding Company ("HOLDING COMPANY"), you are hereby granted the option (hereinafter the "OPTION") to purchase a total of sixty (60) shares of common stock of Pinacor, Inc. ("PINACOR") owned by Holding Company as of the Grant Date (the "COMMON STOCK"), representing six percent (6%) of Pinacor's outstanding Common Stock as of the Grant Date, at an exercise price of One Hundred Fifty Thousand Dollars ($150,000.00) per share, subject to the provisions and conditions set forth below. The Option granted under this Agreement is NOT intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Moreover, the Option is not being granted pursuant to any stock option or other plan. For purposes of this Agreement, MicroAge and Holding Company are referred to collectively as the "Company." 1. You may purchase all or any of the shares of Common Stock included in any installment under this Option on or after the date the installment vests in accordance with the schedule below: NUMBER OF SHARES EXERCISABLE IN DATE INSTALLMENT INSTALLMENT VESTS ----------- ----------------- 20 May 2, 1999 20 May 2, 2000 20 May 2, 2001 2. In the event of your death or Disability, any portion of your Option that is not exercisable shall become fully exercisable. Notwithstanding the above, you may not exercise the Option at any time after the Expiration Date hereinafter set forth. 3. The Option may be exercised by making payment in full to the Treasurer of Holding Company, 2400 South MicroAge Way, Tempe, Arizona 85282, for the shares which you so elect to purchase, at the price per share herein prescribed, whereupon you will receive a stock certificate representing the shares for which you have made payment. Holding Company, however, will not be obligated to deliver any stock unless and until: (a) there has been compliance with any federal or state laws or regulations or national securities exchange requirements which Holding Company may deem applicable; and (b) all legal matters in connection with the sale and delivery of the Common Stock have been approved by Holding Company's legal counsel. 4. Upon the exercise of an Option, the purchase price will be paid in cash or in Common Stock, or a combination thereof, unless the Committee approves an alternative arrangement, including a loan to you from the Company for all or a portion of the purchase price. Each share of Common Stock received by Holding Company in payment of all or a portion of the purchase price specified in this Option will be valued at its Fair Market Value on the date of exercise. 5. The Committee may require, in its sole discretion, that you satisfy the payment of any federal, state, or local tax withholding amount due as a result of your exercise of an Option by: (a) requiring you to deliver to Holding Company that number of shares of Common Stock then owned by you, duly endorsed for transfer to Holding Company and free and clear of any liens, claims, security interests or encumbrances whatsoever (based on the Fair Market Value of the Common Stock on the date such Option is exercised), which are required to satisfy the payment of such tax withholding amount; or (b) requiring you to deliver to Holding Company a check, made payable to the order of Holding Company, in the aggregate amount required to satisfy the payment of such tax withholding amount. The right described in (a) or (b) above shall be exercised in a written notice by the Committee delivered to you as soon as practicable after receipt of your written exercise of any Option hereunder. 6. The Committee may suspend or postpone the receipt of shares in payment of the exercise price specified in this Agreement if at any time: (a) it has knowledge of information concerning Pinacor which upon disclosure to the public might, in its opinion, materially affect the market price of the Common Stock; (b) non-Pinacor events of an extraordinary nature occur which, in its opinion, may not have been effectively reflected in the market; or 2 (c) such suspension or postponement for any other reason would, in its opinion, be in the best interests of Pinacor or the Company. 7. The Committee hereby reserves and will have the right, by written notice to you, to change the provisions of this Option in any manner that it may deem necessary or advisable to carry out the purpose of this grant as a result of, or to comply with, any change in applicable regulations, interpretations or statutory enactments, provided that any such change will be applicable only to shares for which payment will not then have been made as herein provided. 8. This Option will terminate upon the earliest to occur of: (a) May 2, 2008 at 5:00 p.m. Arizona time (the "EXPIRATION DATE"); (b) the date you cease to be employed by the Company or any of its subsidiaries for any reason other than your retirement, death or Disability; or (c) one (1) year after the date you cease to be employed by the Company or any of its subsidiaries by reason of your retirement, death or Disability. 9. Anything herein to the contrary notwithstanding, the following provisions will apply: (a) If, at any time within the term of this Option or within one (1) year after termination of employment or within one (1) year after you exercise any portion of this Option, whichever is the latest, you engage in any activity in competition with any activity of the Company, or inimical, contrary, or harmful to the interests of the Company, including, but not limited to: (i) conduct related to your employment for which either civil or criminal penalties against you may be sought, (ii) violation of Company policies, including, without limitation, the Company's insider trading policy, (iii) failing to give the Company at least thirty (30) days' written notice of your intent to terminate your employment with the Company, (iv) accepting employment with or serving as a consultant, advisor, or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former, or future employee of the Company, (v) disclosing or misusing any confidential information or material concerning the Company, or (vi) participating in a hostile takeover attempt of MicroAge, then (A) this Option shall terminate effective the date upon which you enter into such activity, unless terminated sooner by operation of another term or condition of this Agreement, (B) you will return any shares of Common Stock that you then own if the Company tenders to you, in the exercise of its discretion, the amount you paid to acquire those shares, and (C) you will pay the Company an amount equal to the difference between the amount you paid for said shares and the amount you received for a sale of any shares that you have disposed of in an arms length transaction. If you dispose of any shares in other than an arms length transaction, you will pay to the Company an amount equal to the difference between the amount you paid for the shares and the Fair Market Value of the shares. 3 (b) By accepting this Option, you consent to a deduction from any amounts the Company owes you from time to time (including amounts owed to you as wages or other compensation, fringe benefits, or vacation pay, as well as any other amounts owed to you by the Company), to the extent of the amounts you owe the Company under clause (a) of this Section 9. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amounts you owe it, calculated as set forth above, you agree to pay immediately the unpaid balance to the Company. (c) You may be released from your obligations under clause (a) of this Section 9 only if the Committee determines, in its sole discretion, that such action is in the best interests of the Company. 10. The Committee will have the discretion to accelerate the vesting in whole or in part with respect to any Options that may otherwise not be exercisable on the date you cease to be employed by the Company or any of its subsidiaries for any reason other than your death or Disability, upon such terms and conditions established by the Committee at that time, or upon such other dates that the Committee will determine in its sole and absolute discretion. 11. In the event of a stock dividend, stock split, combination or exchange of shares, recapitalization or other change in the capital structure of Pinacor, any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation, or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing, the Committee shall make such adjustments in the number of unpurchased shares subject to this Option and in the exercise price per share as it may determine to be appropriate and equitable to preserve your proportionate interest in this Option and to prevent dilution or enlargement of your rights hereunder. The Committee may, in its discretion, upon the occurrence of any of the foregoing events, provide in substitution for any or all outstanding shares subject to this Option such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require your surrender of this Option in connection with such substitution. 12. This Option will be exercisable until the Expiration Date as defined in Section 8(a) and, except as provided in Section 8 above, only by you during your lifetime and only while you are employed by the Company. Unless otherwise provided in writing by the Committee in its sole discretion, the Option shall not be transferable by you, expressly or by operation of law, other than by will or the laws of descent and distribution. Any other attempted transfer or other disposition of this Option by you will be void and will constitute valid grounds for cancellation of this Option by the Company. 13. In the event that a "Disposition" of Pinacor is approved by the Board of Directors of MicroAge, Holding Company, or Pinacor or a proposed Disposition is submitted to the shareholders of MicroAge, Holding Company, or Pinacor for approval, all of the Options will become immediately exercisable, despite any provisions in Section 1 to the contrary. Additionally, upon a Change of Control, your Options will automatically become immediately exercisable, despite any provisions in Section 1 to the contrary. 4 14. The term "Disposition" as used in Section 13, means and includes each of the following: (a) the sale or other transfer of all or substantially all of the Common Stock of Pinacor or Holding Company to any individual or entity other than an "Affiliate." For this purpose, an "Affiliate" is any entity that is part of the same controlled group of corporations as MicroAge within the meaning of Section 1563 of the Internal Revenue Code of 1986 (the "CODE"). (b) Pinacor or Holding Company is merged, consolidated, or otherwise combined with any entity other than an Affiliate of MicroAge. 15. The term "Change of Control" means and includes each of the following: (a) A change of control of MicroAge of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of the Securities Exchange Act of 1934, as amended ("1934 ACT"), regardless of whether MicroAge is subject to such reporting requirement; (b) A change of control of MicroAge through a transaction or series of transactions, such that any person (as that term is used in Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates of MicroAge as of the Grant Date, is or becomes the beneficial owner (as that term is used in Section 13(d) of the 1934 Act), directly or indirectly, of securities of MicroAge representing twenty percent (20%) or more of the combined voting power of MicroAge's then outstanding securities; (c) The individuals who, as of the Grant Date, constitute the Board of Directors of MicroAge (the "INCUMBENT BOARD") cease for any reason to constitute at least eighty percent (80%) of the Board of Directors of MicroAge; provided, however, that any person becoming a member of the Board of Directors of MicroAge subsequent to the Grant Date whose election, or nomination for election by MicroAge's stockholders, was approved by a vote of at least eighty percent (80%) of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of MicroAge, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act or any successor provision thereto) shall be, for purposes of this paragraph, considered as though such person were a member of the Incumbent Board; (d) Any consolidation or liquidation of MicroAge in which MicroAge is not the continuing or surviving corporation or pursuant to which common stock of MicroAge would be converted into cash, securities or other property, other than a merger of MicroAge in which the holders of the shares of MicroAge's common stock immediately before the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; 5 (e) The shareholders of MicroAge approve any plan or proposal for the liquidation or dissolution of MicroAge; or (f) Substantially all of the assets of MicroAge are sold or otherwise transferred to parties that are not Affiliates (as such term is defined in Section 14(a) above). 16. The term "Disability" shall mean any illness or other physical or mental condition which renders you incapable of performing your customary and usual duties for the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which in the judgment of the Committee is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of your condition. 17. The term "Fair Market Value" with respect to the Common Stock shall mean as of any given date, the fair market value of the Common Stock determined by such methods or procedures as may be established from time to time by the Committee. 18. This Agreement shall be governed in all respects by the laws of the state of Delaware. 19. No Option gives you any of the rights of a shareholder of Pinacor unless and until shares of Common Stock are in fact issued to you. 20. The Agreement is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to you pursuant to an Option, nothing contained in this Agreement shall give you any rights that are greater than those of a general creditor of the Company or any subsidiary. 21. No payment under this Agreement shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any subsidiary. 22. The expenses of administering this Agreement shall be borne by MicroAge. 23. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the 1934 Act, transactions pursuant to this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of this Agreement or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Committee. 24. Neither the Company nor Pinacor shall be under any obligation to register under the Securities Act of 1933, as amended (the "1933 Act"), any of the shares of Common Stock. If the shares may in certain circumstances be exempt from registration under the 1933 Act, the Committee may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 6 25. The Company shall not be required to deliver any shares of Common Stock pursuant to the exercise of all or any part of the Option if, in the opinion of counsel for MicroAge, such issuance would violate the Securities Act of 1933 or any other applicable federal or state securities or other laws or regulations. The Board of Directors of MicroAge may require that you, prior to the issuance of any such shares pursuant to exercise of the Option, sign and deliver to MicroAge a written statement ("INVESTMENT LETTER") stating (a) that you are purchasing the shares for investment and not with a view to the sale or distribution thereof; (b) that you will not sell any shares received upon exercise of the Option or any other shares of Pinacor that you may then own or thereafter acquire except either (i) through a broker on a national securities exchange or (ii) with the prior written approval of MicroAge; and (c) containing such other terms and conditions as counsel for MicroAge may reasonably require to assure compliance with the Securities Act of 1933 or other applicable federal or state securities laws and regulations. Such Investment Letter shall be in form and content acceptable to the Board of Directors of MicroAge in its sole discretion. 26. This Agreement may be amended only by a written agreement executed by MicroAge, Holding Company, and you. 27. This Agreement shall be effective as of May 2, 1998. PLEASE ACKNOWLEDGE RECEIPT OF THIS OPTION AND ACCEPTANCE OF ITS TERMS BY COMPLETING THE BOTTOM PORTION OF BOTH LETTERS, THEN RETURN ONE OF THE LETTERS TO JAMES DOMAZ IN THE LEGAL DEPARTMENT. MICROAGE, INC. I HEREBY ACKNOWLEDGE RECEIPT OF THE FOREGOING OPTION AND ACCEPT ITS TERMS. By: /s/ William H. Mallender Signature: /s/ Jeffrey D. McKeever -------------------------- --------------------------- William H. Mallender Jeffrey D. McKeever Chairman, Compensation Social Security No. ###-##-#### Committee MCCI HOLDING COMPANY By: /s/ Jeffrey D. McKeever -------------------------- Jeffrey D. McKeever Chairman of the Board and President 7 EX-10.11.1 4 AMENDMENT TO NON-QUALIFIED STK OPT AGR AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENT (JEFFREY D. MCKEEVER) Mr. Jeffrey D. McKeever 2400 South MicroAge Way Tempe, Arizona 85282 Re: Amendment of May 2, 1998 Option Agreement Dear Jeff: Effective May 2, 1998, you were granted the option (hereinafter the "OPTION") to purchase a total of sixty (60) shares of common stock of Pinacor, Inc. ("PINACOR") owned by MCCI Holding Company ("HOLDING COMPANY"). The terms of the Option were set forth in a letter agreement executed by MicroAge, Inc. ("MicroAge"), Holding Company and you, which was effective May 2, 1998 (the "AGREEMENT"). Section 13 of the Agreement provides that the exercisability of the Option will be accelerated if the Board of Directors of MicroAge, the Holding Company or Pinacor approves a Disposition. The term "Disposition" is defined in Section 14 of the Agreement. As you know, the Compensation Committee of the Board of Directors of MicroAge has concluded that the acceleration of the exercisability of the Option should take place on the closing of the transaction that constitutes a Disposition, rather than on approval of a Disposition by the Board of Directors of MicroAge, Holding Company or Pinacor. The purpose of this letter is to amend Section 13 of the Agreement to read as follows: 13. All of the Options will become immediately exercisable, despite any provisions in Section 1 to the contrary, immediately prior to the closing of any sale, transfer, merger, consolidation, combination or other transaction that will constitute a "Disposition". Additionally, upon a Change of Control, your Options will automatically become immediately exercisable, despite any provisions in Section 1 to the contrary. If you agree with this amendment, please sign this letter and return it to James Domaz in the Legal Department as soon as possible. This letter will constitute an amendment of the Agreement as soon as you sign it. Except as set forth in this letter, the terms of the Agreement will remain in full force and effect. 1 THIS LETTER MAY BE SIGNED IN ANY NUMBER OF COUNTERPARTS. MICROAGE, INC. I HEREBY ACKNOWLEDGE RECEIPT OF THE FOREGOING LETTER AND ACCEPT ITS TERMS. By: /s/ William H. Mallender Signature: /s/ Jeffrey D. McKeever -------------------------- --------------------------- William H. Mallender Jeffrey D. McKeever Chairman, Compensation Social Security No. ###-##-#### Committee MCCI HOLDING COMPANY By: /s/ Jeffrey D. McKeever -------------------------- Jeffrey D. McKeever Chairman of the Board and President 2 EX-10.18 5 EMPLOYMENT AGREEMENT WITH ROBERT O'MALLEY EMPLOYMENT AGREEMENT (ROBERT G. O'MALLEY) (PINACOR, INC.) This Employment Agreement (the "AGREEMENT") is made and entered into as of January 4, 1999, by and between Pinacor, Inc., a Delaware corporation (the "COMPANY"), a wholly-owned subsidiary of MicroAge, Inc., a Delaware corporation ("MICROAGE"), and Robert G. O'Malley ("EXECUTIVE"). R E C I T A L S: WHEREAS, MicroAge and Executive entered into an Amended and Restated Employment Agreement dated as of November 4, 1996 (the "MICROAGE EMPLOYMENT AGREEMENT"); and WHEREAS, MicroAge, Pinacor, and Executive desire to terminate the MicroAge Employment Agreement and replace the MicroAge Employment Agreement with this Agreement. ARTICLE I DUTIES AND TERM 1.1 EMPLOYMENT. In consideration of their mutual covenants and other good and valuable consideration, the receipt, adequacy, and sufficiency of which is hereby acknowledged, the Company agrees to employ Executive, and Executive agrees to remain in the employ of the Company, upon the terms and conditions herein provided. 1.2 POSITION AND RESPONSIBILITIES. (a) Executive will serve as the Chief Executive Officer of the Company (or in a capacity and with a title of at least substantially equivalent quality), reporting directly to the Board. Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him by the Chairman of the Board or by the Board. (b) Executive further agrees to serve, if elected, as a director of the Company and as an officer or director of any subsidiary or affiliate of the Company. (c) During the period of his employment hereunder, Executive will devote substantially all of his business time, attention, skill, and efforts to the faithful performance of his duties hereunder. 1.3 TERM. The term of Executive's employment under this Agreement will commence on the date first above written and will continue, unless sooner terminated, until January 4, 2001; provided, however, that commencing on January 4, 1999 and on each subsequent day thereafter, the Executive's term of employment will automatically be extended without further action by the Company or Executive to the second anniversary of each such day. 1.4 LOCATION. During the period of his employment under this Agreement, Executive will not be required, except with his prior written consent, to relocate his principal place of employment outside Maricopa County, Arizona. Required travel on the Company's business will not be deemed a relocation so long as Executive is not required to provide his services hereunder outside of Maricopa County, Arizona, for more than fifty (50%) percent of his working days during any consecutive six (6) month period. 1.5 TERMINATION OF MICROAGE EMPLOYMENT AGREEMENT. MicroAge and Executive hereby terminate the MicroAge Employment Agreement, effective as of January 4, 1999. Executive agrees that Executive is not entitled to any payments as a result of the termination of the MicroAge Employment Agreement. 1.6 SPECIAL BONUSES AND MODIFICATION OF 1997 MEP AGREEMENT. Promptly following the execution of this Agreement by all parties hereto, MicroAge will declare a bonus in favor of Executive in an amount equal to $80,000, all of which will be waived by Executive pursuant to the terms and provisions of the 1997 Management Equity Program Award Agreement, dated October 11, 1996, between MicroAge and Executive (the "1997 MEP AGREEMENT"). MicroAge also will declare a second bonus in favor of Executive in an amount equal to $33,333, but the second bonus will be conditional on Executive's execution of an amendment to the 1997 MEP Agreement pursuant to which he agrees to waive 100% of said second bonus in lieu of any additional salary waivers for the current fiscal year. MicroAge and Executive understand and agree that (a) following the waiver of the bonuses as described above, Executive will not be required to waive any further compensation amounts pursuant to the 1997 MEP Agreement, (b) the total number of options granted to Executive under the 1997 MEP Agreement will not be reduced, and (c) such options will continue to vest in accordance with Section 4 of the 1997 MEP Agreement as if all compensation that Executive agreed to waive under the 1997 MEP Agreement has been waived. MicroAge agrees to such other actions as may be required to effectuate the foregoing. ARTICLE II COMPENSATION For all services rendered by Executive in any capacity during his employment under this Agreement, including, without limitation, services as a director, officer, or member of any committee of the Board of the Company or of the board of directors of any subsidiary or Affiliate of the Company, the Company will compensate Executive as follows: 2.1 BASE SALARY. The Company will pay to Executive an annual base salary of not less that $370,000 (such amount, less any salary waivers under the 1997 Management Equity Program or any subsequent management equity or other waiver program adopted by the Company is hereinafter referred to as the "BASE SALARY") during the term hereof; PROVIDED, HOWEVER, that in the event the 2 Company or MicroAge institutes a salary reduction program which affects all exempt employees (as defined by standard Company policies in compliance with the Fair Labor Standards Act) by the same percentage, then Executive's Base Salary may be reduced by such percentage (and the term "Base Salary" as used in this Agreement will refer to Base Salary as so adjusted). Executive's Base Salary will be paid in equal semi-monthly installments. The Base Salary will be reviewed annually by the Board or a committee designated by the Board and the Board or such committee may, in its discretion, increase the Base Salary. 2.2 BONUS PAYMENTS. (a) During the period of Executive's employment under this Agreement, the Company shall pay to Executive annually a fixed cash bonus equal to $4,612 and, in addition, such amount as may be necessary after payment by the Executive of all taxes, including, without limitation, any federal or state income taxes, on such fixed cash bonus payment, so that Executive shall have remaining, on a grossed-up basis, the amount of $4,612 (the "ANNUAL FIXED CASH BONUS"). (b) The Board, a committee thereof, or the Chairman of the Board will establish in each fiscal year during the term hereof an executive bonus plan that provides for incentive compensation to Executive. Any bonus under any such plan is referred to herein as the "ANNUAL INCENTIVE BONUS". 2.3 STOCK OPTIONS. The Company will use all reasonable efforts to cause MicroAge to establish and maintain one or more stock option plans in which Executive will be entitled to participate. The terms and conditions of such plan(s) will be determined and administered by the MicroAge's Board of Directors or a committee thereof. 2.4 ADDITIONAL BENEFITS. Executive will be entitled to participate in all employee benefit and welfare programs, plans and arrangements (including, without limitation, pension, profit sharing, supplemental pension and other retirement plans, insurance, hospitalization, medical and group disability benefits, travel or accident insurance plans) and to receive fringe benefits, such as dues and fees of professional organizations and associations, which are from time to time available to the Company's executive officers; PROVIDED, HOWEVER, there will be no duplication of termination or severance benefits, and to the extent that such benefits are specifically provided by the Company to Executive under other provisions of this Agreement, the benefits available under the foregoing plans and programs will be reduced by any benefit amounts paid under such other provisions. Executive will during the period of his employment hereunder continue to be provided with benefits at a level which will in no event be less in any material respect than the benefits made available to Executive by the Company as of the date of this Agreement. Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to the Company's executive officers to participate therein, and Executive's benefits will be reduced or terminated accordingly. Specifically, without limitation, Executive will receive the following benefits: 3 (a) SPLIT DOLLAR INSURANCE AGREEMENT. Executive will remain entitled to the benefits under the Split Dollar Insurance Agreements, dated as of September 1, 1995 and January 27, 1997, between MicroAge and Executive. (b) SHORT-TERM DISABILITY BENEFITS. In the event of Executive's failure substantially to perform his duties hereunder on a full-time basis for a period not exceeding 180 consecutive days or for periods aggregating not more than 180 days during any twelve-month period as a result of incapacity due to physical or mental illness, the Company will continue to pay the Base Salary to Executive during the period of such incapacity, but only in the amounts and to the extent that disability benefits payable to Executive under Company-sponsored insurance policies are less than Executive's Base Salary. (c) RELOCATION EXPENSES. In the event Executive's principal place of employment is relocated by mutual consent of the parties outside Maricopa County, Arizona, the Company will reimburse Executive for all usual relocation expenses incurred by Executive and his household in moving to the new location, including, without limitation, moving expenses and rental payments for temporary living quarters in the area of relocation for a period not to exceed six months. (d) REIMBURSEMENT OF BUSINESS EXPENSES. The Company will, in accordance with standard Company policies, pay, or reimburse Executive for, all reasonable travel and other expenses incurred by Executive in performing his obligations under this Agreement. (e) VACATIONS. Executive will be entitled to 20 business days, excluding Company holidays, of paid vacation during each year of employment, which he will earn in arrears, beginning as of May 15, 1995, the date that Executive first became a MicroAge associate. Executive may accrue and carry forward vacation days from any particular year of his employment to the next to the extent permitted by the Company's policies in this regard, as the same may be changed from time to time. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's employment under this Agreement will automatically terminate upon the death or Retirement (as defined in Section 6.1) of Executive. 3.2 BY EXECUTIVE. Executive will be entitled to terminate his employment under this Agreement by giving Notice of Termination (as defined in Section 6.1) to the Company: (a) for Good Reason (as defined in Section 6.1); (b) at any time commencing with the date six (6) months following the date of a Change in Control (as defined in Section 6.1) and ending with the date twelve months after the date of such Change in Control (a "CHANGE IN CONTROL RESIGNATION"); and 4 (c) at any time without Good Reason. 3.3 BY COMPANY. The Company will be entitled to terminate Executive's employment under this Agreement by giving Notice of Termination to Executive: (a) in the event of Executive's Total Disability (as defined in Section 6.1); (b) for Cause (as defined in Section 6.1); and (c) at any time without Cause. ARTICLE IV COMPENSATION UPON TERMINATION OF EMPLOYMENT If Executive's employment hereunder is terminated in accordance with the provisions of Article III hereof, except for any other rights or benefits specifically provided for herein following his period of employment, the Company will be obligated to provide compensation and benefits to Executive only as follows, subject to the provisions of Section 5.12 hereof: 4.1 UPON TERMINATION FOR DEATH OR DISABILITY. If Executive's employment hereunder is terminated by reason of his death or Total Disability, the Company will: (a) pay Executive (or his estate) or beneficiaries any Base Salary that has accrued but not been paid as of the termination date (the "ACCRUED BASE SALARY"); (b) pay Executive (or his estate) or beneficiaries for unused vacation days accrued as of the termination date in an amount equal to his Base Salary multiplied by a fraction the numerator of which is the number of accrued unused vacation days and the denominator of which is 260 (the "ACCRUED VACATION PAYMENT"); (c) reimburse Executive (or his estate) or beneficiaries for expenses incurred by him prior to the date of termination that are subject to reimbursement pursuant to this Agreement (the "ACCRUED REIMBURSABLE EXPENSES"); (d) provide to Executive (or his estate) or beneficiaries any accrued and vested benefits required to be provided by the terms of any Company-sponsored benefit plans or programs (the "ACCRUED BENEFITS"), together with any benefits required to be paid or provided in the event of Executive's death or Total Disability under applicable law; (e) pay Executive (or his estate) or beneficiaries any Annual Incentive Bonus with respect to a prior fiscal year which has accrued but has not been paid (the "ACCRUED ANNUAL INCENTIVE BONUS"); and 5 (f) Executive (or his estate) or beneficiaries will have the right to exercise all vested unexercised stock options and warrants outstanding at the termination date in accordance with terms of the plans and agreements pursuant to which such options or warrants were issued. 4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD Reason. If Executive's employment is terminated by the Company for Cause, or if Executive terminates his employment with the Company other than (x) upon Executive's death or Total Disability, (y) for Good Reason, or (z) pursuant to a Change in Control Resignation (as defined in Section 3.2(b)), the Company will: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment; (c) pay Executive the Accrued Reimbursable Expenses; (d) pay Executive the Accrued Benefits, together with any benefits required to be paid or provided under applicable law; (e) pay Executive any accrued Annual Fixed Cash Bonus and Annual Incentive Bonus with respect to a prior year which has accrued but has not been paid (together, such bonus payments are referred to herein as the "ACCRUED ANNUAL BONUS PAYMENTS"); and (f) Executive will have the right to exercise vested options and warrants in accordance with Section 4.1(f). 4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON PRIOR TO A CHANGE IN CONTROL. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Company will: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment; (c) pay Executive the Accrued Reimbursable Expenses; (d) pay Executive the Accrued Benefits, together with any benefits required to be paid or provided under applicable law; (e) pay Executive any Accrued Annual Incentive Bonus; (f) pay Executive commencing on the thirtieth day following the termination date twenty-four (24) monthly payments equal to one-twelfth of the sum of (1) Executive's Base Salary 6 in effect immediately prior to the time such termination occurs, plus (2) the average of the Annual Incentive Bonuses paid to Executive for the two (2) fiscal years immediately preceding the fiscal year in which the termination occurs (or if less than two, the amount of his single Annual Incentive Bonus, if any); provided, however, should Executive attain alternative employment during the twenty-four (24) month payment period, the Company's obligations under this Section 4.3(f) will be reduced by the amount of Executive's compensation from his new employer. For example, if Executive were entitled to receive $30,000 per month for twenty-four (24) months under this Section 4.3(f), and if, at the beginning of the seventh (7th) month following his termination date, he finds alternative employment that pays him $25,000 per month, the Company would be obligated to pay Executive six (6) monthly payments of $30,000, and eighteen (18) monthly payments of $5,000 under this Section 4.3(f); (g) maintain in full force and effect, for Executive's and his eligible beneficiaries' continued benefit, until the first to occur of (x) his attainment of alternative employment or (y) twenty-four (24) months following the termination date of his employment hereunder the employee benefits provided pursuant to Company-sponsored benefit plans, programs or other arrangements in which Executive was entitled to participate as a full-time employee immediately prior to such termi nation in accordance with Section 2.4 hereof, subject to the terms and conditions of such plans and programs (the "CONTINUED BENEFITS"). If Executive's continued participation is not permitted under the general terms and provisions of such plans, programs and arrangements, the Company will arrange to provide Executive with Continued Benefits substantially similar to those which Executive would have been entitled to receive under such plans, programs and arrangements; and (h) Executive will have the right to exercise vested options and warrants in accordance with Section 4.1(f). Notwithstanding anything to the contrary in this Agreement, Executive's employment will not be deemed to have been terminated "without Cause," nor will Executive be deemed to have terminated his employment for "Good Reason" if, (i) at the date of Executive's termination of employment with the Company, the Company is, or was, within the three (3) month period preceding such date, an Affiliate of MicroAge AND (ii) within thirty (30) days following Executive's termination of employment with the Company, MicroAge or any of its Affiliates offers a senior executive position based in Maricopa County to Executive with at least the same Base Salary and term of employment to which Executive is entitled hereunder (any such offer made under the circumstances described in clauses (i) and (ii) of this sentence is hereinafter referred to as a "MICROAGE EMPLOYMENT Offer"). If Executive accepts a MicroAge Employment Offer, Executive will not be entitled to any payments as a result of the termination of his employment under this Agreement. If Executive does not accept a MicroAge Employment Offer, Executive's termination of employment will be treated as termination pursuant to Section 4.2 of this Agreement. The Company agrees to provide MicroAge with written notice of Executive's termination of employment with the Company no later than ten (10) days following such termination. 7 4.4 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE FOLLOWING A CHANGE IN CONTROL OR BY EXECUTIVE FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL OR PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If following a Change in Control, Executive's employment is terminated by the Company without Cause or by Executive for Good Reason or pursuant to a Change in Control Resignation, the Company shall: (a) make the payments and provide to Executive the benefits under Section 4.3 other than under Section 4.3(f) hereof; and in addition (b) pay to Executive a lump sum payment on or prior to the thirtieth day following the termination date of Executive's employment hereunder in an amount equal to 200% of Executive's aggregate total compensation under Sections 2.1 and 2.2 hereof for the fiscal year immediately prior to the fiscal year in which the Change in Control occurs; provided, however, the total payments received by Executive under this Section 4.4(b) plus (i) any payments received by Executive under Section 4.4(a) which would be classified as parachute payments and (ii) any payments or value received by Executive from stock options which would be classified as parachute payments determined in accordance with Prop. Reg. ss. 1.280G-1A-24(e) Examples (7) and (8) may not exceed 299% of Executive's "Base Amount" as such term is defined in Section 280G of the Internal Revenue Code of 1986, as amended ("Code") and the regulations promulgated thereunder ("Regulations"). Company and Executive agree that for purposes of making any present value calculation under this Agreement, the Applicable Federal Rate in effect on the date this Agreement is executed shall control as permitted by Q&A 32 of Treas. Reg. ss. 1.280G-1. ARTICLE V RESTRICTIVE COVENANTS 5.1 CONFIDENTIAL INFORMATION AND MATERIALS. Executive hereby agrees and acknowledges that the following ideas, information, and materials in written, oral, magnetic, photographic, optical or other form and whether now existing or developed or created during the period of Executive's employment or engagement with the Company (the "Confidential Information") are proprietary to the Company and are highly sensitive in nature: (a) HARDWARE. Any and all ideas, concepts, know-how, techniques, structures, information and materials relating to the design, development, engineering, invention, patent, patent application, manufacture or improvement of any and all equipment, components, devices, techniques, processes or formulas (including, without limitation, mask works, semi-conductor chips, processors, memories, disc drives, tape heads, computer terminals, keyboards, storage devices, printers, and optical storage media) and any and all components, devices, techniques or circuitry incorporated in any of the above which is or are constructed, designed, improved, altered or used by the Company and which is or are not generally known to the public or within the industries in which the Company competes. 8 (b) SOFTWARE. Any and all ideas, concepts, know-how, techniques, structures, information and materials relating to existing computer software or firmware products and computer software or firmware in various stages of research and development including without limitation source code, object and load modules, requirements specifications, design specifications, design notes, flow charts, coding sheets, annotations, documentation, technical and engineering data, laboratory studies, benchmark test results, and the structures, organization, designs, formulas and algorithms which reside in the software and which are not generally known to the public or within the industries or trades in which the Company competes. (c) BUSINESS PROCEDURES. Internal business procedures and business plans, including analytical methods and procedures, licensing techniques, manufacturing information and procedures such as formulations, processes and equipment, technical and engineering data, vendor names, other vendor information, purchasing information, financial information, service and operational manuals and documentation therefor, ideas for new products and services and other such information which relates to the way the Company conducts its business and which is not generally known to the public. (d) LEGAL RIGHTS. All patents, copyrights, trade secrets, trademarks and service marks, and the like. (e) MARKETING PLANS AND CUSTOMERS LISTS. Any and all customer and marketing information and materials, such as (i) strategic data, including marketing and development plans, forecasts and forecast assumptions and volumes, and future plans and potential strategies of the Company which have been or are being discussed; (ii) financial data, price and cost objectives, price lists, pricing policies and procedures, and estimating and quoting policies and procedures; and (iii) customer data, including customer lists, names of existing, past or prospective customers and their representatives, data about or provided by prospective, existing or past customers, customer service information and materials, data about the terms, conditions and expiration dates of existing contracts with customers and the type, quantity and specifications of products and services purchased, leased or licensed by customers of the Company. (f) NOT GENERALLY KNOWN. Any and all information not generally known to the public or within the industries or trades in which the Company competes. 5.2 GENERAL KNOWLEDGE. The general skills and experience gained by Executive during Executive's employment or engagement by the Company, and information publicly available or generally known within the industries or trades in which the Company competes, is not considered Confidential Information. Following the Non-Competition Period (as defined in Section 5.9(a)), Executive is not restricted from working with a person or entity which has independently developed information or materials similar to the Confidential Information, but in such a circumstance, Executive agrees not to disclose the fact that any similarity exists between the Confidential Information and the independently developed information and materials, and Executive understands that such similarity does not excuse Executive from the non-disclosure and other obligations in this Agreement. 9 5.3 EXECUTIVE OBLIGATIONS AS TO CONFIDENTIAL INFORMATION AND MATERIALS. During Executive's employment or engagement by the Company, Executive will have access to the Confidential Information and will occupy a position of trust and confidence with respect to the Confidential Information and the Company's affairs and business. Executive agrees to take the following steps to preserve the confidential and proprietary nature of the Confidential Information: (a) NON-DISCLOSURE. During and after Executive's employment or engagement by the Company, Executive will not use, disclose or otherwise permit any person or entity access to any of the Confidential Information other than as required in the performance of Executive's duties with the Company. Executive understands that Executive is not allowed to sell, license, market or otherwise exploit any products or services (including software or firmware in any form) which embody in whole or in part any Confidential Information. (b) PREVENT DISCLOSURE. Executive will take all reasonable precautions to prevent disclosure of the Confidential Information to unauthorized persons or entities. (c) ABIDE BY THE COMPANY'S RESTRICTIONS. Executive will treat as confidential and proprietary any information or materials from outside the Company which the Company is obligated to treat as confidential or proprietary, in accordance with the Company's reasonable instructions to Executive. (d) RETURN ALL MATERIALS. Upon termination of Executive's employment or engagement by the Company for any reason whatsoever, Executive will deliver to the Company all tangible materials embodying the Confidential Information, including any documentation, records, listings, notes, data, sketches, drawings, memoranda, models, accounts, reference materials, samples, machine-readable media and equipment which in any way relate to the Confidential Information. Of course, Executive agrees not to retain any copies of any of the above materials. 5.4 INFORM SUBSEQUENT EMPLOYERS. Executive covenants and agrees that, for a period beginning on the date of Executive's termination of employment with the Company and ending twenty-four (24) months following termination of the Non-Competition Period, prior to accepting subsequent employment with an employer engaged in substantially the same line of work as the Company, Executive will: (a) inform any such subsequent employer in writing that this Agreement exists; and (b) provide the Company with a copy of such writing. 5.5 IDEAS AND INVENTIONS. Executive agrees to assign to the Company all of Executive's right, title and interest in or to any and all ideas, concepts, know-how, techniques, processes, inventions, discoveries, developments, works of authorship, innovations and improvements ("Inventions") conceived or made by Executive, whether alone or with others, whether patentable or not, except those that the Executive developed entirely on Executive's own time without using the Company's equipment, supplies, facilities, or trade secret information and which neither (1) relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company nor (2) result from any work 10 performed by the Executive for the Company. Executive agrees to disclose all Inventions to the Company promptly, and to provide all assistance reasonably requested by the Company in the preservation of its interests in the Inventions (such as by executing documents, testifying, etc.), such assistance to be provided at the Company's expense but without any additional compensation to Executive. 5.6 INVENTIONS AND PATENTS; ASSERTION OF RIGHTS. Executive agrees that from this date until Executive leaves the Company's employment, Executive will keep the Company informed of any Inventions made by Executive, in whole or in part, or conceived by Executive, alone or with others, which result from any work Executive may do for, or at the request of, the Company, or which relate to the Company's activities, investigations, or obligations. Executive will, at the expense of the Company, assist the Company or its nominees to obtain patents for such Inventions in any countries throughout the world. Such Inventions will be the property of the Company or its nominees, whether patented or not. Executive will and does, without charge to the Company, assign to the Company, all of Executive's right, title, and interest in and to such Inventions, including patents and patent applications and reissues thereof. Executive agrees to execute, acknowledge, and deliver any instruments confirming the complete ownership by the Company of such Inventions. Such assignments will include the right to sue for infringement. 5.7 COPYRIGHTS. Executive agrees that any work prepared by Executive during the course of Executive's employment or engagement hereunder which is eligible for United States copyright protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention will be a work made for hire. In the event any such work is deemed not to be a work made for hire, Executive hereby assigns all right, title and interest in and to the copyright in such work to the Company, and agrees to provide all assistance reasonably requested by the Company in the establishment, preservation and enforcement of its copyright in such work, such assistance to be provided at the Company's expense but without any additional compensation to Executive. 5.8 CONFLICTING OBLIGATIONS AND RIGHTS. Executive agrees to inform the Company in writing of any apparent conflict between Executive's work for the Company and (i) any obligations Executive may have to preserve the confidentiality of another's proprietary information or materials, or (ii) any rights Executive claims to any patents, copyrights, trade secrets, or other inventions, ideas or similar rights, before performing that work. Otherwise, the Company may conclude that no such conflict exists and Executive agrees thereafter to make no such claim against the Company. The Company will receive such disclosures in confidence. There are no such existing obligations and claims of Executive as of the date of this Agreement. 5.9 NON-COMPETITION/NON-SOLICITATION. (a) NON-COMPETITION/NON-SOLICITATION. During the Non-Competition Period (as defined herein), Executive agrees that Executive will not Compete (as defined herein) with the Business in the Business Territory. The term "BUSINESS TERRITORY" means the United States of 11 America, including (i) the Western United States (Alaska, Arizona, California, Colorado, Hawaii, Idaho, Oregon, Montana, New Mexico, Nevada, Utah, Washington, and Wyoming); (ii) the Central United States (Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, and Wisconsin); (iii) the Eastern United States (Connecticut, Delaware, Florida, Georgia, Massachusetts, Maryland, Maine, North Carolina, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, Virginia, Vermont, and Washington, DC, and West Virginia); and (iv) a 30-mile radius around each of the following: (A) the Company's or MicroAge's corporate headquarters, (B) any distribution or logistics centers operated by the Company, MicroAge, or any of their Affiliates, (C) any quality integration centers operated by the Company, MicroAge, or any of their Affiliates, (D) the Company's or MicroAge's company-owned reseller locations, (E) any call centers operated by the Company, MicroAge, or any of their Affiliates, (F) any other facility owned or operated by the Company, MicroAge, or any of their Affiliates not covered by clauses (A) - (E) of this Section 5.9(a), (G) the Company's or MicroAge's MIS branches (whether owned by MicroAge or not), and (H) MicroAge's franchisee locations. For purposes of this Section 5.9(a), the "NON-COMPETITION PERIOD" means the period of Executive's employment by the Company, MicroAge, or any of their Affiliates, and an additional period of twenty-four (24) months following the date of termination of Executive's employment for any reason, whether such termination is voluntary or involuntary. Executive agrees that the Non-Competition Period will be extended by the number of days during any such period in which Executive is or was engaged in activities constituting a breach of this Article V. (b) For purposes of this Section 5.9, the term "COMPETE" or "COMPETING" means, with respect to the Business: (i) managing, supervising, or otherwise participating in a management or sales capacity; or (ii) otherwise managing, operating, controlling, participating in the ownership, management, or control of, or being connected with or having any interest in, as a stockholder, agent, partner, lender, consultant, advisor or otherwise, any business or Person which provides goods, products, or services competitive with those provided by the Business; PROVIDED, HOWEVER, that nothing contained herein will prohibit Executive from owning less than one percent of any class of securities listed on a national securities exchange or traded publicly in the over-the-counter market; or (iii) entering into or attempting to enter into any business substantially similar to the Business, either alone or with any other Person. (c) For the purposes of this Section 5.9, the words "directly or indirectly", as they modify the word "Compete" or "Competing" mean (i) acting as an agent, representative, consultant, officer, director, member, independent contractor, or employee of any Person that is Competing with the Business; (ii) participating in any such Competing Person or enterprise as an owner, partner, limited partner, joint venturer, member, creditor, or shareholder (except as expressly permitted herein); or (iii) or communicating to any such Competing Person or enterprise the names or addresses or any other information concerning any past, present, or identified prospective client or customer or any other confidential information of the Business, the Company, MicroAge, or any of their Affiliates. 12 (d) For purposes of this Article V, the term "BUSINESS" means the delivery of systems integration, management, and support services and/or the distribution of information technology products and services, as conducted by the Company, MicroAge, or any of their Affiliates immediately prior to the date hereof and/or developed during Executive's employment hereunder. (e) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that the Company's employees are a valuable resource of the Company. Accordingly, during the Employee Non-Solicitation Period (as defined herein), Executive agrees that Executive will not, either alone or in conjunction with any other Person, directly or indirectly, go into business with any Company employee or solicit, induce, or recruit any Company employee to leave the employ of the Company. For the purpose of this Section 5.9(e), Company employee means (i) any employee of the Company, MicroAge, or any of their Affiliates as of, or immediately prior to the date hereof or during the Non-Competition Period, the Employee Non-Solicitation Period, and the Customer Non-Solicitation Period; or (ii) any former employee of the Company, MicroAge, or any of their Affiliates whose employment with the Company, MicroAge, or any of their Affiliates ceased less than one (1) year before the date of such co-venturing, solicitation, inducement, or recruitment. For purposes of this Section 5.9(e), the "EMPLOYEE NON-SOLICITATION Period"means the period of Executive's employment by the Company, MicroAge, or any of their Affiliates, and an additional period of twenty-four (24) months following the date of termination of Executive's employment for any reason, whether such termination is voluntary or involuntary. The Employee Non-Solicitation Period described herein will be extended by the number of days during any such period in which Executive is or was engaged in activities constituting a breach of this Article V. (f) NON-SOLICITATION OF CUSTOMERS AND PROSPECTIVE CUSTOMERS. Executive recognizes that the Company's customers and Prospective Customers are a valuable asset of the Company. Accordingly, during the Customer Non-Solicitation Period, Executive will not, either alone or in conjunction with any other Person, directly or indirectly, call on, solicit, take away, accept as a client, customer, or prospective client or customer, or attempt to call on, solicit, take away, or accept as a client, customer, or prospective client or customer, any Person that, as of the date of the termination of Executive's employment hereunder, (i) was a client, customer, or Prospective Customer of the Company, MicroAge, or any of their Affiliates, or (ii) was a client, customer, or Prospective Customer of the Company, MicroAge, or any of their Affiliates within the Business Territory, or (iii) was a client, customer, or Prospective Customer of the Company, MicroAge, or any of their Affiliates, with which the Executive had any significant contact, either individually or with another. For purposes of this Section 5.9(f), (i) the "CUSTOMER NON-SOLICITATION PERIOD" means the period of Executive's employment by the Company, MicroAge, or any of their Affiliates, and an additional period of twenty-four (24) months following the date of termination of Executive's employment for any reason, whether such termination is voluntary or involuntary, and (ii) "PROSPECTIVE CUSTOMER" means any Person that the Company, MicroAge, or any of their Affiliates have contacted, or have developed a strategy or plan to contact, for the purpose of acquiring such Person as a client. The Customer Non-Solicitation Period described herein will be extended by the 13 number of days during any such period in which Executive is or was engaged in activities constituting a breach of this Article V. (g) During the Non-Competition Period (as defined in Section 5.9(a)) Executive agrees that Executive will not, either within or outside of the Business Territory, act as an agent, representative, consultant, officer, director, member, independent contractor, or employee of Arrow Electronics, Inc.; Avnet, Inc.; CHS Electronics, Inc.; Cambridge Research Associates, Inc.; Compaq Computer Corporation; CompuCom Systems, Inc.; CompUSA, Inc.; EnPointe Technologies, Inc.; Entex Information Services; GE Capital; Ikon Office Solutions, Inc.; Inacom Corp; Ingram Micro, Inc.; Merisel, Inc.; Pomeroy Computer Resources, Inc.; Tech Data Corporation; Vanstar Corporation; Xerox Connect; or any Affiliates or successors of the foregoing. (h) Executive hereby expressly agrees and acknowledges that: (i) the Company has protectable business interests throughout the Business Territory, and elsewhere, and that competition with and against such business interests would be harmful to the Company; (ii) the covenants contained in this Article V are reasonable as to time and geographical area and do not place any unreasonable burden upon Executive's ability to earn a livelihood; (iii) the public will not be harmed as a result of enforcement of the covenants contained in this Article V; (iv) the personal legal counsel for Executive has reviewed the covenants contained in this Article V; and (v) Executive understands and hereby agrees to each and every term and condition contained in this Article V. 5.10 NON-DISPARAGEMENT. During the term of this Agreement, the Non-Competition Period, the Employee Non-Solicitation Period, and the Customer Non-Solicitation Period, neither the Executive nor the Company will disparage the other, and neither will disclose to any third party the conditions of Executive's employment with the Company, except as may be required (i) pursuant to applicable law or regulations, including the rules and regulations of the Securities and Exchange Commission, (ii) to effectuate the provisions of employee plans or programs and insurance policies, or (iii) as may be otherwise contemplated herein or unless such information becomes publicly available without fault of the party making such disclosure. 5.11 REMEDIES. Executive expressly agrees and acknowledges that the covenants set forth in Sections 5.1 through Section 5.10 are necessary for the protection of the interests of the Company and its Affiliates because of the nature and scope of their business and his position with the Company 14 and, consistent with Section 6.2(b), such covenants may be enforced in any court of competent jurisdiction. Further, Executive acknowledges that any breach of such covenants would result in irreparable damage to the Company, and that money damages will not sufficiently compensate the Company for its injury caused thereby, and that the remedy at law for any breach or threatened breach of any of such covenants will be inadequate and, accordingly agrees, that the Company will, in addition to all other available remedies (including without limitation, seeking such damages as it can show it has sustained by reason of such breach), be entitled to injunctive relief or specific performance and that in addition to such money damages he may be restrained and enjoined from any continuing breach of this covenant not to compete without any bond or other security being required of any court. The remedies set forth in this Section 5.11 will be included in any award in favor of the Company under EXHIBIT A hereto. 5.12 SEVERABILITY OF ARTICLE V PROVISIONS. If any provision of this Article V shall be adjudicated by a court of competent jurisdiction to be invalid or unenforceable because of the scope, duration, area of its applicability, or any other reason, the court making such determination will have the power to modify such scope, duration, or area, or all of them, or to strike an invalid or unenforceable provision, in whole or in part, to make such scope, duration, area, or provision valid and enforceable. Executive further acknowledges and agrees that if such covenants, or any of them, are deemed to be unenforceable and/or the Executive fails to comply with this Article V, the Company has no obligation to provide any compensation or other benefits described in Article IV hereof. 5.13 OTHER AGREEMENTS . In the event that Executive has previously signed, or does sign in the future, any one or more separate non-competition, non-solicitation, confidentiality or similar agreement(s) with the Company, such agreement(s) will remain binding and enforceable and the Company may, at its option, assert any and all such agreement(s) against Executive in addition to, or in lieu of, this Agreement. 5.14 SCOPE OF ARTICLE . For purposes of this Article V, unless the context otherwise requires, the term "Company" includes MicroAge, Inc., its direct and indirect subsidiaries, and its Affiliates. ARTICLE VI MISCELLANEOUS 6.1 DEFINITIONS. For purposes of this Agreement, the following terms will have the following meanings: "Accrued Base Salary" - as defined in Section 4.1(a). "Accrued Benefits" - as defined in Section 4.1(d). "Accrued Annual Bonus Payment" - as defined in Section 4.1(e). 15 "Accrued Reimbursable Expenses" - as defined in Section 4.1(c). "Accrued Vacation Payment" - as defined in Section 4.1(b). "Affiliate" - of a Person means a Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first Person. "Control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. "Annual Fixed Cash Bonus" - as defined in Section 2.2(a); "Annual Incentive Bonus" - as defined in Section 2.2(b); "Base Amount" - as defined in Section 4.4(b). "Base Salary" - as defined in Section 2.1. "Board" - will mean the Board of Directors of the Company. "Business" - as defined in Section 5.9(d). "Business Territory" - as defined in Section 5.9(a). "Cause" will mean the occurrence of any of the following: (a) Executive's gross and willful misconduct which is injurious to the Company or any of its Affiliates; (b) Executive's engaging in fraudulent conduct with respect to the Company's or any of its Affiliate's business or in conduct of a criminal nature that may have an adverse impact on the Company's or any of its Affiliate's standing and reputation; (c) the failure or refusal by Executive to perform the duties required of him by this Agreement, which failure or refusal shall not be cured within fifteen (15) days following receipt by Executive of written notice from the Company specifying the factors or events constituting such failure or refusal; or (d) Executive's use of drugs and/or alcohol in violation of then current Company policy. . "Change of Control" will mean and will be deemed to have occurred if: 16 (i) After the date of this Agreement, any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto) becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act or any successor provision thereto) directly or indirectly of securities of MicroAge representing 15 percent or more of the combined voting power of MicroAge's then outstanding securities ordinarily having the right to vote at an election of directors; PROVIDED, HOWEVER, that, for purposes of this subparagraph, "person" will exclude MicroAge, its Affiliates, any person acquiring such securities directly from MicroAge, any employee benefit plan sponsored by MicroAge or from Executive or any stockholder owning 15% or more of the combined voting power of MicroAge's outstanding securities as of the date of this Agreement; or (ii) Any stockholder of MicroAge owning 15 percent or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of MicroAge (other than through the acquisition of securities directly from MicroAge or from Executive) representing 25 percent or more of the combined voting power of MicroAge's then outstanding securities ordinarily having the right to vote at an election of directors; or (iii) Individuals who, as of the date hereof, constitute the Board (the "INCUMBENT BOARD") cease for any reason to constitute at least 80 percent of the Board, provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or nomination for election by MicroAge's stockholders, was approved by a vote of at least 80 percent of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of MicroAge, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) will be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of MicroAge and consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of MicroAge, in each case, with or to a corporation or other person or entity of which persons who were the stockholders of MicroAge immediately prior to such transaction do not, immediately thereafter, own more than 60 percent of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the reorganized, merged, consolidated or purchasing corporation (or in the case of a non-corporate person or entity, functionally equivalent voting power) and 80 percent of the members of the Board of which corporation (or functional equivalent in the case of a non-corporate person or entity) were not members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, consolidation or sale, or (B) a liquidation or dissolution of MicroAge. 17 Notwithstanding anything to the contrary in the foregoing definition of Change of Control, a Change of Control will not be deemed to have occurred (i) as a result of the sale or other disposition of all of a portion of the Company's outstanding securities or assets if such sale or disposition has been approved by MicroAge's Board of Directors or (ii) if, following a sale or disposition described in the immediately preceding clause (i), an event occurs that would have otherwise been a Change of Control hereunder. "Change of Control Resignation" - as defined in Section 3.2(b). "Code" - as defined in Section 4.4(b). "Common Stock" - shall mean shares of the common stock, par value $.01 per share, of the Company. "Compete" or "Competing" - as defined in Section 5.9(b). "Confidential Information" - as defined in Section 5.1. "Continued Benefits" - as defined in Section 4.3(g). "Customer Non-Solicitation Period" - as defined in Section 5.9(f). "Employee Non-Solicitation Period" - as defined in Section 5.9(e). "Good Reason" will mean the occurrence of any of the following (subject to Section 4.3): (a) The Company's failure to elect or reelect or to appoint or reappoint Executive to offices, titles or positions carrying comparable authority, responsibilities, dignity and importance to that of Executive's offices and positions as of the date of this Agreement or, in the case of a Change in Control, involving duties of a scope comparable to those of Executive's most significant offices or positions held at any time during the 90 day period immediately preceding the date such Change in Control occurs; (b) Material change by the Company in Executive's function, duties or responsibilities (including report responsibilities) which would cause Executive's position with the Company to become of less dignity, responsibility and importance than those associated with his functions, duties or responsibilities as of the date of this Agreement or, in the case of a Change in Control, involving duties of a scope less than that associated with Executive's most significant position with the Company during the 90 day period immediately preceding the date such Change in Control occurs; 18 (c) Executive's Base Salary is reduced by the Company (unless such reduction is pursuant to a salary reduction program as described in Section 2.1 hereof) or there is a material reduction in the benefits that are in effect for the Executive on the date of this Agreement in accordance with Section 2.4 (unless such reduction is pursuant to a uniform reduction in benefits for all senior executives); (d) Except with Executive's prior written consent, relocation of Executive's principal place of employment to a location outside of Maricopa County, Arizona, or requiring Executive to travel on the Company's business more than is required by Section 1.4 hereof; (e) The failure by the Company to obtain the assumption by operation of law or otherwise of this Agreement by any entity which is the surviving entity in any merger or other form of corporate reorganization involving the Company or by any entity which acquires all or substantially all of the Company's assets; or (f) Other material breach of this Agreement by the Company, which breach is not cured within fifteen (15) days after written notice thereof is received by the Company. "Inventions" - as defined in Section 5.5. "MicroAge Employment Offer" - as defined in Section 4.3 "Non-Competition Period" - as defined in Section 5.9(a). "Notice of Termination" will mean a notice which indicates the specific termination provision of this Agreement relied upon and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. "Person" - means any natural person, firm, partnership, association, corporation, company, limited liability company, limited partnership, trust, business trust, governmental authority, or other entity. "Prospective Customer" - as defined in Section 5.9(f). "Retirement" will mean normal retirement at age 65. "Total Disability" will mean Executive's failure substantially to perform his duties hereunder on a full-time basis for a period exceeding 180 consecutive days or for periods aggregating more than 180 days during any twelve-month period as a result of incapacity due to physical or mental illness. If there is a dispute as to whether Executive is or was physically or mentally unable to perform his duties under this Agreement, such dispute will be submitted for resolution to a licensed 19 physician agreed upon by the Company and Executive, or if an agreement cannot be promptly reached, the Company and Executive will promptly select a physician, and if these physicians cannot agree, the physicians will promptly select a third physician whose decision will be binding on all parties. If such a dispute arises, Executive will submit to such examinations and will provide such information as such physician(s) may request, and the determination of the physician(s) as to Executive's physical or mental condition will be binding and conclusive. Notwithstanding the foregoing, if Executive participates in any group disability plan provided by the Company which offers long-term disability benefits, "Total Disability" will mean total disability as defined therein. 6.2 KEY MAN INSURANCE. The Company will have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company will be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive will take such physical examinations and supply such information as may be reasonably requested by the insurer. 6.3 MITIGATION OF DAMAGES; SET-OFF; DISPUTE RESOLUTION. (a) Executive will be required to mitigate the amount of any payment provided for in this Agreement (other than payments received pursuant to Section 4.4 hereof) by seeking other employment. (b) If there shall be any dispute between the Company and Executive (i) in the event of any termination of Executive's employment by the Company, whether or not such termination was for Cause, or (ii) in the event of any termination of employment by Executive, or (iii) otherwise arising out of this Agreement, the dispute will be resolved in accordance with the "Arbitration Procedure" contained in the MicroAge, Inc. Complaint Arbitration and Termination Dispute Resolution Policy attached hereto as EXHIBIT A, the provisions of which are incorporated as a part hereof; provided, however, that notwithstanding the first sentence of Section 4.1 of the "Arbitration Procedure," the Company or Executive must initiate arbitration within one (1) year from the date any claim under this Agreement accrues; and provided further, that either party may seek injunctive relief in court to avoid irreparable injury during the pendency of arbitration proceedings. In the event of a dispute hereunder as to whether a termination by the Company was for Cause or by the Executive for Good Reason, until there is a resolution and award as provided in EXHIBIT A the Company will pay all amounts, and provide all benefits, to Executive and/or Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide hereunder as though such termination were by the Company without Cause or by Executive for Good Reason and will pay the reasonable legal fees and expenses of counsel for Executive in connection with such dispute resolution; provided, however, that the Company will not be required to pay any disputed amounts or any legal fees and expenses pursuant to this subparagraph (b) except upon receipt of a written undertaking by or on behalf of Executive (and/or Executive's family or other beneficiaries, as the case may be) to repay, without interest or penalty, as soon as practicable after completion of the dispute resolution (A) all such amounts to which Executive (or Executive's family or other beneficiaries, as the case may be) is ultimately adjudged not be entitled with respect to the 20 payment of such disputed amount(s) and (B) in addition, in the case of legal fees and expenses, a proportionate amount of legal fees and expenses attributable to any of Executive's claim(s) (or any of Executive's defenses or counter-claims(s)), if any, which are found by the dispute resolver to have been frivolous or without merit. IT IS EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS AGREEMENT, WHICH INCORPORATES BINDING ARBITRATION, THE COMPANY AND EXECUTIVE AGREE, EXCEPT AS SPECIFICALLY PROVIDED OTHERWISE IN SECTIONS 5.11 AND THIS SECTION 6.2(B), TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY, CONSEQUENTIAL, AND ANY DAMAGES, OTHER THAN COMPENSATORY DAMAGES. 6.4 SUCCESSORS; BINDING AGREEMENT. This Agreement will be binding upon any successor to the Company and will inure to the benefit of and be enforceable by any such successor and by Executive's personal or legal representatives, beneficiaries, designees, executors, administrators, heirs, distributees, devisees, and legatees. 6.5 MODIFICATION; NO WAIVER. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement will be deemed to have been waived, nor will there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument by the party charged with such waiver or estoppel. No such written waiver will be deemed a continuing waiver unless specifically stated therein, and each such waiver will operate only as to the specific term or condition waived and will not constitute a waiver of such term or condition for the future or as to any other term or condition. 6.6 SEVERABILITY. The covenants and agreements contained herein are separate and severable and the invalidity or unenforceability of any one or more of such covenants or agreements, if not material to the employment arrangement that is the basis for this Agreement, will not affect the validity or enforceability of any other covenant or agreement contained herein. 6.7 NOTICES. All notices, demands, and other communications provided for hereunder will be in writing (including facsimile or similar transmission) and mailed (by U.S. certified mail, return receipt requested, postage prepaid), sent, or delivered (including by way of overnight courier service), (i) if to the Company, 3001 South Priest Drive, Tempe, Arizona 85282, Attention: Chief Executive Officer, telecopy no. (602) 366-2877, with a copy to MicroAge, Inc., 2400 South MicroAge Way, Tempe, Arizona 85292-1896, Attention: Chief Executive Officer, telecopy no. (602) 366-2444, and to Matthew P. Feeney, Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004-0001, telecopy no. (602) 382-6070; and (ii) if to Executive, 6211 East Huntress Drive, Paradise Valley, Arizona 85253; or, as to any party, to such other person and/or at such other address or number as shall be designated by such party in a written notice to the other party. All such notices, demands, and communications, if mailed, will be effective upon the earlier of (i) actual receipt by the addressee, (ii) the date shown on the return receipt of such mailing, or (iii) three (3) days after deposit in the mail. All such notices, demands, and communications, if not mailed, will be effective upon the earlier of (i) actual receipt by the addressee, (ii) with respect to facsimile and similar electronic transmission, the earlier of (x) the time that electronic confirmation of a successful transmission is received, or (y) 21 the date of transmission, if a confirming copy of the transmission is also mailed as described above on the date of transmission, and (iii) with respect to delivery by overnight courier service, the day after deposit with the courier service, if delivery on such day by such courier is confirmed with the courier or the recipient orally or in writing. 6.8 ASSIGNMENT. This Agreement and any rights hereunder will not be assignable by either party without the prior written consent of the other party except as otherwise specifically provided for herein. 6.9 ENTIRE UNDERSTANDING. This Agreement (together with EXHIBIT A incorporated as a part hereof) constitute the entire understanding between the parties hereto and no agreement, representation, warranty or covenant has been made by either party except as expressly set forth herein. 6.10 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates the provisions of any other agreement to which he is a party or by which he is bound. 6.11 LIABILITY OF COMPANY WITH RESPECT TO INSURANCE POLICY. Executive has selected the insurer and policy referred to in Section 2.4(a) hereof, and the Company will not have any liability to Executive (or his beneficiaries) should the insurance company which issues the policy referred to therein fail or refuse to pay (whether voluntarily or by reason of any order, injunction or otherwise) thereunder or if any rights or elections otherwise available to Executive thereunder are restricted or eliminated. 6.12 GOVERNING LAW. This Agreement will be construed in accordance with and governed for all purposes by the laws of the State of Arizona applicable to contracts executed and wholly performed within such state. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. PINACOR, INC. By: /s/ Jeffrey D. McKeever ---------------------------------- Jeffrey D. McKeever Chairman of the Board of Directors 22 EXECUTIVE By: /s/ Robert G. O'Malley ---------------------------------- Robert G. O'Malley AGREED AND ACCEPTED (AS TO SECTIONS 1.5 AND 1.6): MICROAGE, INC. By: /s/ Jeffrey D. McKeever ---------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer 23 EXHIBIT A MICROAGE COMPLAINT ARBITRATION AND TERMINATION DISPUTE RESOLUTION POLICY (ATTACHED) EX-10.41 6 IBM BUSINESS PARTNER AGREEMENT IBM BUSINESS PARTNER AGREEMENT DISTRIBUTOR PROFILE - -------------------------------------------------------------------------------- We welcome you as an IBM Business Partner-Distributor. This Profile covers the details of your approval to actively market Products and Services, as our Distributor. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; (b) General Terms (Z125-5478-03 11/97); (c) the applicable Attachments referred to in this Profile; and (d) the Exhibit. This Agreement and its applicable transaction documents are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, 1) any reproduction of this Agreement or a transaction document made by reliable means (for example, photocopy or facsimile) is considered an original, to the extent permissible under applicable law, and 2) all Products and Services you market and Services you perform under this Agreement are subject to it. If you have not already signed an Agreement for Exchange of Confidential Information (AECI), your signature on this Profile includes your acceptance of the AECI. After signing this Profile, please return a copy to the IBM address shown below. Revised Profile (yes/no): No Date received by IBM: 10/1/98 AGREED TO: (IBM Business Partner name) AGREED TO: Pinacor, Inc. a subsidiary of International Business Machines MicroAge Computer Centers, Inc. Corporation By /s/ Robert Ward By /s/ James K. Rooney ---------------------------------- ------------------------------------ Authorized signature Authorized signature Name (type of print) Robert Ward Name (type or print: James K. Rooney VP, Product Management Operations Date: 7/12/98 Date: 10/1/98 IBM Business Partner address: IBM address: 2400 South MicroAge Way 3039 Cornwallis Road Tempe, AZ 85282-1896 Bldg 203 Research Triangle Park, NC 27709 Page 1 of 4 DETAILS OF OUR RELATIONSHIP CONTRACT PERIOD START DATE (MONTH/YEAR): 10/1/98 DURATION: 24 MONTHS RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS: FOR EACH APPROVED RELATIONSHIP, EACH OF US AGREES TO THE TERMS OF THE FOLLOWING BY SIGNING THIS PROFILE. COPIES OF THE ATTACHMENTS ARE INCLUDED.
APPLICABLE APPROVED RELATIONSHIP (YES/NO) ATTACHMENT Distributor Attachment yes Z125-5486-02 04/98 Remarketer Terms Attachment yes Z125-5497-01 11/97 Warranty Service Attachment yes Z125-5499-01 11/97 Complementary Marketing Terms Attachment for Distributors no Z125-5775-00 03/98 Authorized Assembler Attachment no Z125-5530-01 04/97 North American Distributor Attachment no Z125-5527-00 11/96 Federal Remarketer Attachment no Z125-5514-00 11/96 Attachment for SERVICES Marketing for Remarketers yes Z125-5750-00 11/97 Attachment for Finance Services from IBM Credit Corp. no Z125-5795-00 02/98
PRODUCT AND SERVICES APPROVAL: THE FOLLOWING PRODUCTS ARE LISTED IN THE EXHIBIT. THE TERMS OF AN EXHIBIT APPLY TO THE PRODUCTS LISTED IN IT. WHEN WE APPROVE YOU FOR PRODUCTS LISTED IN THE EXHIBIT, YOU ARE ALSO APPROVED TO MARKET THEIR ASSOCIATED PROGRAMS AND PERIPHERALS. WHEN WE APPROVE YOU FOR PRODUCTS INCLUDED IN THE IBM BUSINESS PARTNER EXHIBIT, YOU ARE ALSO APPROVED FOR THEIR ASSOCIATED PRODUCTS LISTED IN THE IBM PERSONAL COMPUTER PRODUCTS EXHIBIT AND THOSE ELIGIBLE PRODUCTS LISTED IN PARTNERLINK. WE MAY SPECIFY IN YOUR EXHIBIT THAT YOU ACQUIRE THE PRODUCTS AND SERVICES FROM A SUPPLIER INSTEAD OF FROM US. WHEN YOU ACQUIRE THE PRODUCTS AND SERVICES FROM THE SUPPLIER, THE TERMS OF THE AGREEMENT RELATING TO YOUR ACQUISITION OF PRODUCTS AND SERVICES DIRECTLY FROM US (FOR EXAMPLE, TERMS RELATING TO THE RETURN OF PRODUCTS AND SERVICES, AND TERMS RELATING TO THE ORDERING OF PRODUCTS AND SERVICES ) ARE NOT APPLICABLE. ALL OTHER TERMS APPLY.
APPROVED TO MARKET TO: IBM APPROVED REMARKETERS; ALL REMARKETERS END USERS SYSTEM TYPES (1) (YES/NO) (YES/NO) (YES/NO) 1) IBM System/390(2)(5) no IBM R/390 no IBM P/390 no 2) IBM RS/6000 no 3) IBM RS/6000 SP no 4) ISM AS/400 9401 no 9401/150 no 9402 no 9406 no 5) IBM 469X Point of Sale Products no IBM 4614 SureOne no 6) IBM Network integration Products no IBM PERSONAL COMPUTER PRODUCTS (3) 1) IBM PC Desktop yes 2) IBM PC Server yes 3) IBM Mobile yes 4) ASCII Terminals yes yes yes 5) Cables & Associated Products yes yes yes 6) PC Features & Options (6) yes yes yes
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APPROVED TO MARKET TO: IBM APPROVED REMARKETERS; ALL REMARKETERS END USERS ADDITIONAL PRODUCTS (1) (YES/NO) (YES/NO) (YES/NO) 1) Graphics 2) Finance Products Category J1 no 3) IBM Storage Products no Category S I Products no Category S2 Products no Category S3 Products no Category S4 Products no Category S5 Products no Category S6 Products no Category S7 Products no IBM PRINTING SYSTEMS COMPANY PRODUCTS 1) Distributed/Production no 2) Network no 3) High End Production no 4) Software no IBM GLOBAL SERVICES (4) 1) Product Support Services a) Hardware Product Services no b) Software Services no c) Systems Management Services no d) Site & Connectivity Services no e) Business & Technology Solutions no f) Business Recovery Services no g) Other Services no 2) IBM Professional Services a) IBM Consulting Services no
CERTIFIED PRODUCTS YOU ARE APPROVED TO MARKET. 044 AIX PRODUCTS 069 PSG: NETWARE PLATINUM 079 PSG: VOICE TYPE 256 EDUQUEST: K12 HARDWARE 340 PSG: AUTH ASSEMBLER PRODUCTS 343 PSG: AETNA PCMCIA ETHERNET 038 PSG: IBM PRINTING SYSTEMS EXCLUSIONS, IF APPLICABLE: ALTHOUGH INCLUDED BY REFERENCE IN PRODUCT AND SERVICES APPROVAL, YOU ARE NOT APPROVED TO MARKET THESE INDIVIDUAL PRODUCTS AND SERVICES. - ------------------------- ---------------------- ----------------------- - ------------------------- ---------------------- ----------------------- - ------------------------- ---------------------- ----------------------- (1) When approved for other than IBM Personal Computer Company Products or IBM Printing Systems Company Products, additional terms apply. These terms are included in the attached Transaction Document The IBM Distributor Schedule A. (2) Eligible Products are identified in Schedule A. (3) Please refer to the IBM Personal Computer Products Exhibit for details an direct acquisition criteria. (4) You may market this Service without the requirement to have marketed a Machine or Program. (5) When we approve you to market these Products, you are also approved to market the associated Programs under complementary marketing terms only. These Programs are not available for marketing under remarketer terms (6) When we approve you to market these Products, you are also approved to market items 4 and 5 directly above. Page 3 of 4 MINIMUM ANNUAL ATTAINMENT: PRODUCT/SERVICE VOLUME/REVENUE MEASUREMENT PERIOD DATES --------------------------- -------------- ------------ --------------------------- -------------- ------------ --------------------------- -------------- ------------ LOCATIONS: LOCATION (STREET ADDRESS, CITY, STATE, ZIP CODE) 2400 SOUTH MICROAGE WAY TEMPE, AZ 85282-1896 ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY, IF APPLICABLE: YOU ASSIGN TO US, OR AN IBM PREMIER PERSONAL COMPUTER SERVICER, WARRANTY SERVICE RESPONSIBILITY FOR THE FOLLOWING MACHINES. TYPE/MODEL TYPE/MODEL TYPE/MODEL TYPE/MODEL - ------------------ ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------ ------------------ UNLESS YOU ARE ASSIGNING TO US, PLEASE SPECIFY THE NAME OF THE IBM PREMIER PERSONAL COMPUTER SERVICER. Page 4 of 4 IBM BUSINESS PARTNER AGREEMENT GENERAL TERMS TABLE OF CONTENTS Section Title Page 1. Definitions ............................................... 2 2. Agreement Structure and Contract Duration ................. 3 3. Our Relationship .......................................... 4 4. Status Change ............................................. 5 5. Confidential Information .................................. 5 6. Marketing Funds and Promotional Offerings ................. 6 7. Production Status ......................................... 6 8. Patents and Copyrights .................................... 6 9. Liability ................................................. 7 10. Trademarks ................................................ 7 11. Changes to the Agreement Terms ............................ 8 12. Internal Use Products ..................................... 8 13. Demonstration, Development and Evaluation Products ....................................... 8 14. Electronic Communications ................................. 9 15. Geographic Scope .......................................... 9 16. Governing Law. ............................................ 9 Page 1 of 9 IBM BUSINESS PARTNER AGREEMENT GENERAL TERMS 1. DEFINITIONS BUSINESS PARTNER is a business entity which is approved by us to market Products and Services under this Agreement. CUSTOMER is either an End User or a Remarketer. We specify in your Profile if we approve you to market to End Users or Remarketers, or both. END USER is anyone, who is not part of the Enterprise of which you are a part, who uses Services or acquires Products for its own use and not for resale. ENTERPRISE is any legal entity (such as a corporation) and the subsidiaries it owns by more than 50 percent. An Enterprise also includes other entities as IBM and the Enterprise agree in writing. LICENSED INTERNAL CODE is called' Certain Machines we specify (called "Specific Machines") use Code. International Business Machines Corporation or one of its subsidiaries owns copyrights in Code or has the right to license Code. IBM or a third party owns all copies of Code, including all copies made from them. MACHINE is a machine, its features, conversions, upgrades, elements, accessories, or any combination of them. The term "Machine' includes an IBM Machine and any non-IBM Machine (including other equipment) that we approve you to market. PRODUCT is a Machine or Program, that we approve you to market, as we specify in your Profile. PROGRAM is an IBM Program or a non-IBM Program provided by us, under its applicable license terms, that we approve you to market. RELATED COMPANY is any corporation, company or other business entity: 1. more than 50 percent of whose voting shares are owned or controlled, directly or indirectly, by either of us, or 2. which owns or controls, directly or indirectly, more than 50 percent of the voting shares of either of us, or 3. more than 50 percent of whose voting shares are under common ownership or control, directly or indirectly, with the voting shares of either of us. However, any such corporation, company or other business entity is considered to be a Related Company only so long as such ownership or control exists. "Voting shares" are outstanding shares or securities representing the right to vote for the election of directors or other managing authority. REMARKETER is a business entity which acquires Products and Services, as applicable, for the purpose of marketing. SERVICE is performance of a task, provision of advice and counsel, assistance, or use of a resource (such as a network and associated enhanced communication and support) that we approve you to market. Page 2 of 9 2. AGREEMENT STRUCTURE AND CONTRACT DURATION PROFILES We specify the details of our relationship (for example, the type of Business Partner you are) in a document called a "Profile." Each of us agrees to the terms of the Profile, the General Terms, the applicable Attachments referred to in the Profile, and the Exhibit (collectively called the "Agreement") by signing the Profile. GENERAL TERMS The General Terms apply to all of our Business Partners. ATTACHMENTS We describe, in a document entitled an 'Attachment-, additional terms that apply. Attachments may include, for example, terms that apply to the method of Product distribution (Remarketer Terms Attachment or Complementary Marketing Terms Attachment) and terms that apply to the type of Business Partner you are, for example, the terms that apply to a Distributor relationship as described in the Distributor Attachment. We specify in your Profile the Attachments that apply, EXHIBITS We describe in an Exhibit, specific information about Products and Services, for example, the Products and Services you may market, and warranty information about the Products. TRANSACTION DOCUMENTS We will provide to you the appropriate "transaction documents." The following are examples of transaction documents, with examples of the information and responsibilities they may contain: 1. invoices (item, quantity, price, payment terms and amount due); and 2. order acknowledgements (confirmation of Products and quantities ordered). CONFLICTING TERMS If there is a conflict among the terms in the various documents, the terms of 1. a transaction document prevail over those of all the documents; 2. an Exhibit prevail over the terms of the Profile, Attachments and the General Terms; 3. a Profile prevail over the terms of an Attachment and the General Terms; and 4. an Attachment prevail over the terms of the General Terms. If there is an order of precedence within a type of document, such order will be stated in the document (for example, the terms of the Distributor Attachment prevail over the terms of the Remarketer Terms Attachment, and will be so stated in the Distributor Attachment). OUR ACCEPTANCE OF YOUR ORDER Products and Services become subject to this Agreement when we accept your order by: 1. sending you a transaction document; or 2. providing the Products or Services. Page 3 of 9 ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT You accept the terms in a transaction document by doing any of the following: 1. signing it (those requiring a signature must be signed); 2. accepting the Product or Services; 3. providing the Product or Services to your Customer or 4. making any payment for the Product or Services. CONTRACT DURATION We specify the contract start date and the duration in your Profile. Unless we specify otherwise in writing, the Agreement will be renewed automatically for subsequent two year periods. Each of us is responsible to provide the other with three months written notice if this Agreement will not be renewed. 3. OUR RELATIONSHIP RESPONSIBILITIES Each of us agrees that: 1. you are an independent contractor, and this Agreement is non-exclusive. Neither of us is a legal representative or legal agent of the other. Neither of us is legally a partner of the other (for example, neither of us is responsible for debts incurred by the other), and neither of us is an employee or franchise of the other, nor does this Agreement create a joint venture between us; 2. each of us is responsible for our own expenses regarding fulfillment of our responsibilities and obligations under the terms of this Agreement; 3. neither of us will disclose the terms of this Agreement, unless both of us agree in writing to do so, or unless required by law; 4. neither of us will assume or create any obligations on behalf of the other or make any representations or warranties about the other, other than those authorized; 5. any terms of this Agreement, which by their nature extend beyond the date this Agreement ends, remain in effect until fulfilled and apply to respective successors and assignees; 6. we may withdraw a Product or Service from marketing at any time; 7. we will allow the other a reasonable opportunity to comply before it claims the other has not met its obligations, unless we specify otherwise in the Agreement; 8. neither of us will bring a legal action against the other more than two years after the cause of action arose, unless otherwise provided by local law without the possibility of contractual waiver; 9. failure by either of us to insist on strict performance or to exercise a right when entitled does not prevent either of us from doing so at a later time, either in relation to that default or any subsequent one; 10. neither of us is responsible for failure to fulfill obligations due to causes beyond the reasonable control of either of us; 11. IBM reserves the right to assign, in whole or in part, this Agreement, to a Related Company, but may assign its rights to payment or orders to any third party; 12. IBM does not guarantee the results of any of its marketing plans; and 13. each of us will comply with all applicable laws and regulations (such as those governing consumer transactions). Page 4 of 9 OTHER RESPONSIBILITIES You agree: 1. to be responsible for customer satisfaction for all your activities, and to participate in customer satisfaction programs as we determine; 2. that your rights under this Agreement are not property rights and, therefore, you can not transfer them to anyone else or encumber them in any way. For example, you can not sell your approval to market our Products or Services or your rights to use our Trademarks; 3. to maintain the criteria we specified when we approved you; 4. to achieve and maintain the certification requirements for the Products and Services you are approved to market, as we specify in your Profile; 5. not to assign or otherwise transfer this Agreement, your rights under it, or any of its approvals, or delegate any duties, unless expressly permitted to do so under this Agreement. Otherwise, any attempt to do so is void; 6. to conduct business activities with us (including placing orders) which we specify in the operations guide, using our automated -electronic system if available. You agree to pay all your expenses associated with it such as your equipment and communication costs; 7. that when we provide you with access to our information systems, it is only in support of your marketing activities. Programs we provide to you for your use with our information systems, which are in support of your marketing activities, are subject to the terms of their applicable license agreements, except you may not transfer them; 8. to promptly provide us with documents we may require from you or the End User (for example, our license agreement signed by the End User) when applicable; and 9. to comply with the highest ethical principles in performing under the Agreement. You will not offer or make payments or gifts (monetary or otherwise) to anyone for the purpose of wrongfully influencing decisions in favor of IBM, directly or indirectly. IBM may terminate this Agreement immediately in case of 1) a breach of this clause or 2) when IBM reasonably believes such a breach has occurred. OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT We may periodically review your compliance with this Agreement. You agree to provide us with relevant records on request. We may reproduce and retain copies of these records. We, or an independent auditor, may conduct a review of your compliance with this Agreement on your premises during your normal business hours. If, during our review of your compliance with this Agreement, we find you have materially breached the terms of this relationship, in addition to our rights under law and the terms of this Agreement, for transactions that are the subject of the breach, you agree to refund the amount equal to the discount (or fee, if applicable) we gave you for the Products or Services or we may offset any amounts due to you from us. 4. STATUS CHANGE You agree to give us prompt written notice (unless precluded by law or regulation) of any change or anticipated change in your financial condition, business structure, or operating environment (for example, a material change in equity ownership or management or any substantive change to information supplied in your application). Upon notification of such change, (or in the event of failure to give notice of such change) IBM may, at its sole discretion, immediately terminate this Agreement. 5. CONFIDENTIAL INFORMATION This section comprises a Supplement to the IBM Agreement for Exchange of Confidential Information. "Confidential Information" means: 1. all information IBM marks or otherwise states to be confidential; 2. any of the following prepared or provided by IBM: Page 5 of 9 a. sales leads, b. information regarding prospects or Customers c. unannounced information about Products and Services, . d. business plans, or e. market intelligence; 3. any of the following written information you provide to us on our request and which you mark as confidential: a. reporting data, b. financial data, or c. the business plan. All other information exchanged between us is nonconfidential, unless disclosed under a separate Supplement to the IBM Agreement for Exchange of Confidential Information. 6. MARKETING FUND AND PROMOTIONAL OFFERINGS We may provide marketing funds and promotional offerings to you. If we do, you agree to use them according to our guidelines and to maintain records of your activities regarding the use of such funds and offerings for three years. We may withdraw or recover marketing funds and promotional offerings from you if you breach any terms of the Agreement. Upon notification of termination of the Agreement, marketing funds and promotional offerings will no longer be available for use by you, unless we specify otherwise in writing. 7. PRODUCTION STATUS Each IBM Machine is manufactured from new parts, or new and used parts. In some cases, the IBM Machine may not be new and may have been previously installed. Regardless of the IBM Machine's production status, our appropriate warranty terms apply. You agree to inform your Customer of these terms in writing (for example, in your proposal or brochure). 8. PATENTS AND COPYRIGHTS For the purpose of this section only, the term Product includes Licensed Internal Code (if applicable). If a third party claims that a Product we provide under this Agreement infringes that party's patents or copyrights, we will defend you against that claim at our expense and pay all costs, damages, and attorneys' fees that a court finally awards, provided that you: 1. promptly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in, the defense and any related settlement negotiations. If you maintain an inventory, and such a claim is made or appears likely to be made about a Product in your inventory, you agree to permit us either to enable you to continue to market and use the Product, or to modify or replace it. If we determine that none of these alternatives is reasonably available, you agree to return the Product to us on our written request. We will then give you a credit, as we determine, which will be either 1) the price you paid us for the Product (less any price-reduction credit), or 2) the depreciated price. This is our entire obligation to you regarding any claim of infringement. CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE We have no obligation regarding any claim based on any of the following: 1. anything you provide which is incorporated into a Product; Page 6 of 9 2. your modification of a Product, or a Program's use in other than its specified operating environment; 3. the combination, operation, or use of a Product with any Products not provided by us as a system, or the combination, operation, or use of a Product with any product, data, or apparatus that we did not provide; or 4. infringement by a non-IBM Product alone, as opposed to its combination with Products we provide to you as a system. 9. LIABILITY Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as your exclusive remedy and our exclusive liability. OUR LIABILITY We are responsible only for: 1. payments referred to in the 'Patents and Copyrights* section above; 2. bodily injury (including death), and damage to real property and tangible personal property caused by our Products; and 3. the amount of any other actual loss or damage, up to the greater of $100,000 or the charges (if recurring, 12 months' charges apply) for the Product or Service that is the subject of the claim. ITEMS FOR WHICH WE ARE NOT LIABLE Under no circumstances (except as required by law) are we liable for any of the following: 1. third-party claims against you for losses or damages (other than those under the first two items above in the subsection entitled 'Our Liability');' 2. loss of, or damage to, your records or data; or 3. special, incidental, or indirect damages, or for any economic consequential damages (including lost profits or savings) even if we are informed of their possibility. YOUR LIABILITY In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims made against us by others (particularly regarding statements, representations, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 10. TRADEMARKS We will notify you in written guidelines of the IBM Business Partner title and emblem which you are authorized to use. You may not modify the emblem in any way. You may use our Trademarks (which include the title, emblem, IBM trade marks and service marks) only: 1. within the geographic scope of this Agreement; 2. in association with Products and Services we approve you to market; and 3. as described in the written guidelines provided to you. The royalty normally associated with non-exclusive use of the Trademarks will be waived, since the use of this asset is in conjunction with marketing activities for Products and Services. You agree to promptly modify any advertising or promotional materials that do not comply with our guidelines. If you receive any complaints about your use of a Trademark, you agree to promptly notify us. When this Agreement ends, you agree to promptly stop using our Page 7 of 9 Trademarks. If you do not, you agree to pay any expenses and fees we incur in getting you to stop. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. Our Trademarks, and any goodwill resulting from your use of them, belong to us. 11. CHANGES TO THE AGREEMENT TERMS We may change the terms of this Agreement by giving you one month's written notice. We may, however, change the following terms without advance notice: 1. those we specify in this Agreement as not requiring advance notice; 2. those of the Exhibit unless otherwise limited by this Agreement; and 3. those relating to safety and security. Otherwise, for any other change to be valid, both of us must agree in writing. Changes are not retroactive. Additional or different terms in an order or other communication from you are void. 12. INTERNAL USE PRODUCTS You may acquire Products you are approved to market for your internal use within your Business Partner operations. Except for personal computer Products, you are required to advise us when you order Products for your internal use. We will specify in your Exhibit the discount or price, as applicable, at which you may acquire the Products for internal use. Such Products do not count (except for personal computer and Printing System Products which do count) toward 1) your minimum annual attainment, 2) determination of your discount or price, as applicable, or 3) determining your marketing or promotional funds. Any value added enhancement or systems integration services otherwise required by your relationship is not applicable when you acquire Products for internal use. You must retain such Products for a minimum of 12 months, unless we specify otherwise in the Exhibit. 13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS You may acquire Products you are approved to market for demonstration, development and evaluation purposes, unless we specify otherwise in the Exhibit. Such Products must be used primarily in support of your Product marketing activities. Additionally, such Products do not count (except for personal computer and Printing System Products which do count) toward 1) your minimum annual attainment, 2) determination of your discount or price, as applicable, or 3) determining your marketing or promotional funds. We will specify in your Exhibit the Products we make available to you for such purposes, the applicable discount or price, and the maximum quantity of such Products you may acquire and the period they are to be retained. The maximum number of input/output devices you may acquire is the number supported by the system to which they attach. If you acquired the maximum quantity of Machines, you may still acquire a field upgrade, if available. We may decrease the discount we provide for such Products on one month's written notice. You may make these Products available to a Customer for the purpose of demonstration and evaluation. Such Products may be provided to an End User for no more than three months. For a Program, you agree to ensure the Customer has been advised of the requirement to accept the terms of a license agreement before using the Program. Page 8 of 9 14. ELECTRONIC COMMUNICATIONS Each of us may communicate with the other by electronic means, and such communication is acceptable as a signed writing to the extent permissible under applicable law. Both of us agree that for all electronic communications, an identification code (called a "user ID") contained in an electronic document is sufficient to verify the sender's identity and the document's authenticity. 15. GEOGRAPHIC SCOPE All the rights and obligations of both of us are valid only in the United States and Puerto Rico. 16. GOVERNING LAW The laws of the State of New York govern this Agreement. The 'United Nations Convention on Contracts for the International Sale of Goods' does not apply. Page 9 of 9 IBM BUSINESS PARTNER AGREEMENT DISTRIBUTOR ATTACHMENT These terms prevail over and are in addition to or modify the Remarketer Terms Attachment, and the Complementary Marketing Terms Attachment for Distributors. 1. MARKETING APPROVAL You may be approved as a Distributor under a remarketer relationship or under a complementary marketing relationship, or both. If we approve you to market the Products and Services under both remarketer and complementary marketing term transactions will be under remarketer terms. You may unilaterally elect not to participate under remarketer terms for a specific transaction or business segment by providing signed IBM Business Partner Statement of Election. If you meet the requirements o Marketing Approval section of the Complementary Marketing Terms Attachment for Distributors, you may participate under those terms. You are approved to market Products and Services to Business Partners (but not to IBM approved Distributors unless we specify otherwise in your Profile) and to End Users. Your Profile will specify to whom you may market Products and Services. 2. YOUR RESPONSIBILITIES TO IBM You agree: 1. to develop a mutually acceptable business plan with us, if we require one. Such plan will document each of our marketing plans as they apply to our relationship. We will review the plan, at a minimum, once a year; 2. that, unless precluded by applicable law, one of the requirements for you to retain this relationship is that you achieve the minimum annual attainment we specify in your Profile; 3. for marketing to Remarketers, to order Products and Services as we specify in the operations guide; 4. to maintain trained personnel, as we specify in your Profile or Exhibit, as applicable; 5. to provide us, on our request, relevant financial information about your business so we may, for example, use this information in our consideration to extend credit terms to you. We may require an annual audited financial report; 6. unless we specify otherwise in the Exhibit, to maintain the capability to demonstrate the Products we approve you to market; 7. to maintain sufficient inventory of Products to meet Remarketer demands. We may specify in your Exhibit certain Products we require you to have regularly available; 8. to secure from your Business Partners a signed Program license agreement for Programs requiring signature; and 9. to ensure that the terms in any agreement you may have with your Business Partners are not in conflict with this Agreement. If, during our review of your Remarketer's compliance with its Business Partner agree with us, we find the Business Partner has materially breached the terms of such agree you agree to refund the amount equal to the discount or fee, as applicable we gave you the Products that are the subject of the breach, if we require you to do so. 3. YOUR RESPONSIBILITIES TO YOUR BUSINESS PARTNERS THE FOLLOWING TERMS APPLY ONLY WHEN YOU ARE MARKETING UNDER REMARKETING TERMS. You agree to: 1. provide Products and Services to them on an equitable basis; and 2. fulfill all their valid orders for eligible Products and Services; and 3. give written notification to the Remarketer of any modification you make to a Product and the name of the warranty service provider and advise that such modification may void the warranty for the Product. THE FOLLOWING TERMS APPLY WHEN YOU ARE MARKETING UNDER EITHER REMARKETING OR COMPLEMENTARY TERMS: Page 1 of 3 You agree to: 1. provide development, demonstration, evaluation and internal use Products (we specify eligible Products in the Exhibit) to those Business Partners who are eligible to acquire such Products. You must make such Products available to each of them on the same terms, regarding the maximum quantity of Products that may be acquired and the minimum retention period, as we make available to you; 2. provide the Program license agreement to them, if applicable, and require them to provide the agreement to the End User; 3. provide a copy of the Licensed Internal Code agreement to Business Partners and inform them of those Machines containing such Code; and 4. provide the following items to Business Partners when we have given such items to you for distribution to them: a. promotional offerings and material; b. incentives; c. marketing funds; d. support documentation; and e. advertising material. You agree to distribute them proportionally and according to the procedures we specify, and to require the Business Partner to properly implement or distribute them, as applicable. Except for personal computer Products, you also agree to: 1. inform them that you are available to provide Product and Services support to them; 2. provide pre- and post-installation sales support to them. You agree you are responsible for their satisfaction with such support; 3. provide configuration support to them, for Products we specify; 4. assist them in Product problem determination and resolution; and 5. advise them of the terms regarding the date of installation for Products IBM installs. 4. YOUR REMARKETERS' RESPONSIBILITIES When you market Products and Services to Remarketers who do not have a contractual relationship with IBM for such Products and Services, you agree to inform them of their responsibility to: 1. provide the support necessary to maintain customer satisfaction; 2. provide Program Services to their End Users; 3. provide Product configuration support to their End Users, 4. assist their End Users to achieve productive use of the Products and Services they marketed; 5. inform their End Users of Product installation requirements; 6. comply with all terms regarding Program upgrades; 7. refund the amount paid for a Product returned if such return is provided for in its warranty or license or a money-back guarantee we offer End Users. The Remarketer may return the Product to you for credit, as we specify in the operations guide 8. for a Program requiring the End User's signature on the Program license agreement, obtain the signature before providing the Program to the End User and return the agreement as we specify; 9. provide warranty information to their End Users, when applicable; 10. comply with all export laws and regulations including those of the United States, the Governing Law section of this Agreement and any laws and regulations of the country in which the Product is imported or exported, and advise their End User that IBM's warranty responsibilities do not apply (unless the warranty terms state otherwise); 11. provide a dated sales receipt or its equivalent (such as an invoice) to their End User; Page 2 of 3 12. give written notice to their End Users of any modification you or the Remarketer made to a Product and the name of the warranty service provider and advise that such modification may void the warranty for the Product; 13. if applicable, provide the Licensed Internal Code license agreement to their End Users before the sale is finalized; 14. inform their End Users that the sales receipt (or other documentation, such as Proof of Entitlement if it is required) will be necessary for proof of warranty entitlement or for Program upgrades; 15. inform their End Users of educational offerings, as applicable; 16. advise their End Users of the terms regarding a Machine's production status; 17. assist you in locating Products if we require such assistance from you; and 18. retain records of each sales transaction for three years. Page 3 of 3 IBM BUSINESS PARTNER AGREEMENT REMARKETER TERMS ATTACHMENT TABLE OF CONTENTS SECTION TITLE PAGE 1. Our Relationship ................................................2 2. Ordering and Delivery ...........................................2 3. Inventory Adjustments ...........................................3 4. Price, Invoicing, Payment and Taxes .............................3 5. Licensed Internal Code ..........................................5 6. Machine Code ....................................................5 7. Programs ........................................................5 8. Export ..........................................................6 9. Title ...........................................................6 10. Risk of Loss ....................................................6 11. Installation and Warranty .......................................6 12. Warranty Service ................................................7 13. Marketing of Services ...........................................7 14. Marketing of Financing ..........................................9 15. Engineering Changes .............................................9 16. Ending the Agreement ............................................9 Page 1 of 10 IBM BUSINESS PARTNER AGREEMENT REMARKETER TERMS ATTACHMENT 1. OUR RELATIONSHIP As our IBM Business Partner, you market to your Customers the Products and Services (including 'shrink-wrap" Services) we provide to you. These terms apply to a Business Partner whose method of distribution is under our remarketer terms, and includes Distributors, Resellers, Solution Providers, and Systems Integrators. RESPONSIBILITIES Each of us agrees: 1. we offer a money-back guarantee to End Users for certain Products. You agree to inform the End User of the terms of this guarantee before the applicable sale. For any such Product, you agree to 1) accept its return in the time frame we specify, 2) refund the full amount paid to you for it, and 3) dispose of it (including all its components) as we specify. We will pay a transportation charge for return of the Product to us and will give you an appropriate credit. 2. each of us is free to set its own prices and terms; and 3. neither of us will discuss its Customer prices and terms in the presence of the other. OTHER RESPONSIBILITIES You agree to: 1. refund the amount paid for a Product or Service returned to you if such return is provided for in its warranty or license. You may return the Product to us for credit at our expense, as we specify in the operations guide; 2. provide us with sufficient, free and safe access to your facilities, at a mutually convenient time, for us to fulfill our obligations; 3. retain records, as we specify in the operations guide, of each Product and Service transaction (for example, a sale or credit) for three years; 4. provide us with marketing, sales, installation reporting and inventory information for our Products and Services, as we specify in the operations guide; 5. when you are approved to market to Remarketers, market Products and Services which require certification, only to Remarketers who are certified to market them; 6. comply with all terms regarding Program upgrades; 7. provide a dated sales receipt (or its equivalent, such as an invoice) as we specify in the operations guide, to your Customers, before or upon delivery of Products and Services; and 8. report to us any suspected Product defects or safety problems, and to assist us in tracing and locating Products. 2. ORDERING AND DELIVERY You may order Products and Services from us as we specify in the operations guide. You agree to order them in sufficient time to count toward your minimum annual attainment, if applicable. We will agree to a location to which we will ship. We may establish criteria for you to maintain at such location (for example, certain physical characteristics, such as a loading dock), as we specify in the operations guide. Page 2 of 10 Upon becoming aware of any discrepancy between our shipping manifest and the Products and Services received from us, you agree to notify us immediately. We will work with you to reconcile any differences. Although we do not warrant delivery dates, we will use reasonable efforts to meet your requested delivery dates. We select the method of transportation and pay associated charges for Products and Services we ship. We may not be able to honor your request for modification or cancellation of an order. We may apply a cancellation charge for orders you cancel within 10 business days before the order is scheduled to be shipped. The Exhibit will specify if a cancellation charge applies and where we will specify the charge. If we are unable to stop shipment of an order you cancel, and you return such Product to us after shipment, our inventory adjustment terms apply. 3. INVENTORY ADJUSTMENTS We will specify in your Exhibit the Products and Services to which this section applies. Products and Services you return to us for credit must have been acquired directly from us. You must request and receive approval from us to return the Products and Services. Products and Services must be received by us within one month of our approving their return, unless we specify otherwise to you in writing. We will issue a credit to you when we accept the returned Products and Services. Certain Products may be acquired only as Machines and Programs packaged together as a solution. These Products must be returned with all their components intact. For certain Products and Services you return, a handling charge applies. We will specify the handling charge percentage in the Exhibit. We determine your total handling charge by multiplying the inventory adjustment credit amount for the Products and Services by the handling charge percent. You agree to pay transportation and associated charges for Products and Services you return. Unless we specify otherwise, returned Products and Services must be in their unopened and undamaged packages. You agree to ensure the returned Products and Services are free of any legal obligations or restrictions that prevent their return. We accept them only from locations within the country to which we ship Products and Services. We will reject any returned Products and Services that do not comply with these terms. 4. PRICE, INVOICING, PAYMENT AND TAXES PRICE AND DISCOUNT The price, and discount if we specify one, for each Product and Service will be made available to you in a communication which we provide to you in published form or through our electronic information systems or a combination of both. Unless we specify otherwise, discounts do not apply to Program upgrades, accessories, or field-installed Machine features, conversions, or upgrades. The price for each Product and Service is the lower of the price in effect on the date we receive your order, or the date we ship a product or "shrink-wrap" Service, or the start date of a Service, if it is within six months of the date we receive your order. Page 3 of 10 PRICE AND DISCOUNT CHANGES We may change prices and increase discounts at any time. We may decrease discounts on one month's written notice. Price increases for Products and Services included in a project do not apply to you for up to two years from the start date of a project (we will protect the price that was in effect at the time we received the first order for the project) if you documented the project to us and we approved and accepted such documentation. We will specify additional details, if any, to you in writing. We will specify in your Exhibit if the following credit terms do not apply to Products and Services we approve you to market. If we decrease the price or increase the discount for a Product or Service, you will be eligible to receive a price decrease credit or a discount increase credit for those you acquired directly from us that are in your inventory, or in transit, or if the Product's date of installation or Service start date has not occurred. However, Products acquired -from. us under a special offering (for example, a promotional price or a special incentive) may not be eligible for a full credit. You must certify your inventory to us in writing within one month of the effective date of the change. The credit is the difference between the price you paid, after any adjustments, and the new price. THE FOLLOWING TERMS APPLY TO PROGRAMS LICENSED ON A RECURRING-CHARGE BASIS: We may increase a recurring charge for a Program by giving you three months' written notice. An increase applies on the first day of the invoice or charging period on or after the effective date we specify in the notice. INVOICING, PAYMENT AND TAXES Amounts are due upon receipt of invoice and payable as specified in a transaction document. You agree to pay accordingly, including any late payment fee. Details of any late payment fee will be provided upon request at the time of order and will be included in the notice. You may use a credit only after we issue it. If any authority requires us to include in our invoice to you a duty, tax, levy, or fee which they impose, excluding those based on our net income, upon any transaction under this Agreement, then you agree to pay that amount. RESELLER TAX EXEMPTION You agree to provide us with your valid reseller exemption documentation for each applicable taxing jurisdiction to which we ship Products and Services. If we do not receive such documentation, we will charge you applicable taxes and duties. You agree to notify us promptly if this documentation is rescinded or modified. You are liable for any claims or assessments that result from any taxing jurisdiction refusing to recognize your exemption. PURCHASE MONEY SECURITY INTEREST You grant us a purchase money security interest in your proceeds from the sale of, and your accounts receivable for, Products and Services, until we receive the amounts due. You agree to sign an appropriate document (for example, a "UCC-1") to permit us to perfect our purchase money security interest. FAILURE TO PAY ANY AMOUNTS DUE If you fail to pay any amounts due in the required period of time, you agree that we may do one or more of the following, unless precluded by law: 1. impose a finance charge, as we specify to you in writing, up to the maximum permitted by law, on the portion which was not paid during the required period; 2. require payment on or before delivery of Products and Services; Page 4 of 10 3. repossess any Products and Services for which you have not paid. If we do so, you agree to pay all expenses associated with repossession and collection, including reasonable attorneys' fees. You. agree to make the Products and Services available to us at a site that is mutually convenient; 4. not accept your order until any amounts due are paid; 5. terminate this Agreement; or 6. pursue any other remedy available at law. We may offset any amounts due you, or designated for your use (for example, marketing funds or promotional offerings), against amounts due us or any of our Related Companies. In addition, if your account with any of our Related Companies becomes delinquent, we may invoke any of these options when allowable by applicable law. 5. LICENSED INTERNAL CODE Machines (Specific Machines) containing Licensed Internal Code (Code) will be identified in the Exhibit. We grant the rightful possessor of a Specific Machine a license to use the Code (or any replacement we provide) on, or in conjunction with, only the Specific Machine, designated by serial number, for which the Code is provided. We license the Code to only one rightful possessor at a time. You agree that you are bound by the terms of the separate license agreement that we will provide to you. YOUR RESPONSIBILITIES You agree to inform your Customer, and record on the sales receipt, that the Machine you provide is a Specific Machine using Licensed Internal Code. The license agreement must be provided to the Customer before the sale is finalized. 6. MACHINE CODE For certain Machines we may provide basic input/output system code, utilities, diagnostics, device drivers, or microcode (collectively called "Machine Code'). This Machine Code is licensed to the End User under the terms of the agreement provided with it. You agree to ensure the End User is provided such agreement. 7. PROGRAMS You agree to ensure the End User has signed the license agreement for a Program requiring a signature, as we specify in the Exhibit, before such Program is provided to the End User, and to provide any required documentation to us. All other Programs are licensed under the terms of the agreement provided with them. You agree, where applicable, to provide the Program license to the End User before such Program is provided to the End User. We will designate in the Exhibit if 1) we will ship the media and documentation to you or, if you request and we agree, to the End User, 2) you may copy and redistribute the media and documentation to the End User, or 3) you must copy and redistribute the media and documentation to the End User. If we ship the media and documentation, we may charge you. We will specify such charge to you in writing. If you copy and redistribute, you must be licensed to use the Program from which you make the copies. A Program license you acquired for use under the Demonstration, Development and Evaluation Products terms fulfill this requirement. Programs licensed to you on a recurring-charge basis are licensed for the period indicated in our invoice. You may market such Programs only on the same basis as licensed to you. You may not charge an End User a one-time charge for a Program you license from us on a recurring-charge basis. However, you may charge the End User whatever amount you wish for the recurring-charge. Page 5 of 10 PROGRAM SERVICES Program Services are described in the Program's license agreement. You are responsible to provide your Customers, who are licensed for a Program, the Program Services we make available to you. If the End User agrees in writing, you may: 1. delegate this responsibility to another IBM Business Partner who is approved to market the Program, or 2. provide an enhanced version of this support through the applicable IBM Service you market to the End User. If you delegate your support responsibilities to another IBM Business Partner, you retain customer satisfaction responsibility. However, if you market our applicable Services to the End User, we assume customer satisfaction responsibility for such support. 8. EXPORT You may actively market Products and Services only within the geographic scope specified in this Agreement. You may not market outside this scope, and you agree not to use anyone else to do so. If a Customer acquires a Product for export, our responsibilities, if any, under this Agreement no longer apply to that Product unless the Product's warranty or license terms state otherwise. You agree to use your best efforts to ensure that your Customer complies with all export laws and regulations, including those of the United States and the country specified in the Governing Law Section of this Agreement, and any laws and regulations of the country in which the Product is imported or exported. Before your sale of such Product, you agree to prepare a support plan for it and obtain your Customers agreement to that plan. Within one month of sale, you agree to provide us with the Customer's name and address, Machine type/model and serial number, date of sale, and destination country. We exclude these Products from: 1. any of your attainment toward your objectives; and 2. qualification for applicable promotional offerings and marketing funds. We may also reduce future supply allocations to you by the number of exported Products. 9. TITLE When you order a Machine, we transfer title to you when we ship the Machine. Any prior transfer to you of title to a Machine reverts back to IBM when it is accepted by us as a returned Machine. We do not transfer a Program's title. 10. RISK OF LOSS We bear the risk of loss of, or damage to, a Product or Service until its initial delivery from us to you or, if you request and we agree, delivery from us to your Customer. Thereafter, you assume the risk. 11. INSTALLATION AND WARRANTY We will ensure that Machines we install are in good working order and conform to their specifications. We provide instructions to enable the set-up of Customer-Set-Up Machines. We are not responsible for the installation of Programs or non-IBM Machines. We do, however, preload Programs onto certain Machines. We provide a copy of our applicable Page 6 of 10 warranty statement to you. You agree to provide it to the End User for review before the sale is finalized, unless we specify otherwise. We calculate the expiration date of an IBM Machine's warranty period from the Machine's Date of Installation. Warranty terms for Programs are described in the Programs' license terms. We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless we. specify otherwise. However, non-IBM manufacturers, suppliers, or publishers may provide their own warranties to you. For non-IBM Products we approve you to market, you agree to inform your Customer in writing 1) that the Products are non-IBM, 2) the manufacturer or supplier who is responsible for warranty (if any), and 3) of the procedure to obtain any warranty service. DATE OF INSTALLATION FOR A MACHINE WE ARE RESPONSIBLE TO INSTALL The Date of Installation for a Machine we are responsible to install is the business day. after the day 1) we install it or, 2) it is made available for installation, if you (or the End User) defer" installation. Otherwise (for example, if others install or break its warranty seal), it is the day we deliver the Machine to you (or the End User). In such event, we reserve the right to inspect the Machine to ensure its qualification for warranty entitlement. THE DATE OF INSTALLATION FOR A CUSTOMER-SET-UP MACHINE The Date of Installation for a Customer-Set-Up Machine is the date the Machine is installed which you or your Remarketer, if applicable, record on the End User's sales receipt. You must also notify us of this date upon our request. INSTALLATION OF MACHINE FEATURES, CONVERSIONS, AND UPGRADES We sell features, conversions and upgrades for installation on Machines, and, in certain instances, only for installation on a designated, serial numbered Machine. Many of these transactions involve the removal of parts and their return to us. As applicable, you represent that you have the permission from the owner and any lien holders to 1) install features, conversions and upgrades and 2) transfer the ownership and possession of removed parts (which become our property) to us. You further represent that all removed parts are genuine, and unaltered, and in good working order. A part that replaces a removed part will assume the warranty and maintenance Service status of the replaced part. You agree to allow us to install the feature, conversion, or upgrade within 30 days of its delivery. Otherwise, we may terminate the transaction and you must return the feature, conversion, or upgrade to us at your expense. 12. WARRANTY SERVICE We will specify in the Exhibit whether you or we are responsible to provide Warranty Service for a Machine. When we are responsible for providing Warranty Service for Machines, you are not authorized to provide such Service, unless we specify otherwise in the Exhibit. When you are responsible for providing Warranty Service, you agree to do so according to the terms we specify in the Warranty Service Attachment. 13. MARKETING OF SERVICES The following are the conditions under which you may market Services; 1. if you marketed a Product to the End User, you may market the Services, specified in the Exhibit; or 2. regardless of whether you marketed a Product to the End User you may market the Services we specify in your Profile. Page 7 of 10 If you are an IBM Distributor the following paragraph applies: The following are the conditions under which you may market Services: 1. if your Remarketer marketed a Product to the End User, you may market the Services, specified in the Exhibit, to your Remarketer only for the Remarketer's marketing to such End User; and 2. regardless of whether your Remarketer marketed a Product to the End User you may market the Services we specify in your Profile to your Remarketer, who may market such Services. You may market Services on eligible non-IBM Products regardless of whether you marketed a Machine or Program to the End User. MARKETING OF SERVICES FOR A FEE The terms of this subsection apply when we perform the Services to the End User at prices we set and under the terms of our Service agreement, signed by the End User. We pay you a fee for marketing such Services. You will receive a fee for marketing eligible Services when 1) you identify the opportunity and perform the marketing activities, 2) you provide us with the order and any required documents signed by the End User, and 3) a standard Statement of Work is used and there are no changes, and no marketing assistance from us is required. Alternatively, you will receive a fee for a lead for eligible Services when it 1) is submitted on the form we provide to you, 2) is for an opportunity which is not known to us, and 3) results in the End User ordering the Service from us within six months from the date we receive the lead from you. We will not pay you the fee if 1) the machine or program is already under the applicable Service, 2) we have an agreement with the End User to place the machine or program under the applicable Service, or 3) the Service was terminated by the End User within the last six months. If the Service is terminated within three months of the date payment from the End User was due us, you agree to reimburse us for any associated payments we made to you. The reimbursement may be prorated if the Service is on a recurring charge basis. We periodically reconcile amounts we paid you to amounts you actually earned. We may deduct amounts due us from future payments we make to you, or ask you to pay amounts due us. Each of us agrees to promptly pay the other any amounts due. REMARKETING OF SERVICES We provide terms in an applicable Service Attachment governing your remarketing of eligible Services the End User purchases from you and which we perform under the terms of the IBM Service agreement with the End User. Shrink-wrap Services are performed under the terms of the agreement provided with them. If the terms of the agreement are not visible on the shrink-wrap package, you agree to provide (or, if applicable, request your Remarketer to provide) the Services terms to the End User before such Services are acquired by the End User. SERVICES WE PERFORM AS YOUR SUBCONTRACTOR If approved on your Profile, we will provide terms in an applicable Service Attachment governing our provision of the Services we perform as your subcontractor. Such Services are those an End User purchases from you under the terms of your service agreement. Page 8 of 10 14. MARKETING OF FINANCING If we approve you on your Profile, you may market our Financing Services for Products and Services and any associated products and services you market to the End User. If you market our Financing Services, we will pay you a fee as we specify to you in your Exhibit. We provide Financing Services to the End User under the terms of our applicable agreements signed by the End User. You agree, that for the items that will be financed, 1) you will promptly provide us any required documents including invoices, with serial numbers, if applicable, 2) the supplier will transfer clear title to us, and 3) you will not transfer to us any obligations under your agreements with the End User. We will make payment for the items to be financed when the End User has initiated financing and acknowledged acceptance of the items being financed. Payment will be made to you, or the supplier, as appropriate. 15. ENGINEERING CHANGES You agree to allow us to install mandatory engineering changes (such as those required for safety) on all Machines in your inventory, and to use your best efforts to enable us to install such engineering changes on your Customers' Machines. Mandatory engineering changes are installed at our expense and any removed parts become our property. During the warranty period, we manage and install engineering changes at: 1. your or your Customer's location for Machines for which we provide Warranty Service; and 2. your location for other Machines. Alternatively, we may provide you with the parts (at no charge) and instructions to do the installation yourself We will reimburse you for your labor as we specify. 16. ENDING THE AGREEMENT Regardless of the contract duration specified in the Profile, or any renewal period in effect, either of us may terminate this Agreement, with or without cause, on three months' written notice. If, under applicable law, a longer period is mandatory, then the notice period is the minimum notice period allowable. If we terminate for cause (such as you not meeting your minimum annual attainment), we may, at our discretion, allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. However, if either party breaches a material term of the Agreement, the other party may terminate the Agreement on written notice. Examples of such breach by you are: if you do not maintain customer satisfaction; if you do not comply with the terms of a transaction document; if you repudiate this Agreement; or if you make any material misrepresentations to us. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so. At the end of this Agreement, you agree to: 1. pay for or return to us, at our discretion, any Products or shrink-wrap Services for which you have not paid; and 2. allow us, at our discretion, to acquire any that are in your possession or control, at the price you paid us, less any credits issued to you. Products and shrink-wrap Services to be returned must be in their unopened and undamaged packages and in your inventory (or in transit from us) on the day this Agreement ends. We will inspect them, and reserve the right of rejection. You agree to pay all the shipping charges. Page 9 of 10 At the end of this Agreement, each of us agrees to immediately settle any accounts with the other. We may offset any amounts due you against amounts due us, or any of our Related Companies as allowable under applicable law. You agree that if we permit you to perform certain activities after this Agreement ends, you will do so under the terms of this Agreement. Page 10 of 10 IBM BUSINESS PARTNER AGREEMENT ATTACHMENT FOR SERVICES MARKETING FOR REMARKETERS THESE TERMS PREVAIL OVER AND ARE IN ADDITION TO OR MODIFY THE REMARKETER TERMS ATTACHMENT. THE FOLLOWING TERMS GOVERN YOUR MARKETING OF SERVICES THE END USER PURCHASES FROM YOU (OR IF YOU ARE OUR DISTRIBUTOR, FROM YOUR REMARKETER), AND WHICH WE PERFORM UNDER THE TERMS OF THE IBM AGREEMENT FOR SERVICES ACQUIRED FROM AN IBM BUSINESS PARTNER (IBM SERVICE AGREEMENT). WE PROVIDE ADDITIONAL TERMS TO YOU, IF ANY, IN SPECIFIC SERVICE ATTACHMENTS, OR TRANSACTION DOCUMENTS. 1. IBM SERVICES Services may be either standard offerings or customized to the End User's specific requirements. Each Service transaction MAY include one or more Services that: 1. expire at task completion or an agreed upon date; 2. automatically renew as another transaction with a specified contract period. Renewals will continue until the Service is terminated; or 3. do not expire and are available for use until either of us terminates the Service, or we withdraw the Service. If we make a change to the terms of a renewable Service that affects the End Users current Service Agreement contract period and the End User considers it unfavorable and you advise us in writing, we will defer the change until the end of that contract period. 2. PRICES AND PAYMENT The amount payable for a Service will be based on one or more of the following types of charges: 1. recurring (for example, a periodic charge for support Services). 2. time and materials (for example, charges for hourly Services); or 3. fixed price (for example, a specific amount agreed to between us for a custom Service). Services we make available to you on a recurring-charge basis are made available for the period indicated in our invoice, statement of work, or other transaction document, as applicable. You may market such Services only on a recurring charge basis. We may increase recurring charges for Services, as well as hourly or daily rates and minimums for Services we perform under the IBM Service Agreement, by giving you three month's written notice. An increase applies on the first day of the applicable invoice or charging period, on or after the effective date we specify in the notice; We may increase one time charges without notice. However, an increase to one time charges does not apply to you if 1) we receive your order before the announcement date of the increase, and 2) we make the Service available within three months of our receipt of your order. Charges for Services are billed as we specify, which may be 1) in advance, 2) periodically during the performance of the Service, or 3) after the Service is completed. Prepaid Services must be used within the applicable contract period. If we withdraw a Service for which you prepaid, and we have not fully provided such Service, we will give a prorated refund. Unless we specify otherwise, we do not give credits or refunds for unused prepaid Services. If an End User is eligible for a credit under the terms of the IBM Service Agreement (for example, a satisfaction guarantee credit, or a credit for withdrawn Services not fulfilled), you Page 1 of 3 agree to ensure the applicable prorated credit is issued to the End User. We will issue the appropriate credit to you. If you are our Distributor, you agree to issue the applicable credit to your Remarketer. ADDITIONAL CHARGES We specify in the IBM Service Agreement additional charges that apply under specific conditions. When applicable, such charges apply to you. Depending on the particular Service or circumstance, if other charges apply we will inform you in advance. 3. NOTICES Each of us agrees to give the other a copy of notices or requests received from or sent to an End User applicable to the IBM Service Agreement. You agree to ensure certain Services Attachments and transaction documents, if any, are made available to End Users for their signature, if required. Such documents may have terms in addition to those we specify in the IBM Service Agreement. 4. SERVICES REQUIREMENTS CHANGES During the Service period you may update the requirements, including adding Products to be covered by the Service, as well as increasing the Service requirements. We will adjust our invoicing to you accordingly. 5. TERMINATION OF SERVICES If either IBM or the End User does not meet its obligations concerning a Service, the other party may terminate the Service. We will inform you of any such termination. For a Service the End User terminates, you agree to ensure we are provided one month's written notice from the End User. For a Service you decide to terminate, you agree to provide one month's written notice to us and the End User. When an expiring or renewable Service transaction is terminated, such termination will result in an adjustment charge equal to the lesser of 1. the charges remaining to complete the contract period; or 2. one of the following if specified in the transaction document a. the charges remaining to complete the contract period multiplied by the adjustment factor specified; or b. the amount specified. You also agree to pay us for all Services we provide and any Material we deliver through Service termination and any charges we incur in terminating subcontracts. Adjustment charges do not apply if you terminate: 1. a non-expiring Service on one month's written notice provided the End User has met all minimum requirements specified in the applicable Attachments and transaction documents, if any, 2. a renewable Service or a non-expiring maintenance Service on written notice, provided the End User has met the minimum requirements specified in the applicable Attachments and transaction documents, if any, and any of the following circumstances occur: a. the eligible Product for which the Service is provided is permanently removed from productive use within the End User's enterprise; Page 2 of 3 b. an increase in the Service charges, either alone or in combination with prior increases over the previous twelve months, is more than the maximum specified in the applicable transaction document. If no maximum is specified, then the circumstance does not apply; c. the eligible location, for which the Service is provided, is no longer controlled by the End User (for example, because of sale or closing of the facility), or d. the machine has been under maintenance Services for at least six months and you ensure, for a Service the End User terminates, we have been provided one month's written notice by the End User prior to terminating the maintenance Service. For such Service which you decide to terminate, you agree to provide one month's written notice to us. Page 3 of 3 IBM BUSINESS PARTNER AGREEMENT IBM WARRANTY SERVICE ATTACHMENT IBM WARRANTY SERVICE RESPONSIBILITY You may provide IBM Warranty Service from locations we approve. You must apply for approval and meet the criteria we specify in the Service support guidelines we provide to you. If we do not approve you to provide IBM Warranty Service from a location, you agree to assign such Service to us or to any party approved by us to provide IBM Warranty Service (unless we specify otherwise to you in the Service support guidelines). WHEN YOU ARE APPROVED TO PROVIDE IBM WARRANTY SERVICE FROM A LOCATION When you are approved to provide IBM Warranty Service from a location, you agree to do the following, as we specify in the Service support guidelines we provide: 1. validate that the End User is entitled to IBM Warranty Service; 2. maintain IBM Warranty Service approval status and capability; 3. ensure the Service is performed only by personnel trained to our standards and consistent with our service terms; 4. provide the Service even for IBM Machines the End User did not acquire from you (unless you have assigned responsibility, as described below in the subsection entitled 'Assignment of IBM Warranty Service Responsibility', for all units of such Machine type/model); 5. not assign, delegate or subcontract the IBM Warranty Service responsibility unless approved by us in writing; 6. service Machines only at locations we approve or at your End Users' locations; 7. submit only valid warranty-reimbursement requests to us: and 8. retain records for three years, by location, of each warranty claim you submit to us. We will: 1. inform you of the IBM Warranty Service approval process; 2. train you to provide IBM Warranty Service. We provide training for the minimum number of your Service personnel that we require and additional training at your request. We may charge a fee for the training. We will specify if there is a fee. Additionally, for each location from which we approve you to provide IBM Warranty Service, we will specify if there is a one-time Warranty Service start up fee, and we will: 1. provide you with necessary technical information; and 2. pay you for IBM Warranty Service you provided and exchange (or reimburse you for) parts. Such parts must be received by us within the time period we specify. In the event you are no longer approved to provide IBM Warranty Service, you agree to inform your End Users and any IBM Business Partner for whom you were the assignee. Page 1 of 2 IF YOU ARE NOT APPROVED TO PROVIDE WARRANTY SERVICE FROM A LOCATION If you are not approved to provide IBM Warranty Service from a location, you agree to: 1. assign, without delay, the IBM Warranty Service to us or any party approved by us; and 2. notify your End User of the assignment. ASSIGNMENT OF IBM WARRANTY SERVICE RESPONSIBILITY YOUR IBM WARRANTY SERVICE RESPONSIBILITY AS AN ASSIGNOR. Unless we specify otherwise to you in writing, you may assign IBM Warranty Service responsibility to us or to any party approved by us to provide it for: 1) all IBM Machines, 2) all units of an IBM Machine type/model by specifying that choice in your Profile, or 3) for individual IBM Machines at the time of sale to the End User. For Machines for which you assign IBM Warranty Service responsibility, you agree to: 1. ensure the assignee accepts IBM Warranty Service responsibility for each Machine assigned; 2. provide a copy of the sales receipt to the assignee. Such sales receipt must specify the End User's name, Machine type/model, serial number, date of sale, date of delivery and installed-at location. If you do not indicate an assignee's name or location on the sales receipt, or if the assignee's name or location is not valid, you will be responsible for providing IBM Warranty Service for that Machine; 3. notify your End User of the assignment; and 4. remain responsible for your End User's satisfaction with such Service. If you assign IBM Warranty Service for all units of an IBM Machine type/model to us or to a party approved by us as you specify in your Profile, you are not required to maintain the capability to provide IBM Warranty Service for that IBM Machine type/model. The responsibility to provide IBM Warranty Service reverts to you if the End User is not satisfied with the IBM Warranty Service provided by your assignee or if the assignee loses its approval to provide IBM Warranty Service. You may subsequently assign such responsibility consistent with the provisions of this subsection. In such event, you are responsible to provide the End User and the new assignee with written notice of the assignment. YOUR IBM WARRANTY SERVICE RESPONSIBILITY AS AN ASSIGNEE. If you accept assignment of IBM Warranty Service responsibility from an IBM Business Partner, the applicable provisions of this Attachment apply to you. As an assignee, you accept such responsibility for each Machine for which you are named on the End User's sales receipt. You may not reassign such responsibility. If, at a later date, the assignor is no longer approved to market the Machine type/model, you will have the additional responsibility for the End User's IBM Warranty Service satisfaction. MAINTENANCE PARTS We provide maintenance parts for use in providing IBM Warranty Service on IBM Machines and for maintaining Machines. You agree to maintain an inventory of such parts to meet your Customers' service requirements. We provide maintenance parts for Warranty Service on an exchange basis. We will inform you of the price of such parts. These maintenance parts may not be new, but will be in good working order. Page 2 of 2 IBM BUSINESS PARTNER AGREEMENT FOR RESELLERS 1. MARKETING APPROVAL As our IBM Business Partner-Reseller, we approve you under the terms of this Agreement to market to End Users Products and Services specified on the signature page. You acquire such Products and Services from an IBM Distributor. 2. DEFINITIONS END USER is anyone, who is not part of the enterprise of which you are a part, who uses Services or acquires Products for its own use and not for resale. ENTERPRISE is any legal entity and the subsidiaries it owns by more than 50%. MACHINE is a machine, its features, conversions, upgrades, elements, accessories, or any combination of them. The term 'Machine' includes an IBM Machine and any non-IBM Machine (including other equipment) that we approve you to market. PRODUCT is a Machine or Program. PROGRAM is an IBM Program or a non-IBM Program provided under its applicable license terms, that we approve you to market. SERVICE is the performance of a task, provision of advice and counsel, assistance, or use of a resource that we approve you to market. 3. OUR RELATIONSHIP Each of us agrees that: 1. each of us is responsible for our own expenses regarding fulfillment of our responsibilities and obligations under the terms of this Agreement; 2. neither of us will assume or create any obligations on behalf of the other or make any representations or warranties about the other, other than those authorized; 3. neither of us will bring a legal action against the other more than two years after the cause of action arose, unless otherwise provided by local law without the possibility of contractual waiver; 4. failure by either of us to insist on strict performance or to exercise a right when entitled does not prevent either of us from doing so at a later time, either in relation to that default or any subsequent one; 5. all information exchanged between us is non-confidential, unless both of us agree otherwise in writing; 6. IBM may change the terms of this Agreement on one month's written notice. Otherwise, for any other change to be valid, both of us must agree in writing. Changes are not retroactive. Additional or different terms in a communication from you are void; and 7. IBM reserves the right to assign, in whole or in part, this Agreement to any other IBM related company. 4. YOUR RESPONSIBILITIES TO IBM You agree: 1. to provide us, or our representative, with access to your facilities in order for us to fulfill our obligations and to review your compliance with the Agreement; 2. your rights under this Agreement are not property rights and, therefore, you can not transfer them to anyone else or encumber them in any way; 3. to maintain the criteria we specified when we approved you; 4. to retain records of each Product and Service transaction (for example, a sale, a credit or a warranty claim) for three years and provide us relevant records on request. We may reproduce and retain copies of these records; 5. to report to us any suspected Product defects or safety problems, and to assist us in tracing and locating Products; and 6. to comply with the highest ethical principles in performing under the Agreement. You will not offer or make payments or gifts (monetary or otherwise) to anyone for the purpose of wrongfully influencing decisions in favor of IBM, directly or indirectly. IBM may terminate this Agreement immediately in case of a) a breach of this clause or b) when IBM reasonably believes such a breach has occurred. 5. YOUR RESPONSIBILITIES TO END USERS You agree to: 1. be responsible for customer satisfaction and to participate in customer satisfaction programs as we determine; Page 1 of 4 2. refund the amount paid for a Product returned to you because the End User returned it to you under the terms of its warranty or did not accept the terms of the license or a money back guarantee we offer End Users. You may return such Products to the IBM Distributor from whom you acquired them for credit; 3. Provide installation and post-installation support for the offering you marketed. For Products and Services, to be the primary contact for Product information, technical advice and operational advice associated with the offering. You may delegate these support responsibilities and those for any other associated products, to another IBM Business Partner who is approved to market such Products. If you do, you retain customer satisfaction responsibilities. Alternatively, such support responsibilities will be provided by IBM if you market the applicable IBM Services to the End User. If you do, we assume customer satisfaction responsibilities for such support; 4. provide a dated written record, such as a sales receipt or an invoice, which specifies the End User's name, the part number or the Machine type/model, and serial number, if applicable; 5. inform your End User, in writing, who the warranty provider is, if other than yourself, and of any other applicable Warranty information, as well as any modification you or the IBM Distributor make to a Product and advise that such modification may void the warranty; and 6. inform your End User that the sales receipt (or other documentation we may specify, such as Proof of Entitlement, if it is required) will be necessary for proof of warranty entitlement and for Program upgrades. 6. STATUS CHANGE You agree to give us prompt written notice (unless precluded by law or regulation) OF any substantive change or anticipated change to the information supplied in your application. Upon notification OF such change, (or in the event of failure to give notice of such change) IBM may, at its sole discretion, immediately terminate this Agreement. 7. MARKETING FUNDS AND PROMOTIONAL OFFERINGS We may provide marketing funds and promotional offerings. If we do, you agree to use them according to our guidelines and to maintain records of your activities regarding the use of such funds and offerings for three years. We may withdraw or recover marketing funds and promotional offerings from you if you breach any terms of the Agreement. Upon notification of termination of the Agreement, marketing funds and promotional offerings will no longer be available for use by you, unless we specify otherwise in writing. 8. PRODUCTION STATUS Each IBM Machine is manufactured from new parts, or new and used parts. In some cases, the IBM Machine may not be new and may have been previously installed. You agree to inform your End User of these terms in writing. Regardless of the IBM Machine's production status, IBM's warranty terms apply. Warranty information is available from your IBM Distributor. 9. WARRANTY SERVICE If we approve you to provide Warranty Service, you agree to do so under the guidelines we specify to you. 10. MARKETING OF SERVICES FOR A FEE You may market IBM Services which IBM or your IBM Distributor make available to you, to an End User if you 1) marketed a Product under this Agreement to that End User, or 2) are approved on the signature page of this Agreement to market such Services. If you market an IBM Service which is eligible for a fee and which your IBM Distributor makes available to you, we will pay the fee to your IBM Distributor. Alternatively, if such IBM Service is not available from your IBM Distributor, but is available to you, we will pay the fee to you. In either case we will pay the fee when 1) you identify the opportunity and perform the marketing activities, 2) you provide the order and any required documents, signed by the End User, where required, and 3) if a standard Statement of Work is used, there are no changes, and no marketing assistance from us is required. Additionally, for Services we specify, and which are not available from your IBM Distributor, we will pay you a fee when you provide us a lead and the following criteria are met: 1) it is submitted on a form we provide to you, 2) it is for an opportunity which is not known to us, and 3) it results in the End User ordering the Service from us within six months from the date we receive the lead from you. 11. EXPORT You may actively market Products and Services only within the geographic scope specified in this Agreement. You may not market outside this scope, and you agree not to use anyone else to do so. If a customer acquires a Product for export, our responsibilities, if any, under this Agreement no longer apply to that Product, unless the Product's warranty, or license terms state otherwise. You agree to use your best efforts to ensure that your customer complies-with all export laws and regulations including those of the United States and the country specified in the Governing Law Section of this Agreement, and any laws and regulations of, the country in which the Product is imported or exported. Before your sale of such Product, you agree to prepare a support plan for it and obtain your customer's agreement to that plan. Within one month of sale, you agree to provide us with the customer's name and address, Machine type/model and serial number, date of sale, and destination country. We exclude these Products from any of your attainment objectives and qualification for applicable promotional offerings and marketing funds. Page 2 of 4 12. TRADEMARKS We will notify you in written guidelines of the IBM Business Partner title and emblem which you are authorized to use. You may not modify the emblem in any way. You may use our Trademarks (which include the title, emblem, IBM Trademarks and service marks) only: 1. within the geographic scope of this Agreement; 2. in association with Products and Services we approve you to market; and 3. as described in the written guidelines provided to you, The royalty normally associated with non-exclusive use of the Trademarks will be waived, since the use of this asset is in conjunction with marketing activities supporting sales of Products and Services. You agree to promptly modify any advertising or promotional materials that do not comply with our guidelines. If you receive any complaints about your use of a Trademark, you agree to promptly notify us. When this Agreement ends, you agree to promptly stop using our Trademarks. If you do not, you agree to pay any expenses and fees we incur in getting you to stop. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. Our Trademarks, and any goodwill resulting from your use of them, belong to us. 13. LIABILITY Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as your exclusive remedy and our exclusive liability. We are responsible for the amount of any actual loss or damage, up to the greater of $100,000 or the charges (if recurring, 12 months' charges apply) for the Product that is the subject of the claim. Under no circumstances (except as required by law) are we liable for third-party claims against you for losses or damages, or for special, incidental, or indirect charges, or for any economic consequential damages (including lost profits or savings) even if we are informed of their possibility. In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims by others made against us by others (particularly regarding statements, representations, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 14. ELECTRONIC COMMUNICATIONS Each of us may communicate with the other by electronic means, and such communication is acceptable as a signed writing to the extent permissible under applicable law. Both of us agree that for all electronic communications, an identification code (called a 'user ID') contained in an electronic document is legally sufficient to verify the sender's identity and the document's authenticity. 15. ENDING THE AGREEMENT Either of us may terminate this Agreement, with or without cause, on three months' written notice. If, under applicable law, a longer period is mandatory, then the notice period is the minimum notice period allowable. If we terminate for cause we may, at our discretion, allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. However, if either party breaches a material term of the Agreement, the other party may terminate the Agreement on written notice. Examples of such breach by you are if you do not maintain customer satisfaction; if you repudiate this Agreement; or if you make any material misrepresentations to us. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so, You agree that if we permit you to perform certain activities after this Agreement ends, you will do so under the terms of this Agreement. 16. GEOGRAPHIC SCOPE All the rights and obligations of both of us are valid only in the United States and Puerto Rico. 17. GOVERNING LAW The laws of the State of New York govern this Agreement. The 'United Nations Convention on the International Sale of Goods' does not apply. Page 3 of 4 Contract Start Date Duration 24 months. Location ID 57198 -------------- ------------- Unless we specify otherwise in writing, the Agreement will be renewed automatically for subsequent two year periods. Each of us is responsible to provide the other three months' written notice if the Agreement will not be renewed. PRODUCTS AND SERVICES YOU ARE APPROVED TO MARKET: Personal computer Products and associated Services. MINIMUM ANNUAL ATTAINMENT: NOT APPLICABLE. This Agreement is the complete agreement regarding this relationship, and replaces any prior oral or written communications between us. Once this Agreement is signed 1) any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original, to the extent permissible under applicable law, and 2) all Products and Services you market and Services you perform under this Agreement are subject to it. Agreed to: MicroAge Integration Company Agreed to: (IBM Business Partner name) International Business Machines Corporation By:_____________________________________ By:____________________________________ (Authorized Signature) (Authorized Signature) Name (type or print): Name (type or print): James K. Rooney Date: Date: IBM Business Partner Address: IBM Address: IBM Corporation 3039 Cornwallis Rd. 2400 S. MicroAge Way Building 201 Tempe, AZ 85282 Research Triangle Park, NC 27709
EX-10.44 7 AGREEMENT WITH APPLE COMPUTER, INC. AUTHORIZED APPLE WHOLESALER U.S. SALES AGREEMENT This Agreement is made between Apple Computer, Inc., a California corporation with its principal place of business located at 1 Infinite Loop, Cupertino, California 95014, "Apple," and MICROAGE COMPUTER CENTERS, INCORPORATED, a (corporation) (partnership) (sole proprietorship) organized under the laws of Delaware - with its principal place of business located at 2400 S. Microage Way, Tempe, AZ 85282, "Wholesaler." DEFINITIONS As used in this Agreement, the following terms have the meanings specified below: A. "Agreement" - this Authorized Apple Wholesaler U.S. Sales Agreement and all documents incorporated herein by reference. B. "Apple Reseller Program Attachment(s)" - the then-current attachment(s) to this Agreement which describe specific Apple reseller categories and which include additional terms and conditions with which Wholesaler must comply when selling to specific reseller categories. As of the date of this Agreement, those reseller categories include: Authorized Apple Dealer, Authorized Apple Retailer, Authorized Apple Indirect Value Added Reseller, Authorized Apple Direct Value Added Reseller, Authorized Apple Electronic Reseller, and Authorized Apple Catalog Reseller. C. "Authorized Product(s)" - those Products that Wholesaler is authorized by this Agreement to resell to Authorized Resellers. Authorized Products may vary by Authorized Reseller category and all products may not be available to all categories. D. "Authorized Reseller(s)"- those resellers which (1) have signed a U.S. sales agreement with Apple, (2) are authorized by Apple to resell Products to end-user purchasers in the U.S and/or as authorized by Apple in writing, and (3) meet all requirements of at least one specific reseller category as described by Apple in the attached Apple Reseller Program Attachments, as modified by Apple from time to time. E. "Policies and Practices Manual" - Apple's then-current policies, programs and procedures relating to doing business with Apple and the sale of Products which Wholesaler must follow. F. "Price List" - Apple's then-current Authorized Apple Wholesaler Confidential Price List. Apple reserves the right to remove Products from the Price List, to limit those Products available to Wholesaler and to require Product specific authorizations. G. "Product(s)" - hardware, software, support, training, and related products, including items manufactured, distributed or licensed ("sold") by Apple and items manufactured, distributed or licensed by others that may be sold by Apple to Wholesaler for resale to Authorized Resellers and as described in this Agreement. 1. APPOINTMENT A. Apple appoints Wholesaler as an Authorized Apple Wholesaler and Wholesaler accepts such appointment. The appointment is limited, non-exclusive and effective only so long as Wholesaler complies with all of the terms and conditions of this Agreement. This appointment allows Wholesaler to perform the functions described herein and represent to the public that Wholesaler has been authorized by Apple to do so. 1 B. Wholesaler is an independent contractor, has no power or authority to bind Apple and is contracting for certain goods and services. Nothing in this Agreement shall be construed as creating any relationship such as employer-employee, principal-agent or franchisor-franchisee. C. The appointment is based upon the existing ownership of Wholesaler and is therefore personal in nature. Consequently, Wholesaler may not assign or transfer any or all of its rights or obligations under this Agreement without express written approval from Apple. if a person or entity that currently owns less than 25% of the shares entitled to vote for the Board of Directors of Wholesaler obtains ownership of more than 50% of such voting shares, this will be considered an assignment pursuant to this Section. 2. SCOPE OF AUTHORIZATION A. Wholesaler shall only resell Products as follows: (1) as described in this Agreement, Apple's Policies and Practices Manual, and the terms and conditions of the applicable Apple Reseller Program Attachment(s); (2) to Authorized Resellers specifically identified by Apple and located within the United States, for resale to end-user purchasers within the United States; and (3) as specifically approved by Apple, in writing. B. Wholesaler understands and agrees that Wholesaler shall not sell all Product to all Authorized Resellers. Wholesaler agrees not to sell specific Products identified by Apple to Authorized Resellers in specific categories as described in the Price List. C. Wholesaler shall not sell Product(s) as follows unless specifically authorized to do so by a written amendment to this Agreement: (1) for export, either directly or indirectly; (2) for sale or resale to public or private non-profit educational institutions, including without limitation, those portions of state contracts concerning purchases for educational institutions; and (3) directly to end-user purchasers. D. Wholesaler shall unilaterally determine its own resale prices. Although Apple may provide suggested resale prices, those are suggestions only and Wholesaler may freely choose to charge different prices. Wholesaler understands that neither Apple or any employee or representative of Apple may give any special treatment (favorable or unfavorable) to Wholesaler as a result of its selection of prices. Should anyone attempt to do so, Wholesaler will promptly report the matter to Apple in writing. 3. WHOLESALER'S OBLIGATIONS A. PRODUCT PROMOTION AND SALES Wholesaler shall vigorously promote and sell Products to Authorized Resellers, maintaining a high level of customer satisfaction. Wholesaler agrees and represents that it shall accomplish at least the following: (1) comply with this Agreement, Apple's Policies and Practices Manual, and other programs and policies made available to Wholesaler from time to time; (2) accept and fulfill orders from Authorized Resellers on a non-discriminatory, equitable basis. Wholesaler may refuse orders from Authorized Resellers based on credit or other legitimate concerns, but shall otherwise accept and fulfill all orders; (3) maintain a sufficient level of Products in inventory to provide timely fill rates for Product orders placed by Authorized Resellers; and (4) utilize the promotional programs or funds Apple makes available from time to time in accordance with the terms established by Apple. 2 B. SUPPORT Wholesaler will provide the following minimum support to Authorized Resellers: (1) provide satisfactory technical information and support for the Products in a timely manner. Technical support shall include but not be limited to information and training on Product configurations, compatibility among Products, and general Product information; and (2) provide notices, marketing and program information, and other materials provided by Apple which Apple requires or requests that Wholesaler distribute to Authorized Resellers. C. GENERAL Wholesaler agrees to conduct business in a manner that reflects favorably at all times on the Products and the good name, goodwill and reputation of Apple, and to: (1) not engage in any deceptive, illegal, misleading or unethical activity that is or might be detrimental to Apple, any Product or support activity described herein, or the public; (2) accurately describe all Product specifications, features, and warranties in conformance with the literature distributed by Apple; (3) distribute the Products with all packaging, warranties, disclaimers and license agreements intact as shipped from Apple; (4) make no changes to or reconfiguration of the Product(s) in any way, without Apple's prior written permission; (5) use reasonable efforts to notify Apple if Wholesaler believes that an Authorized Reseller may not be complying with the Authorized Reseller's U.S. sales agreement with Apple. (6) immediately cease selling Product to any reseller which is no longer an Authorized Reseller. Apple may take action against Wholesaler, which may include but is not limited to suspension or termination of this Agreement, if Wholesaler subsequently ships Product to any such reseller; (7) offer or facilitate reasonable financing terms to any Authorized Reseller. For purposes of this provision, "reasonable financing terms" includes, but is not limited to, offering leasing programs through a reputable, third-party leasing company, and (8) at all times comply with all applicable laws when conducting business under or related to this Agreement. 4. LIMITED WARRANTY TO WHOLESALER A. Apple warrants to Wholesaler that any Product shipped by Apple shall conform to the general description of that Product on the Price List. This warranty is nontransferable. Wholesaler's remedy for any breach by Apple of the foregoing warranty shall be, at Apple's option, a credit to the Wholesaler's account upon return to Apple of the non-conforming unit, or replacement of the nonconforming unit with a conforming unit or a Product which is functionally equivalent to the conforming unit. Wholesaler shall have SIX (6) MONTHS from the original invoice date to Wholesaler to notify Apple of a suspected breach of the above warranty and receive a return authorization or the above warranty shall expire. B. Wholesaler-owned Products used for Wholesaler's internal use are covered by Apple's standard Limited Warranty; coverage shall commence on the date Wholesaler first uses the Product. if Wholesaler does not maintain records indicating the date of first use, the coverage period will start from Wholesaler's date of purchase. C. For Products sold by Apple to Wholesaler, Apple's standard Limited Warranty shall flow to the end-user purchaser. 3 D. APPLE MAKES NO OTHER WARRANTY TO WHOLESALER, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY PRODUCTS PURCHASED BY WHOLESALER HEREUNDER. APPLE SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 5. INSPECTIONS, RECORDS, AND REPORTING A. Wholesaler will provide accurate sales, inventory and other reports to Apple on a regular basis as provided in the Policies and Practices Manual. The frequency, content and format of these reports shall be prescribed by Apple. Failure to submit the reports may result in action being taken by Apple; such action can include, but will not be limited to, termination of this Agreement. B. In addition to the reports described in Section 5A, Wholesaler shall provide Apple with information and/or documentation relating to the activities described by this Agreement that Apple may reasonably request from time to time. C. Apple shall have the right to inspect Wholesaler's operations at any time during regular business hours to verify Wholesaler's compliance with the terms and conditions of this Agreement and Apple's policies and programs. D. Wholesaler shall maintain its records, contracts, and accounts relating to the sale of Products for at least FIVE (5) YEARS. A duplicate copy of all such records, contracts and accounts shall be stored at an alternate location. E. Wholesaler shall promptly notify Apple in writing of any suspected Product defect or safety problem. F. Wholesaler shall notify Apple in writing no less than TEN (10) DAYS prior to any material change in the management or control of Wholesaler, any new affiliation or association, or transfer of any substantial part of Wholesaler's business. Wholesaler shall also notify Apple in writing no less than TEN (10) DAYS prior to any acquisition by Wholesaler in whole or in part of a third party engaged in the sale of Products. 6. ORDERING, SHIPPING, PAYMENT A. Wholesaler may submit orders for Products. in addition to Products ordered for resale, Wholesaler may order Products in reasonable quantities for Wholesaler's internal use. All orders shall be subject to acceptance by Apple. The price shall be Apple's price on the then-current Price List on the date of Apple's acceptance. The prices set forth in Apple's then-current Price List include freight (using an Apple selected carrier), insurance and routing to Wholesaler. Wholesaler agrees to provide Apple with appropriate resale certificate numbers and other documentation satisfactory to the applicable taxing authorities to substantiate any claim of exemption from any taxes, duties or imposts. Any applicable sales or use taxes, duties and other imposts due on account of purchase(s) hereunder shall be paid by Wholesaler. B. Apple shall use reasonable efforts to ship according to Wholesaler's request, but shall not be liable for any failure to do so or for any failure to meet a proposed delivery date. Unless Wholesaler clearly advises Apple to the contrary in writing, Apple may make partial shipments on account of Wholesaler's orders, to be separately invoiced and paid for when due. Apple reserves the right to cancel any orders placed by Wholesaler and accepted by Apple, or to refuse or delay shipment thereof without liability of any kind to Wholesaler or to any other person or entity. Apple will notify Wholesaler upon cancellation of any order. Title to all shipped Product shall pass to Wholesaler at Apple's shipping location. When 4 shipping pursuant to Apple's standard practices, Apple will place tracers, file claims and replace product lost or damaged in transit. C. If orders for Product exceed Apple's available inventory, Apple will allocate its available inventory and make deliveries (including partial shipments) on a basis Apple deems equitable, in its sole discretion and without liability to Wholesaler. D. Wholesaler shall be invoiced upon shipment of Product and, provided Wholesaler is eligible for credit from Apple, shall pay each invoice no later than THIRTY (30) DAYS from the date of invoice. Unless otherwise agreed to in writing, Wholesaler shall provide to Apple annual audited financial statements within ninety (90) days of Wholesaler's fiscal year end. Apple reserves the right to change credit terms if Wholesaler's financial status or payment record so warrants. 7. APPLE PROPRIETARY RIGHTS A. APPLE TRADEMARK RIGHTS (1) PERMISSION TO USE During the term of this Agreement Apple grants to Wholesaler a non-exclusive non-transferable, revocable, personal right to use Apple trademarks that specifically refer to Authorized Products or Apple technologies contained within the Authorized Products; provided, however, that Wholesaler may use only the following logos: the Apple logo (only in reference to Apple, the Authorized Products, or with the designation "Authorized Apple Wholesaler"), the Mac O/S logo, the QuickTirne logo and any other Apple logo for which Apple has promulgated written guidelines and provided separate written authorization (collectively the "Marks"), solely in connection with Wholesaler's authorized promotion of Authorized Products. Wholesaler's use of the Marks will be in strict compliance with this Agreement and the Mark Specifications and Guidelines provided by Apple, which Wholesaler acknowledges may be changed by Apple from time to time. in addition, Wholesaler shall be permitted to use other Apple marks to the extent permitted by fair use under trademark and unfair competition laws in the jurisdiction where such mark(s) are actually being used, and in accordance with Apple's specifications and requirements for use of Apple trademarks by third party licensees, resellers and developers. Apple retains all rights not expressly conveyed to Wholesaler by this Section 7A. Wholesaler recognizes the great value of the' goodwill associated with the use of the Apple marks and acknowledges that such goodwill exclusively inures to the benefit of and belongs to Apple. Wholesaler has no rights of any kind whatsoever with respect to any Apple marks except for the limited rights provided herein. (2) LIMITATIONS ON USE OF MARKS Wholesaler agrees not to use the Marks in any manner that Apple, in its sole judgment, deems to (a) be in poor taste, (b) be unlawful, (c) have the purpose, object or intent to encourage unlawful activity by others, or (d) suggest any association with Apple beyond that of an Authorized Apple Wholesaler. Wholesaler will not use the Marks or any other Apple mark or marks that may be confusingly similar to Apple marks on promotional merchandise, such as without limitation, shirts, hats, key chains, mugs or mouse pads, except under a separate Apple merchandise license. Wholesaler agrees not to use any Apple mark as a part of a product name, service name, company name, electronic address or similar designation. Wholesaler will not remove any Apple marks from any Products nor shall Wholesaler add any marks to such products. B. SOFTWARE RIGHTS (1) Wholesaler acknowledges that Products often contain not only hardware but also software. Software may be provided on separate media, such as floppy diskettes or CD-ROM or may be included within the hardware. Such software is proprietary, is copyrighted, and may also contain valuable trade secrets and be protected by patents. Wholesaler shall not separate the software from the associated 5 Product as shipped by Apple, nor shall Wholesaler disassemble, decompile, reverse engineer, copy, modify, prepare derivative works thereof, or otherwise change any of the software or its form. (2) Wholesaler understands that Apple does not sell software. Rather, Wholesaler is licensed to distribute software that is incorporated in or packaged with Products only as part of its authorized sale of the associated Products. The end user of a Product is licensed to use any software contained in such Product, subject to the terms of the license accompanying the Product, if any, and the applicable patent, trademark, copyright, and other federal and state intellectual property laws. (3) Prior to selling a Product, Wholesaler will make available to purchaser the applicable end user Software License Agreement. Apple will provide copies of the applicable Software License Agreements with the Product or upon request. 8. INSURANCE AND INDEMNITIES A. While this Agreement is in effect, Wholesaler shall keep in force and effect a sufficient general liability insurance policy, including premises liability, products, and completed operations, with limits of coverage not less than $1,000,000 bodily or personal injury and $1,000,000 property damage, or $1,000,000 combined single limit. Apple shall be named as additional insured for the scope of this Agreement. Prior to commencement of work under this Agreement, a certificate of insurance evidencing the above shall be delivered to Apple at the following address: Apple Computer, Inc. Contracts Management One Infinite Loop, M/S 72-CM Cupertino, CA 95014. B. Apple agrees to defend any proceeding or action brought by a third party against Wholesaler to the extent based on a claim that: (1) the marketing or use of any Product sold by Apple to Wholesaler infringes any U.S. patent, U.S. copyright, U.S. trademark or trade secret; or (2) a defective Apple Product directly caused death or personal injury (provided the Product at issue has not been altered, modified or otherwise changed). Apple agrees to indemnify Wholesaler for damages awarded to third parties solely as a result of such claims. Apple's obligation to so defend and indemnify Wholesaler is contingent on Wholesaler's compliance with Section 8E below. C. Wholesaler agrees that, if Apple is obligated to defend any claim arising under Section 8B(1) above or if Apple requires that Product be returned for any reason, including but not limited to Product safety reasons, Wholesaler will promptly stop all promotion and resale of the specific Product and will return such new, unopened Product in Wholesaler's inventory to Apple upon Apple's written request. In addition, Wholesaler will take reasonable steps to return to Apple the specified Product in Authorized Reseller's inventory. At Apple's option, Apple will either replace Product with the same or functionally equivalent Product, or Apple will credit Wholesaler's account upon return of the Product to Apple. Any such credit will be calculated by assuming that the Product is from Wholesaler's most recent purchase of such item(s) from Apple. D. Wholesaler agrees to defend any proceeding or action brought by a third party against Apple to the extent based on a claim arising from the acts or omissions of Wholesaler, its employees or agents in conduct associated with the offering for sale or marketing of Products, except acts or omissions expressly required by Apple's written programs or policies. Wholesaler agrees to indemnify Apple for any losses, damages, liabilities, costs and reasonable expenses arising from such acts or omissions. Wholesaler's obligation to so defend and indemnify Apple is contingent on Apple's compliance with Section 8E below. 6 E. Each party shall promptly notify the other party of any claim, demand, proceeding or suit of which the other party becomes aware which may give rise to a right of defense or indemnification pursuant to this section ("Claim"). Notice of any Claim must be provided to the indemnifying party as soon as possible, and no later than THIRTY (30) DAYS after first learning of such Claim. Notice shall include an offer to tender the defense of the Claim to the indemnifying party. The indemnifying party, if it accepts such tender, shall be entitled to take over sole control of the defense of the Claim. That control shall include the right to take any and all actions necessary to completely and finally resolve the Claim by settlement or compromise (in which case the indemnifying party shall be responsible for the cost of settlement/compromise related to the Claim). Upon acceptance of tender, the indemnified party shall cooperate with the indemnifying party with respect to such defense and settlement. In the event a Claim is settled, both parties agree not to publicize the settlement and will make every effort to ensure the settlement agreement contains nonadmissions and nondisclosure provisions. 9. CONFIDENTIALITY Any information disclosed to Wholesaler by Apple relating to Apple's or a third party's present or future developments or business, including but not limited to future product information, business activities, the Price List, terms and conditions of this Agreement (including any documents incorporated by reference), and all other amendments and addenda between Wholesaler and Apple (except such information as is previously known to Wholesaler without an obligation of confidentiality or is publicly disclosed by Apple either prior or subsequent to Wholesaler's receipt of such information from Apple), shall be characterized as confidential information ("Confidential Information"). Wholesaler shall hold such Confidential Information in trust and confidence and shall not use it except in furtherance of the relationship set forth in this Agreement, nor publish, disclose, or disseminate it for a period of FIVE (5) YEARS after receipt thereof by Wholesaler, except as may be authorized by Apple in writing. Wholesaler shall have no right to prepare any derivative works of such Confidential information. 10. LIMITATION OF LIABILITY IN NO EVENT SHALL APPLE BE LIABLE TO WHOLESALER FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES OF ANY NATURE, INCLUDING, WITHOUT LIMITATION, LOST BUSINESS PROFITS FOR ANY MATTER ARISING FROM, OR RELATED TO THIS AGREEMENT. DIRECT DAMAGES TO WHOLESALER SHALL BE LIMITED TO AN AMOUNT NOT TO EXCEED $100,000 PER INCIDENT. 11. LIMITATION OF REMEDIES THE REMEDIES SET FORTH IN THIS AGREEMENT SHALL BE WHOLESALER'S SOLE AND EXCLUSIVE REMEDIES FOR ANY BREACH OF THIS AGREEMENT BY APPLE. 12. TERM AND TERMINATION A. TERM Unless terminated earlier as provided herein: (1) the initial term of this Agreement shall be from its effective date until March 31, 1999; and, (2) unless either party provides written notice thirty (30) days prior to the expiration date, the term of this Agreement shall be extended for an additional twelve (12) month period. Any subsequent renewals or extensions of this Agreement will require written agreement by both parties. Wholesaler and Apple agree that in no event shall either party be obligated to renew or extend this Agreement. B. TERMINATION WITH THIRTY (30) DAYS NOTICE Either party may terminate this Agreement at will, at any the, with or without cause, by providing written notice to the other party not less than THIRTY (30) DAYS before the effective date of such notice. 7 C. IMMEDIATE TERMINATION To the extent permitted by applicable law, Apple may terminate this Agreement effective immediately and without notice in the event that: (1) Wholesaler fads to perform any obligation, duty, or responsibility imposed under this Agreement and such failure or default remains unremedied FIFTEEN (15) DAYS after written notice thereof; (2) Wholesaler commits a felony, engages in an unlawful business practice, or conducts business in any manner prohibited by Sections 2 or 3 of this Agreement; (3) there is any material change or transfer in the management or control of Wholesaler, Wholesaler's business operations, or any new affiliation or transfer of any substantial part of its business; (4) any conduct or proposed conduct of Wholesaler exposes or threatens to expose Apple to any liability or obligation, including any federal, state, or local law; or (5) Wholesaler fads to maintain sufficient net worth and working capital to perform its obligations; has a receiver or similar party appointed for its property; becomes insolvent or makes an assignment for the benefit of creditors; or ceases to do business in Products. Without limiting the foregoing in any way, and in lieu of immediate termination of this Agreement, Apple may take other action(s) for violation of this Agreement by Wholesaler, as Apple, in its sole discretion, deems appropriate. Such actions may include, but are not limited to, eliminating or modifying specific Apple reseller categories to which Wholesaler can sell Authorized Products and deauthorizing sales to specific Authorized Reseller(s). D. EFFECT OF NOTICE OF TERMINATION In the event that notice of termination of this Agreement is given for any reason, the due date of all Apple invoices shall be accelerated so that they become due and payable as of the date of notice of termination, even if longer terms had been provided previously. Apple shall be entitled, in its sole discretion, to reject all or part of any orders received from Wholesaler after the date of such notice or to cancel any orders previously accepted. Apple may restrict Wholesaler's use of any available promotional allowances. Until the termination date Wholesaler may continue to represent publicly that it is an authorized Apple Wholesaler, but shall not enter into any commitments requiring Products after the termination date. E. EFFECT OF TERMINATION Upon expiration or termination of this Agreement: (1) Wholesaler shall submit to Apple within TEN (10) DAYS after such expiration or termination a list of all Products in Wholesaler's inventory as of the date of such termination. Apple, at its option, may purchase from Wholesaler any or all Authorized Products that are still in their original, unopened containers, in good condition, at the respective prices paid by Wholesaler for such items. These prices shall be determined by assuming that the Products are from Wholesaler's most recent purchase of such items from Apple. Apple, at its option, may purchase any or all Authorized Products in opened containers at prices determined by Apple. If the prices offered by Apple are unacceptable to Wholesaler, Wholesaler may refuse Apple's offer and thereafter resell such Authorized Product to an Authorized Reseller or Authorized Wholesaler. After receipt of any such Authorized Product from Wholesaler, Apple will issue an appropriate credit to Wholesaler's account, subject to offset for any amounts due Apple. 8 (2) Wholesaler shall immediately cease use of the Apple Marks provided by Section 7 herein, and otherwise discontinue representing to the public and trade that it is an Authorized Apple Wholesaler. (3) All unshipped Product orders will be canceled. (4) All promotional allowance or other fund accruals shall cease. Wholesaler may claim against any available balances for any activities approved by Apple and conducted prior to the date of termination. (5) Wholesaler shall promptly return to Apple all property of Apple in its possession, including but not limited to loaned equipment and all documents and materials of any kind containing Confidential Information. F. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES, ON ACCOUNT OF EXPIRATION OR TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS. G. To the extent permitted by applicable law, and in consideration of its entering into this Agreement, Wholesaler hereby waives and relinquishes any rights or claims under franchise, dealership, or other statutes, or at common law, that would or might arise out of a termination of this Agreement by Apple or refusal by Apple to renew or extend this Agreement. H. Wholesaler's obligations under Sections 5, 7, 8, 9, 10, 11, 12 and 13 and their subsections shall survive expiration or termination of this Agreement. Apple's obligations under Sections 4, 8, 10, 11, 12 and 13 and their subsections shall survive expiration or termination of this Agreement. 13. GENERAL TERMS A. GOVERNING LAW This Agreement and the corresponding relationships of the parties shall be governed by and construed in accordance with the laws of the State of California without giving effect to its conflict of law provisions. B. DISPUTES (1) Any dispute, resolution, or proceeding ("Actions") with respect to this Agreement shall take place solely in the County of Santa Clara, State of California, except those Actions that are brought to collect monies due under this Agreement may also be brought in the jurisdiction in which the Action arose. Wholesaler expressly agrees that venue within this district is proper and voluntarily submits to the jurisdiction of the courts within same. (2) Any action arising from or related to this Agreement must be brought within ONE (1) YEAR from the date such action could have first been brought. The parties expressly agree to this provision notwithstanding any longer period which may be provided by statute and any such period is expressly waived. C. NOTICE Notices and demands of any kind that Wholesaler may be required or desire to serve upon Apple pursuant to this Agreement shall be served by United States mail (postage prepaid), or overnight courier to Apple, at Apple Computer, Inc. Contracts Management 1 Infinite Loop, M/S 72-CM Cupertino, CA 95014 9 Notices and demands of any kind that Apple may be required or desire to serve upon Wholesaler pursuant this Agreement shall be served by personal service, United States mail (postage prepaid), or overnight courier to Wholesaler, at Wholesaler's address set forth in this Agreement. With written notice to the other, Apple and Wholesaler may designate in writing different addresses. All notices or demands by United States mail shall be deemed given and complete upon mailing. D. SEVERABILITY (1) In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining portions of this Agreement shall remain in full force and effect 'and be construed so as to best effectuate the intention of the parties upon execution. (2) The paragraph headings contained herein are for reference only and shall not be considered as substantive parts of this Agreement. Use of the singular or plural form shall include the other. E. WAIVER The waiver of any one default shall not waive subsequent defaults of the same or different kind. F. SUCCESSORS IN INTEREST The provisions of this Agreement shall be binding upon and inure to the benefit of the parties, and any permitted successors or assigns. G. PRECEDENCE if any conflict exists between this Agreement, Apple's Policies and Practices Manual, or any Apple Reseller Program Attachment(s), the order of precedence shall be as follows: this Agreement, Apple's Policies and Practices Manual, and the applicable Apple Reseller Program Attachment(s), in that order. 14. ENTIRE AGREEMENT This Agreement and all documents referred to or incorporated herein by reference contain all the agreements, warranties, understandings, conditions, covenants, and representations made between Wholesaler and Apple. Neither Apple or Wholesaler shall be liable for any agreements, warranties, understandings, conditions, covenants, or representations that are not expressly set forth in this Agreement. Any different or additional terms or conditions in any purchase order, invoice or other such document are hereby expressly rejected by Apple and shall have no force or effect. This Agreement may only be modified in writing by an instrument signed by an authorized representative of each party. Apple may unilaterally modify the Price List and the Policies and Practices Manual effective on the date designated by Apple. Wholesaler shall have a reasonable period of time to implement changes which require Wholesaler to materially alter its activities, provided such period does not exceed THIRTY (30) DAYS from the stated effective date. The duly authorized representatives of the parties execute this Agreement to be effective as of the Effective Date set forth below. 10 WHOLESALER APPLE COMPUTER, INC. SIGNATURE: /s/ Don Lyons SIGNATURE: /s/ Cheryl Collins ---------------------------- ------------------------------ PRINT NAME: Don Lyons PRINT NAME: Cheryl Collins --------------------------- ----------------------------- TITLE: Group VP - Product Mgmt TITLE: Manager, Bids & Contract -------------------------------- ---------------------------------- DATE: 3/30/98 DEPT: Contracts Management --------------------------------- ----------------------------------- EFFECTIVE DATE: 4/2/98 ------------------------- 11 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE INDIRECT VALUE ADDED RESELLER DEFINITIONS "Authorized Apple Indirect Value Added Reseller" and/or "Indirect VAR" - a value added reseller that meets Apple's Indirect VAR Criteria and is approved in writing by Apple. "Indirect VAR Criteria" - the minimum requirements listed below with which an Indirect VAR must comply: + Develop custom and/or proprietary software and/or hardware for Products; or provide expertise on Products within a target vertical market; + Provide installation, training and on-going support for the value added solution; + Offer end-user purchaser service directly or through an Apple authorized service organization; + Purchase at least the minimum quantity of Apple Product in the appropriate time period as established by Apple; and + Have and comply with the then-current Indirect Value Added Reseller U.S. Sales Agreement in effect between Apple and Indirect VAR. WHOLESALER'S OBLIGATIONS Wholesaler agrees to vigorously and aggressively promote and recruit Indirect Value Added Resellers ("Indirect VARs") that can or will specialize in providing Apple based technology solutions and satisfy Apple's Indirect VAR criteria. Such promotion and recruitment will include, but is not limited to, providing appropriate Apple information and documentation to the prospective Indirect VAR. Wholesaler is not authorized to approve or authorize any prospective Indirect VAR on behalf of Apple. 12 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE DEALER DEFINITIONS "Authorized Apple Dealer" and/or "Dealer" - a reseller that meets Apple's Dealer Criteria and is approved in writing by Apple. "Dealer Criteria' - the minimum requirements listed below with which a Dealer must comply: + Develop and execute solution-oriented activities that feature Products and target business customers; + Use a consultative sales approach and provide pre-sale and post-sale support to customers through "face-to-face" contact at customer site or at dealer location; + Customize hardware, software, and networks to meet customer needs; + Carry an adequate number of demo units, including monitors and printers, for each of the product lines Dealer is authorized to carry; + Operate a walk-in storefront location or a non-storefront showroom. Maintain store hours that are convenient for business customers; + Be responsible for demand generation and fulfillment in local markets; + Perform or facilitate specific product repairs according to the Apple Authorized Service Provider (AASP) Program; and + Have and comply with the then-current Authorized Apple Dealer U.S. Sales Agreement in effect between Apple and Dealer. 13 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE RETAILER DEFINITIONS "Authorized Apple Retailer" and/or "Retailer" - a reseller that meets Apple's Retailer Criteria and is approved in writing by Apple. "Retailer Criteria" - the minimum requirements listed below with which a Retailer must comply: + Operate a walk-in storefront location which is open during retail store hours, including evenings and weekends, for a minimum of six days per week; + Offer a broad set of computer products that target home and small-business customers; + Maintain adequate on-hand inventory of retail products to satisfy immediate delivery or "cash and carry" transactions; + Provide customer assistance with pre-sale and post-sale support of Products; + Support customers with basic product information regarding Products, and direct them to the Apple Customer Service Support he or to an Apple Authorized Service Provider (AASP) when necessary; and + Have and comply with the then-current Authorized Apple Retailer Sales Agreement in effect between Apple and Retailer. 14 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE DIRECT VALUE ADDED RESELLER DEFINITIONS "Authorized Apple Direct Value Added Reseller" and/or "Direct VAR" - a value added reseller that meets Apple's Direct VAR Criteria and is approved in writing by Apple. "Direct VAR Criteria" - the minimum requirements listed below with which a Direct VAR must comply: + Develop custom and/or proprietary software and/or hardware for Apple products; +r provide demonstrated integration expertise on Apple products within a target vertical market as determined by Apple in its sole discretion; + Provide installation, training and on-going support for the value added solution; + Offer end-user service directly as an Apple Authorized Service Provider; and + Purchase at least the minimum quantity of Apple Product in the appropriate time period as established by Apple; and + Have and comply with the then-current Direct Value Added Reseller U.S. Sales Agreement in effect between Apple and Direct VAR. 15 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE CATALOG RESELLER DEFINITIONS "Authorized Apple Catalog Reseller" and/or "Catalog Reseller" - a reseller that meets Apple's Catalog Reseller Criteria and is approved in writing by Apple. "Catalog Reseller Criteria" - the minimum requirements listed below with which a Catalog Reseller must comply: + Publish and nationally or regionally distribute a catalog at least quarterly; + Produce a high quality catalog in which four-color photographs of Apple Products are prominently displayed and that recreates the experience a customer might have in a storefront location or face-to-face interaction; + Maintain 7 day/24 hour customer sales and support call center; + Allow purchasers to order Apple products via a toll-free telephone number, seven days a week, 24 hours a day; + Maintain direct response systems infrastructure to support telesales and reporting requirements and requests; + Sell at least $10 million in Apple Product annually via the catalog channel; + Establish service provider capabilities that meet the needs of all customers and that fulfill the terms of the applicable service provider agreement between Apple and Catalog Reseller; and + Have and comply with the then-current Authorized Apple Catalog Reseller U.S. Sales Agreement in effect between Apple and Catalog Reseller. 16 APPLE RESELLER PROGRAM ATTACHMENT AUTHORIZED APPLE ELECTRONIC RESELLER DEFINITIONS "Authorized Apple Electronic Reseller" and/or "Electronic Reseller" - a reseller that meets Apple's Electronic Reseller Criteria and is approved in writing by Apple. "Electronic Reseller Criteria" - the minimum requirements listed below with which an Electronic Reseller must comply: + Operate one or more electronic commerce Web sites (electronic stores) on the Worldwide Web which recreate the 'in-store' customer experience; + Maintain secure, reliable product fulfillment infrastructure; + Sell a minimum of $10 million per year in total Apple products through electronic store(s), paper catalog(s), and/or storefronts/non-storefronts (based +n purchases from Apple and Apple-authorized wholesalers); + Report (for resellers purchasing product directly from Apple) weekly sell-through and inventory via Electronic Data Interchange {EDI}); + Offer at a minimum 6-day, 12-hour customer sales support via telephone and/or Internet phone/chat/e-mail real-time response; + Maintain MIS infrastructure to support Web sales and reporting requirements via a suite of Electronic Commerce applications; + Maintain adequate, knowledgeable support infrastructure for end users and Apple employees; + Perform or facilitate specific product repairs in accordance with the terms and conditions set forth in the Apple Authorized Service Provider (AASP) Program +n all products the Electronic Resellers are authorized to sell; and + Have and comply with the then-current Authorized Apple Electronic Reseller U.S. Sales Agreement in effect between Apple and Electronic Reseller. 17 EX-10.46 8 U.S. AGREEMENT WITH HEWLETT-PACKARD CO. HEWLETT-PACKARD COMPANY U.S. AGREEMENT FOR AUTHORIZED DISTRIBUTORS SIGNATURE PAGE ICN # TBD LEGAL BUSINESS NAME Pinacor ADDRESS 3001 South Priest Drive CITY, STATE, ZIP Tempe, AZ 85282-3492 PHONE, FAX# 800-PINACOR, 602/366-2323 DBA(s) n/a E-MAIL/INTERNET ADDRESS pinacor.com THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE AND RESALE OF HP PRODUCTS. AGREEMENTS: APPLICATIONS: X HP Reseller Business Terms U.S. Authorized Reseller - --- --- X U.S. Distributor Agreement U.S. International VAR Application - --- --- X U.S. Reseller Agreement - --- EXHIBITS: X EXHIBIT L Approved Locations ADDENDA: --- U.S. CAD/Specialty Product Distributor EXHIBIT UD Calculator Distributor Products - --- --- X U.S. Personal Computing TopValue Program X EXHIBIT U20D Full Line Volume Products - --- --- U.S. GSA Agent EXHIBIT U25D Volume Mass Storage Distributor Products - --- --- U.S. Solutions Reseller Certification EXHIBIT U27D Volume Personal Computing Products - --- --- U.S. Solutions-UNIX Products X EXHIBIT U40A Volume Accessory Products - --- --- U.S. Solutions-MPE Products X EXHIBIT U40C Volume Consumable Products - --- --- U.S. Solutions-Openview IT Service Management X EXHIBIT U74D PC TopValue Program Products - --- and Electronic Business Software --- EXHIBIT U80D Volume CAD/Specialty Distributor Products U.S. Solutions Distributor --- - --- EXHIBITA2Tl2 System Printer Consumables X U.S. Volume Distributor --- - --- EXHIBIT A2T20 HP-UX Server Products U.S. Federal Distributor --- - --- EXHIBIT A2T21 Unbundled HP-UX Server Products U.S. Calculator Distributor --- - --- EXHIBIT A2T22 HP-UX Workstation Products HP Configuration Tools License --- - --- EXHIBIT A2T23 Unbundled HP-UX Workstation Products HP Software License Terms --- - --- EXHIBIT A2T24 Enterprise Storage Products U.S. Software License-MPE Products --- - --- EXHIBIT A2T25 Other Peripheral and HP-UX Related Product HP System Support Options --- - --- EXHIBIT A2T26 HP Openview NT Solutions HP Unbundling Program --- - --- EXHIBIT A2T27 HP Openview IT Service Management and U.S. Volume Reseller --- and Electronic Business Software - --- EXHIBIT A2T28 MPE Multiuser Products AMENDMENTS: --- U.S. International VAR EXHIBIT E81PL HP Unbundling Program Products - --- --- ATTACHMENTS: X HP Operations Policy Manual --- X HP Product Categories --- X Distributor Matrix ---
================================================================================ EXHIBIT ELECTION HP and Distributor agree that its volume level, at Net Distributor price, for HP Products on the Exhibit(s)/Program(s) noted for the term of this Agreement is: Full Line Volume Distributor / U20D Volume PC and Networking Distributor/ U27D X $200,000,000 - and up $10,000,000 - and up --- --- Volume Mass Storage Products Distributor/U25D Federal Distributor $10,000,000 - and up $15,000,000 - and up --- --- Solutions Distributor Volume CAD/Speciality Distributor / U80D $50,000,000 - and up $50,000,000 - and up --- --- Calculator Distributor / UD $1,000,000 - and up ---
================================================================================ HEWLETT-PACKARD COMPANY U.S. AGREEMENT FOR AUTHORIZED DISTRIBUTORS SIGNATURE PAGE ICN # 829 LEGAL BUSINESS NAME MICROAGE COMPUTER CENTERS INC ADDRESS 2400 SOUTH MICROAGE WAY CITY, STATE, ZIP Tempe, AZ 85282-1896 PHONE, FAX# (602) 804-2000 DBA(s) E-MAIL/INTERNET ADDRESS THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE AND RESALE OF HP PRODUCTS. AGREEMENTS: EXHIBITS: X HP Reseller Business Terms X EXHIBIT L Approved Locations - --- --- X U.S. Distributor Agreement X EXHIBIT UD Calculator Distributor Products - --- --- X U.S. Reseller Agreement X EXHIBIT U20D Full Line Volume Products - --- --- EXHIBIT U25D Volume Mass Storage Distributor Products ADDENDA: --- U.S. CAD/Specialty Product Distributor EXHIBIT U27D Volume Personal Computing Products - --- --- U.S. Personal Computing TopValue Program X EXHIBIT U40A Volume Accessory Products - --- --- X U.S. GSA Agent X EXHIBIT U40C Volume Consumable Products - --- --- U.S. Solutions Reseller Certification EXHIBIT U74D PC TopValue Program Products - --- --- U.S. Solutions-UNIX Products EXHIBIT U80D Volume CAD/Specialty Distributor Products - --- --- U.S. Solutions-MPE Products EXHIBITA2Tl2 System Printer Consumables - --- --- U.S. Solutions-Openview IT Service Management EXHIBIT A2T20 HP-UX Server Products - --- and Electronic Business Software --- EXHIBIT A2T21 Unbundled HP-UX Server Products U.S. Solutions Distributor --- - --- EXHIBIT A2T22 HP-UX Workstation Products X U.S. Volume Distributor --- - --- EXHIBIT A2T23 Unbundled HP-UX Workstation Products X U.S. Federal Distributor --- - --- EXHIBIT A2T24 Enterprise Storage Products X U.S. Calculator Distributor --- - --- EXHIBIT A2T25 Other Peripheral and HP-UX Related Product HP Configuration Tools License --- - --- EXHIBIT A2T26 HP Openview NT Solutions HP Software License Terms --- - --- EXHIBIT A2T27 HP Openview IT Service Management and U.S. Software License-MPE Products --- and Electronic Business Software - --- HP System Support Options EXHIBIT A2T28 MPE Multiuser Products - --- --- HP Unbundling Program EXHIBIT E81PL HP Unbundling Program Products - --- --- U.S. Volume Reseller - --- ATTACHMENTS: X HP Operations Policy Manual AMENDMENTS: --- X U.S. International VAR X HP Product Categories - --- --- X Distributor Matrix APPLICATIONS: --- U.S. Authorized Reseller - --- U.S. International VAR Application - ---
================================================================================ EXHIBIT ELECTION HP and Distributor agree that its volume level, at Net Distributor price, for HP Products on the Exhibit(s)/Program(s) noted for the term of this Agreement is: Full Line Volume Distributor / U20D Volume PC and Networking Distributor/ U27D $200,000,000 - and up $10,000,000 - and up --- --- Volume Mass Storage Products Distributor/U25D Federal Distributor $10,000,000 - and up $15,000,000 - and up --- --- Solutions Distributor Volume CAD/Speciality Distributor / U80D $50,000,000 - and up $50,000,000 - and up --- --- Calculator Distributor / UD $1,000,000 - and up ---
================================================================================ STATEMENT OF OWNERSHIP: Form of Organization: (i.e. Corporation, General Partnership, Limited Partnership, Sole Proprietor): CORPORATION For a Corporation, specify whether: Publicly Held: X Privately Held: State of Incorporation/Organization: DELAWARE Identify Company ownership and management structure as follows (attach additional pages if necessary): o Sole Proprietor: Identify all owners, officers and ownership percentages held o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust o Partnership: Identify all General Partners, Limited Partners, Officers and ownership percentages held Specify dollar investment of limited partners o Privately Held Corporation: Identify all shareholders with class and percentage ownership, Officers and Board of Director Members o Publicly Held Corporation Identify owners of 20% or more of each class of shares with class and percentage ownership, Officers and Board of Director Members
NAMES TITLES OWNERSHIP INTEREST Percentage Ownership (Dollar Type of Ownership Interest Investment in Limited (Assets, Common or Partners) Preferred Shares) - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- --------------------------
If Company is 100% owned by another corporation, identify the parent corporation's ownership and management structure above and the identity of the parent corporation below: - -------------------------------------------------------------------------------- Parent/Owner, including DBA(s) - -------------------------------------------------------------------------------- Address ( ) - -------------------------------------------------------------------------------- City State Zip Telephone ( ) - -------------------------------------------------------------------------------- State of Parent/Owner's Incorporation Fax AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY /s/ Don Lyons /s/ Susan Weatherman - --------------------------------- ------------------------------------ Authorized Signature Susan Weatherman Reseller Contracts & Negotiation Manager DON LYONS - --------------------------------- Typed Name GROUP VP - PRODUCT MGMT 4-1-98 March 31, 1999 - --------------------------------- -------------- --------------- Title Effective Date Expiration Date [MICROAGE LETTERHEAD] March 24, 1998 Sue Weatherman Reseller Contracts & Negotiation Manager Hewlett-Packard Company 5301 Stevens Creek Boulevard Santa Clara, CA 95052-8059 Dear Sue: The purpose of this letter is to modify the Hewlett-Packard Reseller Business Terms, and the Hewlett-Packard US Distributor Agreement between Hewlett-Packard and MicroAge Computer Centers, Inc. By agreeing to the changes below and signing and returning this document, the Agreement will be modified accordingly. RESELLER BUSINESS TERMS Section 3A3 STATUS CHANGE Reword to state "Reseller will notify HP in writing, prior to the intended date of change, unless otherwise restricted by law." Section 4B RELATIONSHIP Add to the end of last sentence "unless expressly permitted by an HP authorized representative in writing in advance." Section 6G ORDERS AND DELIVERY Reword to read "Neither party will be responsible for failure or delay in performance due to circumstances beyond its reasonable control, such as labor disputes, natural disaster, shortage of or inability to obtain labor, energy, and materials, war, riot, embargo, fire, or any other act or condition beyond the reasonable control of the non-performing party. Notwithstanding, nothing stated in this section shall relieve Reseller from paying HP." Section 15A Limitation of Liability and Remedies Delete last sentence. US DISTRIBUTOR AGREEMENT Section 8D PAYMENT Delete. I hereby agree to the changes to the Hewlett-Packard Reseller Business Terms, and the Hewlett-Packard US Distributor Agreement between Hewlett-Packard and MicroAge Computer Centers, Inc. HEWLETT-PACKARD COMPANY MICROAGE COMPUTER CENTERS, INC. Signature: /s/ Susan Weatherman Signature: /s/ Don Lyons Printed Name: SUSAN WEATHERMAN Printed Name: DON LYONS Title: Reseller Contract Mgr. Title: Group VP - Product Mgmt. Date: 4-1-98 Date: 3/24/98 HP RESELLER BUSINESS TERMS TABLE OF CONTENTS 1. DEFINITIONS 2. APPOINTMENT 3. STATUS CHANGE 4. RELATIONSHIP 5. PRICES 6. ORDERS AND DELIVERY 7. PAYMENT 8. WARRANTY 9. PRODUCT MODIFICATION 10. SUPPORT 11. SOFTWARE 12. TRADEMARKS 13. INTELLECTUAL PROPERTY PROTECTION 14. CONFIDENTIALITY 15. LIMITATION OF LIABILITY AND REMEDIES 16. RECORD-KEEPING AND AUDIT 17. CHANGES AND AMENDMENTS 18. TERM AND TERMINATION 19. POLICIES AND PROGRAMS 20. GENERAL HP RESELLER BUSINESS TERMS HEWLETT-PACKARD COMPANY ("HP") and (COMPANY NAME) ("Reseller") agree as follows: 1. DEFINITIONS A. "Agreement" means the Signature Page containing the signatures of HP and Reseller, these HP Reseller Business Terms, any attached Agreement, Product Exhibits, Addenda, Product Categories, and the applicable OPM. B. "Delivery" means standard HP shipping to and arrival at the receiving area at the "Ship To" address in the country where Resellees order is placed, unless otherwise indicated on the quotation. C. "Exhibits" are documents attached to, incorporated by reference in, or added to this Agreement at a later date which describe the Reseller relationship, Products, Support, marketing programs or other business terms. "Product Exhibits" and "Product Categories" refer to the Products available for purchase under this Agreement. "Addenda" refer to particular Reseller relationships, Support offerings and marketing programs. D. "Operations Policy Manual" (OPM) is a document which further describes the specific relationship and obligations between HP and Reseller under this Agreement. E. "Net Reseller Price" for Products purchased under this Agreement means the HP List Price in effect at the time an order from Reseller is received by HP, less the applicable discounts based on Resellers volume, other commitments or elections specified in Exhibits and this Agreement. F. "Products" means hardware, Software, documentation, accessories, supplies, parts and upgrades that HP authorizes Reseller to purchase or license under this Agreement and that are determined by HP to be available from HP upon receipt of Resellees order. "Custom Products" means Products modified, designed or manufactured to meet Reseller or end-user customer requirements. G. "Software" means one or more programs capable of operating on a controller, processor or other hardware Product ("Device"). Software is either a separate Product, included with another Product ("Bundled Software), or fixed in a Device and not removable in normal operation ("Firmware"). H. "Specifications" means specific technical information about HP Products which is published in HP Product manuals and technical data sheets in effect on the date HP ships Resellers order. I. "Support" means hardware maintenance and repair; Software updates and maintenance; training; and other standard Support services provided by HP. "Custom Support" means any agreed non-standard Support, including consulting and custom project services. 2. APPOINTMENT A. HP appoints Reseller as an authorized, non-exclusive Reseller for the purchase and resale or sublicense of Products subject to the terms and conditions of this Agreement. B. The nature and scope of Resellers authorization, including any geographic, vertical market or other restrictions, are mainly detailed in the attached Agreement, and Addenda. The Products covered by Resellees authorization, including any discounts and commitment levels, are detailed in the attached Product Exhibits and Product Categories. Other policies, procedures, terms and conditions applicable to this Agreement are contained in the OPM. C. Reseller accepts appointment on these terms and conditions. 3. STATUS CHANGE A. If Reseller wishes to: 1. Change its name; 2. Add, close or change an HP-approved shipment, delivery or other HP-authorized location; 3. Undergo a merger, acquisition, consolidation or other reorganization with the result that any entity controls 25% or more of Resellers capital stock or assets after such transaction, or assumes management of Reseller operations; then Reseller will notify HP in writing at least ten (10) working days prior to the intended date of change and provide HP all information and documents requested by HP for the purpose of evaluating such status change. B. HP will promptly notify Reseller of its consent to the continuation of Resellees authorization following such a change in status, provided that HP may terminate this Agreement immediately upon notice in the event HP does not consent to such change Pending HP's notification, HP will have no obligation to perform under this Agreement. 4. RELATIONSHIP A. Reseller and HP are independent contractors for purposes of this Agreement. This Agreement does not establish a franchise, joint venture or partnership, or create any relationship of employer and employee, master and servant, or principal and agent between the parties. B. Neither party will have, nor represent that it has, any power, right, or authority to bind the other party, or to assume or create any obligation or responsibility, express or implied, on behalf of the other party without such other party's express written consent Reseller acknowledges that any commitment made by Reseller to its customers with respect to price, quantities, delivery, specifications, warranties, modifications, interfacing capability or suitability will be Resellees sole responsibility, and Reseller will indemnify HP from liability for any such commitment by Reseller. C. This Agreement applies only to the Products listed on the Product Exhibits, and the relationship between the parties is non-exclusive. Reseller acknowledges that HP may market other products, including products in competition with those listed on the Product Exhibits, without making them available to Reseller. HP acknowledges that Reseller may market other products, including those in competition with those listed on the Product Exhibits. Each party reserves the right to advertise, promote and sell any product, including Products listed on the Product Exhibits, in competition with the other party. D. HP will not be deemed a party to any agreement between Reseller and any subsequent purchaser or licensee. 5. PRICES A. Net Reseller Price includes shipment arranged by HP according to HP standard commercial practice. HP reserves the right to charge Reseller for any special routing, packing, handling or insurance requested by Reseller and agreed to by HP. Orders shipped under special routing instructions must be separately agreed upon and may be subject to additional charges. B. Prices are exclusive of, and Reseller will pay, applicable sales, use, service, value added or like taxes, unless Reseller has provided HP with an appropriate exemption certificate for the Delivery jurisdiction, or HP agrees the transaction is otherwise exempt. C. HP reserves the right to change prices and discounts upon reasonable notice or as specified in Exhibits or the OPM. If Reseller is unsure of the List Price to use in calculating Net Reseller Price for any Product, Reseller should contact its HP sales representative or relationship manager. D. List prices are suggested prices for resale to end-user customers and a basis for calculating Net Reseller Price. Reseller has the right to determine its own resale prices, and no HP representative will require that any particular resale price be charged by Reseller or grant or withhold any benefits to Reseller based on Resellees resale pricing policies. Reseller agrees that it will promptly report any effort by HP personnel to interfere with its pricing policies directly to an HP officer or senior sales manager. E. Upon request from Reseller, HP may at its discretion grant special pricing for particular end-user customer transactions. In good faith HP may retract the special pricing at any time before acceptance by the end-user customer. HP may extend the pricing on an exclusive or non-exclusive basis and may condition the pricing on a pass-through of all or part of the non-standard offering extended by HP. F. HP may, from time to time, offer Reseller certain Products on special promotional terms and conditions. All such offerings may be subject to pricing or discounts different from those provided for in this Agreement. Such offerings may not, in some cases, apply towards Resellees volume or other commitments, and may not be eligible for other standard benefits, including but not limited to promotional allowance funds, price protection or stock adjustments. 6. ORDERS AND DELIVERY A. HP will honor written orders from Reseller unless other methods are agreed upon in writing. Resellees orders must reference this Agreement and comply with the minimum order, release, destination ("Shipment" address) and other requirements specified in Addenda, Exhibits and/or the OPM. Orders must also specify Delivery dates within periods specified in the OPM. B. Reseller will issue orders from approved locations within its organization and will specify HP authorized "Ship To" addresses within the country where the order is placed, unless otherwise agreed. Reseller is responsible for ensuring that only authorized employees place, change or delete orders and that the orders conform to all requirements of this Agreement. C. All orders are subject to acceptance by HP. D. Delivery is subject to Product availability at the time Resellees order is received. HP will make every reasonable effort to meet delivery dates quoted or acknowledged. If Products are in short supply, HP will allocate them at HP's discretion. E. Title to hardware Products and risk of loss and damage for any Product will pass to Reseller at destination, provided that if Products are shipped under Reseller's shipping instructions, title and risk of loss and damage will pass to Reseller at HP's shipping dock. F. Transactions may be conducted through Electronic Data Interchange ("EDI") or other electronic methods, as agreed. G. HP will not be liable for performance delays or for non-performance, due to causes beyond its reasonable control. 7. PAYMENT A. Reseller will pay invoices within thirty (30) days from the date of HP's invoice. HP reserves the right to specify payment in advance or other payment terms for credit reasons, or when Resellees financial condition or relationship with HP so warrants, with respect to any new or unshipped orders. B. If Reseller fails to pay any sum when due or fails to perform under this or any other agreement with HP after ten (10) days written notice, HP may discontinue performance under this or any other agreement between HP and Reseller. C. Any Reseller claim for adjustment of an invoice is deemed to be waived if Reseller fails to present such claim within ninety ( 90) days from the date of the invoice. No claims, credits, or offsets may be deducted from any invoice. 8. WARRANTY Product warranty terms, conditions, exceptions, exclusions and disclaimers are contained in the OPM, Exhibits and where applicable with Products. 9. PRODUCT MODIFICATION A. HP reserves the right to make changes in the design or Specifications of Products. B. Reseller is responsible for any modification it makes to Products or for any commitment made with respect to special interfacing, compatibility or suitability of Products for specific applications. C. If HP believes Resellees modifications may have an adverse effect on Product support, marketing and technical specifications, HP reserves the right to modify this Agreement. 10. SUPPORT Reseller may be eligible to participate in HP Support programs. Support terms and conditions are contained in the OPM and/or Exhibits, and Program guides which may be supplied separate from this agreement. 11. SOFTWARE Software distribution rights and license terms are contained in the OPM and/or Exhibits, and where applicable with Products. 12. TRADEMARKS A. From time to time, HP may authorize Reseller to display one or more designated HP trademarks, logo types, trade names and insignia ("HP Marks"). Reseller may display HP Marks solely to promote Products. Any display of HP Marks must be in good taste, in a manner that preserves their value as HP Marks, and in accordance with standards provided by HP for their display. Reseller will not use any name or symbol in a way which may imply that Reseller is an agency or branch of HP; Reseller will discontinue any such use of a name or mark as requested by HP. Any rights or purported rights in any HP trademarks acquired through Resellees use belong solely to HP. B. Reseller grants HP the non-exclusive, royalty free right to display Resellees trademarks in advertising and promotional material solely for directing prospective purchasers of Products to Resellers selling locations. Any display of the trademarks must be in good tame, in a manner that preserves their value as Resellers trademarks, and in accordance with standards provided by Reseller for their display. Any rights or purported rights in any Reseller trademarks acquired through HP's use belong solely to Reseller. 13. INTELLECTUAL PROPERTY PROTECTION A. HP will defend or settle any claim against Reseller, (or enduser customer, or third parties to whom Reseller is authorized by HP to resell or sublicense), that Products or Support (excluding Custom Products and Custom Support), delivered under this Agreement infringe a patent, utility model, industrial design, copyright, trade secret, mask work or trademark in the country where. Products are used, sold or receive Support, provided Reseller. 1. promptly notifies HP in writing; and 2. cooperates with HP in, and grants HP sole control of the defense or settlement. B. HP will pay infringement claim defense costs, settlement amounts and court-awarded damages. If such a claim appears likely, HP may modify the Product, procure any necessary license, or replace it. If HP determines that none of these alternatives is reasonably available, HP will refund Resellees purchase price upon return of the Product if within (1) one year of Delivery, or the Products net book value thereafter. C. HP has no obligation for any claim of infringement arising from: 1. HP's compliance with Resellers designs, specifications or instructions; 2. HP's use of technical information or technology provided by Reseller 3. Product modifications by Reseller or a third party; 4. Product use prohibited by Specifications or related application notes; or 5. Use of the Product with products not supplied by HP. D. These terms state HP's entire liability to Reseller and its customers for claims of intellectual property infringement. 14. CONFIDENTIALITY A. In the event that confidential information is exchanged, each party will protect the confidential information of the other in the same manner in which it protects its own like proprietary, confidential, and trade secret information. If the party claiming the benefit of the provision furnishes such information in writing and marks such information as "Confidential" or if such information is provided orally, then the transmitting party ("Discloser") will confirm in writing to the receiving party ("Recipient") that it is confidential within thirty (30) days of its communication. Such information will remain confidential for three (3) years after the date of disclosure. B. This Section imposes no obligation upon a Recipient with respect to confidential information which (a) was in the Recipient's possession before the Disclosure; (b) is or becomes a matter of public knowledge through no fault of the Recipient; (c) is rightfully received by the Recipient from a third party without a duty of confidentiality; (d) is disclosed by the Discloser to a third party without a duty of confidentiality on the third party; (e) is independently developed by the Recipient; (o is disclosed under operation of law, or (g) is disclosed by the Recipient with the Discloser's prior written approval. 15. LIMITATION OF LIABILITY AND REMEDIES A. Products are not specifically designed, manufactured or intended for sale as parts, components or assemblies for the planning, construction, maintenance, or direct operation of a nuclear facility. Reseller is solely liable if Products or Support purchased by Reseller are used for these applications. Reseller will indemnify and hold HP harmless from all loss, damage, expense or liability in connection with such use. B. To the extent HP is held legally liable to Reseller , HP's liability is limited to: 1. Payments arising from warranty claims and as described in Section 13 above; 2. Damages for bodily injury; 3. Direct damages to tangible property up to a limit of U.S. $1,000,000; and 4. Other direct damages for any claim based on a material breach of Support services, up to a maximum of twelve (12) months of the related Support charges paid by Reseller during the period of material breach. C. Notwithstanding Section 15 B above, in no event will HP or its subsidiaries, affiliates, subcontractors or suppliers be liable for any of the following: 1. Actual loss or direct damage that is not listed in Section 15 B above; 2. Damages for loss of data, or software restoration; 3. Damages relating to Resellers procurement of substitute products or services (i.e., "cost of cover"); or 4. Incidental, special or consequential damages (including downtime costs or lost profits). D. THE REMEDIES IN THIS AGREEMENT ARE RESELLER'S SOLE AND EXCLUSIVE REMEDIES. 16. RECORD-KEEPING AND AUDIT A. For purposes such as Product safety notification, operational problem correction and contract compliance, Reseller will maintain records of second-tier reseller and/or customer purchases, which at a minimum must include such purchasees name, address, phone number, date of sale, Product numbers, quantities, serial numbers, and shipment address. B. HP may, from time to time, give notice to Reseller of its intention to verify and audit Resellers compliance with this Agreement or with related marketing program terms and conditions. The auditor will be given prompt access, either on-site or through other means, to Resellees customer, inventory or other records. C. Further record-keeping and audit requirements may be contained in Agreement, Addenda and/or the OPM. 17. CHANGES AND AMENDMENTS A. From time to time, HP may add Products to or delete them from Product Exhibits; obsolete Products; change List Prices or discounts; implement or change HP policies or programs; or otherwise amend this Agreement at HP's discretion, after reasonable notice to Reseller in writing. B. Any amendment will automatically become a part of this Agreement on the effective date specified in the notice, unless Reseller provides HP with written notice of its objection to such amendment within fifteen (15) days of Resellers receipt of the notice. If agreement to the Amendment is not reached by both HP and Reseller within thirty (30) days after HP's receipt of Resellers objection, either party may terminate this Agreement. C. Each party agrees that the other has made no commitments regarding the duration or renewal of this Agreement beyond those expressly stated in this Agreement. 18. TERM AND TERMINATION A. Subject to applicable law, either party may terminate this Agreement without cause at any time upon sixty (60) days' written notice or with cause at any time upon thirty (30) days' written notice to the other party. Unless earlier terminated as provided herein, this Agreement will expire on March 31, 1999, but will continue to apply to orders previously accepted by HP. B. If either party becomes insolvent, is unable to pay its debts when due, files for bankruptcy, is the subject of involuntary bankruptcy, has a receiver appointed, or has its assets assigned, the other party may terminate this Agreement without notice and may cancel any unfulfilled obligations. C. If either party gives the other notice of termination or advises the other of its intent not to renew this Agreement, HP may require that Reseller pay cash in advance for additional shipments until the remaining term, regardless of Resellers previous credit status, and may withhold all such shipments until Reseller pays its outstanding balance. D. Upon termination or expiration, Reseller will immediately cease to be an authorized HP Reseller and will refrain from representing itself as such and from using any HP trademark or name. Authorization of Reseller and its Authorized Resellers to use any HP Mark will cease upon such termination or expiration. E. Upon any termination or expiration, HP may require that Reseller return, against outstanding balance or for repurchase, any HP Products purchased under this Agreement on HP's then current Product Exhibits, which are in their unopened, original packaging and marketable as new merchandise. The repurchase price shall be the lower of either the Net Reseller Price on the date of termination or expiration or Resellees original purchase price, in each case less any promotional or other discounts or price protection or other credits extended by HP to Reseller for the HP Product. Reseller should contact its HP sales representative for information about the items eligible for repurchase and instructions for their return at HP's expense. F. Upon termination or expiration, all rights to any accrued HP promotional allowance funds and HP promotional services will automatically lapse. G. All obligations concerning outstanding transactions, warranties, Support, software, intellectual property protection, limitations of liability and remedies, confidentiality, and the general terms and conditions will survive termination or expiration, except that the provisions for confidentiality and Support will survive only through the periods set forth in this Agreement 19. POLICIES AND PROGRAMS From time to time, HP may offer or change HP policies and promotional or other marketing programs, including but not limited to programs involving promotional allowances, product demonstration and development unit purchases, and Support. Participation in such programs will be subject to the then current terms and conditions of those programs. 20. GENERAL A. Neither party may assign or transfer any rights or obligations hereunder without prior written consent of the other party provided that HP may assign or transfer all such rights and obligations to other HP entities, and the right to receive payments to third parties, without consent. B. Neither party's failure to enforce any provision of this Agreement will be deemed a waiver of that provision or of the right to enforce it in the future. C. Reseller will conduct all its activities relating to its business with HP in accordance with the highest standards of ethics and fairness as well as compliance with applicable law. HP may suspend performance of this Agreement if Reseller fails to do so. D. Reseller who is expressly authorized by HP in writing to export, re-export or import Products, technology or technical data purchased hereunder, assumes responsibility for complying with applicable laws and regulations and for obtaining required export and import authorizations. HP may suspend performance if Reseller is in violation of any applicable laws or regulations. E. This Agreement will be governed by the laws of the State of California. F. To the extent that any provision of this Agreement is determined to be illegal or unenforceable in a particular country, the remainder of the Agreement will remain in full force and effect. The offending provision will be deemed amended by the parties so as to make it enforceable and to the extent possible, have consequences which are substantially the same as what was intended by the parties. G. The United Nations Convention on Contracts for the International Sale of Goods will not apply to this Agreement or to transactions processed under this Agreement. H. All notices that are required under this Agreement and OPM will be in writing and will be considered given as of twenty-four (24) hours after sending by electronic means, facsimile transmission, overnight courier, or hand delivery, or as of five (5) days of certified mailing and appropriately addressed to 5301 Stevens Creek Boulevard, Santa Clara, CA 95052-8059, M/S 54UHC. I. This Agreement constitutes the entire understanding between HP and Reseller, and supersedes any previous communications, representations or agreements between the parties, whether oral or written, regarding transactions hereunder. Resellees additional or different terms and conditions will not apply. Except as provided in Section 17 above, no modification of this Agreement will be binding on either party unless made in writing and signed by both parties. J. In the event of a conflict, the following order of precedence will apply: Agreement, OPM Agreement and Addenda, Product Exhibits , HP Reseller Business Terms. U.S. DISTRIBUTOR AGREEMENT TABLE OF CONTENTS 1. APPOINTMENT 2. INTENTIONALLY OMITTED 3. DISTRIBUTOR RESPONSIBILITIES 4. MULTIPLE AGREEMENT DISCOUNTS 5. INTENTIONALLY OMITTED 6. INTENTIONALLY OMITTED 7. PRICES 8. PAYMENT 9. ORDERS AND DELIVERY 10. INTENTIONALLY OMITTED 11. INTENTIONALLY OMITTED 12. INTENTIONALLY OMITTED 13. INTENTIONALLY OMITTED 14. INTENTIONALLY OMITTED 15. RECORD-KEEPING AND AUDIT 16. INTENTIONALLY OMITTED 17. INTENTIONALLY OMITTED 18. INTENTIONALLY OMITTED 19. INTENTIONALLY OMITTED 20. INTENTIONALLY OMITTED 21. U.S. GOVERNMENT 22. INTENTIONALLY OMITTED 23. INTENTIONALLY OMITTED 24. INTENTIONALLY OMITTED 25. INTENTIONALLY OMITTED 26. INTERNATIONAL SALES U.S. DISTRIBUTORSHIP AGREEMENT 1. APPOINTMENT In addition to the terms set forth in Section 2 of the HP Reseller Business Terms, the following will apply: A. HP appoints Reseller as an authorized, non-exclusive distributor ("Distributor") for marketing the Products listed on the Product Exhibits and Product Categories. B. Distributor is in the business of distributing Products to and supporting selling locations owned and operated by resellers. These resellers may be, depending upon their HP authorization, (i) distributor authorized, solutions focused value-added resellers ("DARs"), or (ii) second-tier resellers (collectively, "Authorized Resellers"). C. With respect to specific "Type One" Volume Products as defined in the OPM, which HP may identify in the Product Exhibits or Product Categories, HP may authorize Distributor to resell such Products to (i) resellers which are not HP-authorized or (ii) or end-user customers who are not purchasing for the purpose of resale (collectively, "Customers"), as described more particularly in other Exhibits. D. Distributor desires to acquire Products as permitted by this Agreement. 3. DISTRIBUTOR RESPONSIBILITIES A. Distributor may sell Products only to those of its Authorized Resellers and/or Customers who have been appointed by HP or as permitted under this Agreement. B. Distributor shall ensure that Authorized Resellers meet HP's qualifications and comply with HPs terms and conditions for those Authorized Resellers, and with Distributor's standard agreements and business policies. Distributor also agrees to report violations of HP's terms and conditions by Authorized Resellers to HP in a timely manner, and to make its Authorized Reseller agreements available to HP for review upon request. C. Shipments of Products to non-Authorized Resellers, or to Authorized Resellers who sell such Products in violation of HP's "Selling and Sourcing Restrictions," eligibility criteria, qualifications, added value requirements, or other limitations on Reseller activity as set forth in this Agreement constitute a breach of this Agreement, and may result in termination of this Agreement Distributor agrees to pay to HP an amount equivalent to the discount received from HP for such shipments. D. HP may withdraw its permission for sales to a particular Authorized Reseller(s), or to all Authorized Resellers, with or without cause, at any time, by notifying Distributor and Distributors Authorized Reseller(s) in writing. Upon receipt of such notice, Distributor will immediately discontinue shipments of Products to the affected Authorized Reseller(s). E. Distributor agrees to: 1. Focus its activities on the marketing and sales of Products identified in this Agreement by strictly conforming its Authorized Reseller recruitment, marketing, and sales to a mutually agreed marketing development plan signed by HP and Distributor. 2. Represent Products fairly to all Authorized Resellers and Customers. 3. Forward promptly to Authorized Resellers and to Customers all technical sales and promotional materials, suggested price lists and other information provided by HP for the purpose of reshipment to such Authorized Resellers and Customers. 4. Provide Authorized Resellers and Customers with any HP ergonomics information, including, where applicable, HP Working in Comfort materials (in paper and electronic form), any warning or advisory tags, labels, or other information relating to the use of Products containing keyboards. 5. Ensure that ongoing pre-sales support and post-sales technical support for Products is provided to all Authorized Resellers and Customers. Distributor agrees to maintain or make available such qualified personnel as necessary to provide timely and knowledgeable support services. 6. Provide or arrange for technical support relating to Products to Authorized Resellers and Distributors own sales staff. 7. Ensure that no sale, advertising, promotion, display or disclosure of any features, availability or pricing of any new Product takes place before HP's public announcement of that Product 8. Respond promptly to all end-user Customer inquiries or requests related to HP Products. 9. Authorize HP's representatives to call on Authorized Resellers and/or Customers for Product training and other objectives. 10. Report promptly to HP all suspected defects in HP Products. 11. Ensure that its employees complete any required training courses designated by HP. 12. Confer periodically with HP at HP's request on matters relating to market conditions, sales forecasting, and Product planning. 13. Provide Authorized Resellers with access to HP designated service programs or to other HP approved service plans. 14. Comply with the HP Product Categories. F. Distributor may advertise on a United States-wide basis on behalf of itself and its Authorized Resellers. G. Before the tenth day of each month, and through a process defined by HP and Distributor, Distributor will send to HP a summary of any changes in any Authorized Resellees address, phone number or ownership. 4. MULTIPLE AGREEMENT DISCOUNTS Unless otherwise specified by HP in writing, purchases of Products under this Agreement and purchases under any other Addenda, or HP Agreement are exclusive of each other for the purpose of calculating volume commitment and discount levels. 7. PRICES In addition to the terms set forth in Section 5 of the HP Reseller Business Terms, the following will apply: A. Nothing contained in this Agreement shall prevent an Authorized Reseller or Customer from purchasing individually, on its own credit and account, directly from HP should it elect to do so, but nothing shall obligate HP to sell directly to any Customer. 8. PAYMENT In addition to the terms set forth in Section 7 of the HP Reseller Business Terms, the following will apply: A. Distributor will furnish HP with copies of its financial reports, including but not limited to Distributor's latest balance sheet, profit and loss statement, and other pertinent financial information as HP deems necessary to determine Distributors credit worthiness. B. Upon request, HP will provide Distributor with invoice copies accounting for sales of Products and services by HP to Distributor. (Distributor shall have ninety (90) days from date of HP's invoice to raise any questions or objections to this statement of account.) C. In the event that Distributor and HP are unable to resolve any questions or objections to the statement of Distributor's account or invoice, Distributor may file suit against HP at any time up to one (1) year after the date of invoice in question. D. Distributor grants and HP reserves a purchase money security interest in each Product purchased under this Agreement and in any proceeds thereof for the amount of the purchase price from HP. Upon request by HP, Distributor will sign any document required to perfect such security interest. Payment in full of the purchase price of a Product purchased will release the security interest in that Product. 9. ORDERS AND DELIVERY In addition to the terms set forth in Section 6 of the HP Reseller Business Terms, the following will apply: A. HP will honor electronic, fax and telephone orders from Distributors approved locations. B. HP reserves the right to schedule and reschedule any order, at HP's discretion, and to decline any order for credit reasons or because the order specifies an unreasonably large quantity or makes an unreasonable shipment request. C. Distributor agrees to accept all deliveries of Products as scheduled. If Distributor fails to accept a scheduled delivery, or takes any action which delays or hinders HP's ability to meet any delivery schedule, HP reserves the right to charge Distributor for any costs resulting from such action, including return freight fees and stocking charges. In addition, HP reserves the right to cancel any order, the shipment of which Distributor refuses to accept or delays, and to reallocate such order. D. HP will use reasonable efforts to meet scheduled shipment dates. However, HP will not be liable for delay in meeting a scheduled shipment date. When Products are in short supply, HP reserves the right to allocate Products equitably, at HP's discretion. E. HP may require Distributor and/or its Authorized Resellers to separately need additional requirements to be eligible to sell certain Products, as specified in this Agreement. HP will notify Distributor of those Authorized Resellers eligible to resell the Products. Distributor may not ship these Products to Authorized Resellers who have not met the HP-defined criteria. 15. RECORDKEEPING AND AUDIT In addition to the terms set forth in Section 16 of the HP Reseller Business Terms, the following will apply: A. HP may require Distributor to provide HP or HP's designate with Product inventory, sales and order reports. These reports may require information such as total units of selected Products sold and held in all inventory, by month for each approved location in a format specified by HP. HP may require monthly reports incorporating the previous month's data for each approved location. B. In addition, Distributor must comply with any reporting requirements for HP marketing and promotional programs. C. At HP's discretion and upon reasonable notice to Distributor, HP or HP's designate will be given prompt access during normal business hours, either on site, or through other means specified by HP, to Distributor's customer records, inventory records and other books and records of account specifically related to Products as HP believes are reasonably necessary to verify and audit Distributor's compliance with this Agreement. D. Failure to promptly comply with HP's request will be considered a repudiation of this Agreement justifying HP's termination of this Agreement with thirty (30) day's notice without further cause. E. HP may recover all reasonable actual costs associated with compliance verification procedures from any promotional funds, rebate funds or any other HP accrued funds due Distributor or, in the case of an Authorized Reseller, from the reseller(s)' accrued promotional marketing funds, rebate funds or any other HP accrued funds for the reseller(s). F. HP may debit Distributor for all wrongfully claimed discounts, rebates, promotional allowances or other amounts determined as a result of HP's audit. G. HP may from time to time, send to Distributor a list of serial numbers of designated Products for which HP tracks unauthorized sales. Distributor agrees to identify to which Authorized Reseller or Customer each serial number was shipped and to forward this information to its HP representative within a period of not more than twenty-one (21) days from the date of HP's notice. H. HP may, from time to time, find it necessary to audit an Authorized Reseller for the purpose of determining its compliance with the terms and conditions of its HP authorization. HP will identify to Distributor. 1. The Authorized Reseller (s) to be audited; 2. A list, by HP Product Number, of "designated products" of concern; 3. The period of time the audit will cover; and 4. A deadline by which HP must receive associated sell-through data from Distributor. Distributor agrees to assist HP by providing HP within ten (10) days from the date of HP's notice, a list of the quantities and serial numbers of "Designated Products" that have been shipped to Authorized Reseller (s) during the audit period. 21. U.S. GOVERNMENT A. Unless Distributor has obtained HP's prior written consent, Distributor is prohibited from issuing any 'Letter of Supply', from guaranteeing to supply, or from selling, supplying, or providing any person with HP Product for resale under any GSA contract. Unless Distributor has first received a Letter of Supply or other written authorization from HP, Distributor is prohibited from listing, and shall not list, Products on any GSA schedule or contract, or on any procurement, schedule, or contract. B. No U.S. Government procurement regulations will be deemed included in this Agreement or binding on either party unless specifically accepted in writing and signed by both parties. 26. INTERNATIONAL SALES Notwithstanding Section 20.D of the HP Reseller Business Terms, without HPs prior written consent Distributor will not export Products outside the U.S. nor will Distributor sell Products to any Authorized Reseller or Customer for export outside the U.S. Upon written consent from HP, Distributor may export Products, either directly or indirectly, provided that Distributor first obtains a license from the United States Department of Commerce or any other agency or department of the United States government or the regulatory agency of any other Government, as required, and provided that Distributor complies with all other obligations set forth in Section 20.D of the HP Reseller Business Terms. U.S. RESELLER AGREEMENT TABLE OF CONTENTS 1. APPOINTMENT 2. STATUS CHANGE 3. RESELLER RESPONSIBILITIES 4. MULTIPLE AGREEMENT DISCOUNTS 5. INTENTIONALLY OMITTED 6. INTENTIONALLY OMITTED 7. PRICES 8. INTENTIONALLY OMITTED 9. ORDERS AND DELIVERY 10. SOFTWARE 11. TRADEMARKS 12. INTENTIONALLY OMITTED 13. LIMITATION OF LIABILITY AND REMEDIES 14. INTELLECTUAL PROPERTY PROTECTION 15. RECORD-KEEPING AND AUDIT 16. CHANGES AND AMENDMENTS 17. TERM AND TERMINATION 18. RELATIONSHIP 19. POLICIES AND PROGRAMS 20. GENERAL 21. NUCLEAR APPLICATIONS 22. U.S. GOVERNMENT 23. CONFIDENTIALITY 24. NOTICES 25. RESELLER REPORTING 26. INTERNATIONAL SALES U.S. RESELLER AGREEMENT 1. APPOINTMENT A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized, non-exclusive Reseller for marketing the HP Products listed on the Product Exhibits and sold by and purchased from an HP Authorized Distributor. B. Reseller's appointment is subject to the terms and conditions set forth in this Agreement, Addenda, Product Exhibits and HP Product Categories (collectively, the "Agreement") for the period from the effective date through the expiration date of this Agreement. Reseller accepts appointment on these terms. C. This Agreement is intended as an addition and amendment to any other terms and conditions of sale to which Reseller and Distributor may have mutually agreed with regard to Distributor sale and Reseller purchase of Products supplied by HP. If HP approved Distributor's sale of these Products to Reseller, HP will be regarded as a third-party beneficiary of the agreements and commitments made herein. 2. STATUS CHANGE A. Reseller's approved company names, including DBA(s) and selling locations, are listed on the HP Exhibit L and are the only names and selling locations under which Reseller may represent and sell HP Products. If Reseller wishes to: 1. Change its name; 2. Add, close or change an approved shipment, delivery or other HP-authorized location; 3. Undergo a merger, acquisition, consolidation or other reorganization with the result that any entity controls 25% or more of Reseller's capital stock or assets after such transaction; or 4. Undergo a significant change in control or management of Reseller operations; then Reseller shall notify HP in writing prior to the intended date of change. In no event may such notice be provided more than ten (10) days after the change has occurred. B. HP agrees to promptly notify Reseller of its approval or disapproval of any proposed change, provided that Reseller has given HP all information and documents reasonably requested by HP. C. HP must approve proposed Reseller changes prior to any obligation of HP to perform under this Agreement with Reseller as changed. 3. RESELLER RESPONSIBILITIES A. Reseller agrees to: 1. Advertise, promote, demonstrate and sell HP Products only within the geographies defined in this Agreement and, when defined by the HP Product Categories, on a face-to-face basis. 2. Represent HP Products fairly to all Customers. 3. Forward promptly to Customers all technical sales and promotional materials, suggested price lists and other information provided by HP for the purpose of reshipment to Customers. 4. Provide Customers with any HP ergonomics information, including, where applicable, HP WORKING IN COMFORT materials (in paper and electronic form) and any warning or advisory tags, labels, or other information relating to the use of HP Products containing keyboards. 5. Ensure that ongoing pre-sales support and post-sales technical support of HP Products and Reseller's value-added solutions is provided to all Customers. Reseller agrees to maintain or make available such qualified personnel as necessary to provide timely and knowledgeable support services sufficient to ensure a high level of Customer satisfaction. 6. Ensure that no sale, advertising, promotion, display, or disclosure of any features, availability or price of any new HP Product takes place before HP's public announcement of that Product. 7. Respond promptly to all Customer inquiries or requests related to HP Products. 8. Report promptly to HP all suspected defects in HP Products. 9. Ensure that its employees complete any required training courses and certification designated by HP. 10. Confer periodically with HP at HP's request on matters relating to market conditions, sales forecasting, and Product planning. 11. Use catalogs and telemarketing sales techniques only in conformity with current HP policies and only as a complement to face-to-face sales activity. 12. Identify and keep current a primary and secondary support contact for both marketing communications and post-sales technical support at each approved Selling Location. 13. Provide Customers with a written invoice stating the Customers name and address, the date of purchase, and serial numbers, if any, of HP Products. Reseller will retain such records, or their equivalent, to enable Reseller to notify Customers of Product safety information, corrections for operational problems, and the like. B. Reseller may advertise only those HP Products which it is authorized to sell. Reseller's advertising may in no way mention Reseller as an authorized reseller for any other HP Product. 4. MULTIPLE AGREEMENT DISCOUNTS Unless otherwise specified by HP in writing, purchases of HP Products under any HP Product Exhibit in this Agreement and purchases under any other HP Product Exhibits in this or any other HP Agreement are exclusive of each other for the purpose of calculating volume commitment and discount levels. 7. PRICES Upon request from Reseller, at its discretion, HP may grant special pricing for particular end-user Customer transactions. In good faith, HP may retract the special pricing any time before acceptance by the end-user Customer. HP may extend the pricing on an exclusive or non-exclusive basis and may condition the pricing on a pass-through to the end-user of all or part of the non-standard offering extended by HP. 9. ORDERS AND DELIVERY HP may, from time to time, offer Reseller certain HP Products on special promotional terms. Such purchases may not, in some cases, be eligible for promotional allowance funds, price protection or stock adjustments. With these exceptions, Reseller's purchases in response to these special promotional offers are subject to the terms set forth in Reseller's Agreement. 10. SOFTWARE Reseller is granted the right to distribute software materials supplied by HP only in accordance with the license terms supplied with these materials. Reseller may alternatively acquire the software materials from HP for its own demonstration purposes in accordance with the terms for use in those license terms. 11. TRADEMARKS A. From time to time, HP may authorize Reseller to display one or more designated HP trademarks, logo types, trade names, and insignia ("HP Marks"). Reseller may display the HP Marks solely to promote HP Products. Any display of the HP Marks must be in good taste, in a manner that preserves their value as HP Marks, and in accordance with standards provided by HP for their display. Reseller will not use any name or symbol in a way which may imply that Reseller is an agency or branch of HP; Reseller will discontinue any such use of a name or mark as requested by HP. Any rights or purported rights in any HP trademarks acquired through Reseller's use belong solely to HP. B. Reseller grants HP the non-exclusive, royalty-free right to display Reseller's trademarks in advertising and promotional material solely for directing prospective purchasers of HP Products to Reseller's Selling Locations. Any display of the trademarks must be in good taste, in a manner that preserves their value as Reseller's trademarks, and in accordance with standards provided by Reseller for their display. Any rights or purported rights in any Reseller trademarks acquired through HP's use belong solely to Reseller. 13. LIMITATION OF LIABILITY AND REMEDIES A. The remedies provided in this Agreement are Reseller's sole and exclusive remedies against HP. IN NO EVENT WILL HP BE LIABLE FOR LOSS OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY. B. Notwithstanding the foregoing, HP will be liable for damage to tangible property, bodily injury or death to the extent a court of competent jurisdiction determines that an HP Product sold under this Agreement is defective and has directly caused such property damage, bodily injury or death, provided that HP's liability for damage to tangible property will be limited to $1,000,000 per incident or the purchase price of the specific HP Products that caused such damage. 14. INTELLECTUAL PROPERTY PROTECTION A. HP will defend or settle any claim against Reseller that any HP Product furnished under this Agreement infringes a patent, utility model, industrial design, copyright, trade secret, mask work or trademark in the country where Reseller acquires or sells the Product from HP, provided that Reseller: 1. Promptly notifies HP in writing of the claim; and 2. Cooperates with HP in and grants HP sole authority to control the defense and any related settlement. HP will pay the cost of such defense or settlement and any costs and damages finally awarded by a court against Reseller. B. HP's indemnity shall extend to Reseller's authorized Customers under this Agreement provided they comply with the obligations above. C. HP may procure for Reseller, its Customers and end-users the right to continued sale or use, as appropriate, of the Product or HP may modify or replace the Product. If a court enjoins the sale or use of the Product and HP determines that none of the above alternatives is reasonably available, or in the case of a settlement agreement which binds HP, HP will have the option to replace the Product with a non-infringing Product, modify the Product so it becomes non-infringing at HP's expense, or repurchase the HP Product from Distributor or Authorized Reseller at Net Distributor price less depreciation. D. HP has no obligation for any claim of infringement arising from: 1. HP's compliance with any designs, specifications or instructions of Reseller; 2. Modification of the Product by Reseller or a third party; 3. Use of the Product in a way not specified by HP; or 4. Use of the Product with products not supplied by HP. E. This Section states HP's entire liability for intellectual property infringement by HP Products furnished under this Agreement. 15. RECORD-KEEPING AND AUDIT A. At HP's discretion and upon reasonable notice to Reseller, HP or HP's designate will be given prompt access during normal business hours, either on site, or through other means specified by HP, to Reseller's Customer records, inventory records, other books and records of account specifically related to Products as which HP believes are reasonably necessary to verify and audit Reseller's compliance with the terms of this Agreement. B. Failure to comply with HP's request will be considered a repudiation of this Agreement justifying HP's termination of this Agreement on fifteen (15) days notice without further cause. C. HP may recover all reasonable actual costs associated with compliance verification procedures from Reseller's HP promotional accrual program funds accrued by Distributor(s), or by HP, on behalf of Reseller, or by Reseller. 16. CHANGES AND AMENDMENTS A. From time to time, HP may add Products to or delete them from the Product Exhibits, or implement or change HP policies or programs, at HP's discretion, after reasonable notice to Reseller. Additionally, HP may give Reseller thirty (30) days, advance notice of any other Amendment to this Agreement. B. Any Amendment will automatically become a part of this Agreement on the effective date specified in the notice. C. Each party agrees that the other has made no commitments regarding the duration or renewal of this Agreement beyond those expressly stated in this Agreement. 17. TERM AND TERMINATION A. Either party may terminate this Agreement without cause at any time upon thirty (30) days' written notice or with cause at any time upon fifteen (15) days' written notice. B. Upon termination of this Agreement for any reason, Reseller will immediately cease to be an authorized HP Reseller and will refrain from representing itself as such and from using any HP trademark or trade name. Authorization of Reseller to use any HP trademarks will cease as of the effective date of any expiration or termination under this Agreement. C. Upon termination of this Agreement or expiration without renewal of this Agreement, all rights to any accrued HP promotional allowance funds will automatically lapse. D. All obligations concerning indemnities, warranties, and limitations of liability provided in this Agreement will survive termination or expiration of this Agreement, except that the provisions for confidentiality and support will survive only through the periods set forth herein. 18. RELATIONSHIP A. Reseller's relationship to HP will be that of an independent contractor purchasing HP Products from Authorized Distributor(s) for resale to Reseller's Customers. Neither party will have, nor represent that it has, any power, right, or authority to bind the other party, or to assume or create any obligation or responsibility, express or implied, on behalf of the other party's name except as expressly permitted by this Agreement or in a writing signed by HP. B. Nothing stated in this Agreement shall be construed as making Reseller and HP a franchise, joint venture or partnership, or as creating the relationship of employer and employee, master and servant, or principal and agent between the parties. Reseller will not represent itself in any way that implies Reseller is an agent or branch of HP. Reseller will immediately change or discontinue any representation or business practice found to be misleading or deceptive by Distributor or HP. C. HP shall not be deemed a party to any agreement between Reseller and Distributor or Customer. D. Unless expressly authorized by HP in writing in advance, any representation, warranty, or other commitment made by Reseller or Distributor to its Customer with respect to price, quantities, delivery, specifications, warranties, modifications, interfacing capability or suitability will be Reseller's sole responsibility. Reseller has no authority to modify any warranty provided with any HP Product, or to make any other commitment on HP's behalf. Reseller will indemnify HP from any liability arising from any such commitment by Reseller. E. List prices are suggested prices for resale to end-user Customers. Reseller has the right to determine its own resale prices, and no HP representative will require that any particular resale price be charged by Reseller or grant or withhold any treatment to Reseller based on Reseller's resale pricing policies. Reseller agrees that it will promptly report any effort by HP personnel to interfere with its pricing policies directly to an HP officer or manager. F. Nothing contained in this Agreement shall prevent a Reseller from purchasing individually, on its own credit and account directly from HP should it elect to do so, but nothing shall obligate HP to sell directly to Reseller. 19. POLICIES AND PROGRAMS From time to time, HP may offer or change HP policies and programs, such as but not limited to the HP promotional fund accrual program(s), Product demonstration and development unit programs, Premier Support program and other programs and policies, participation in which will be on the current terms and conditions of those policies and programs. 20. GENERAL A. Neither party may assign or transfer any rights or obligation in this Agreement without the prior written consent of the other party. Any attempted assignment or transfer will be deemed void. B. Neither party's failure to enforce any provision of this Agreement will be deemed a waiver of that provision or of the right to enforce it in the future. C. This Agreement constitutes the entire and only understanding between the parties relating to its subject matter and supersedes all prior representations, discussions, negotiations and agreement, whether written or oral. HP hereby gives notice of objection to any additional or inconsistent terms set forth in any purchase order or other document issued by Distributor or Reseller. Except as provided in paragraphs 16A and 16B of this Agreement, no modification of this Agreement will be binding on either party unless made in writing and signed by both parties. D. In the event that any portion of this Agreement should conflict, the terms and conditions defined in this U.S. Reseller Agreement take precedence. E. This Agreement will be governed by the laws of the State of California. F. If any clause of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remainder of the Agreement will continue unaffected. G. Neither party will be responsible for failure or delay in performance due to circumstances beyond its reasonable control, such as labor disputes, natural disaster, shortage of or inability to obtain labor, energy, and materials, war, riot, embargo, fire, or any other act or condition beyond the reasonable control of the non-performing party. 21. NUCLEAR APPLICATIONS HP Products are not specifically designed, manufactured, or intended for sale as parts, components, or assemblies for the planning, construction, maintenance, operation or use in any nuclear facility. Reseller, on behalf of itself and any direct or indirect end-user using HP Products for these applications, agrees that HP is not liable in whole or in part for any claim(s) or damage(s) arising from such use. If Reseller or any direct or indirect end-users use HP Product for these applications, Reseller agrees to indemnify and hold HP harmless from any claims for loss, cost, damage, expense, or liability arising out of or in connection with the use and performance of HP's Products or services in such nuclear applications. 22. U.S. GOVERNMENT A. No U.S. Government procurement regulations will be deemed included hereunder or binding an either party unless specifically accepted in writing and signed by both parties. B. Unless Reseller has obtained HP's prior written consent, Reseller is prohibited from issuing any Letter of Supply, from guaranteeing to supply, or from selling, supplying, or providing any person with HP Product for resale under any GSA contract. Unless Reseller has first received a Letter of Supply or other written authorization from HP, Reseller is prohibited from listing, and shall not list, HP Products on any GSA Schedule or contract. 23. CONFIDENTIALITY In the event that confidential information is exchanged between HP and Reseller, each party will protect the confidential information of the other in the same manner in which it protects its own like proprietary, confidential, and trade secret information, but, in any event, not less than a reasonable degree of care. If the party claiming the benefit of the provision furnishes such information in writing and marks such information as "Confidential" or if such information is provided orally, then the transmitting party ("Discloser") will confirm in writing to the receiving party ("Recipient") that it is confidential within thirty (30) days of its communication. Such information will remain confidential for three (3) years after the date of disclosure. This Section imposes no obligation upon a Recipient with respect to confidential information which (a) was in the Recipient's possession before the Discloser; (b) is or becomes a matter of public knowledge through no fault of the Recipient; (c) is rightfully received by the Recipient from a third party without a duty of confidentiality; (d) is disclosed by the Discloser to a third party without a duty of confidentiality on the third party; (e) is independently developed by the Recipient; (f) is disclosed under operation of law; or (g) is disclosed by the Recipient with the Discloser's prior written approval. 24. NOTICES All notices and demands issued under the terms of this Agreement shall be in writing, delivered by fax, personal service, first class mail, postage prepaid or by registered mail to a location set forth in this Agreement or to HP at 5301 Stevens Creek Boulevard, PO Box 58059, Santa Clara, California 95052-8059, or at such different address as may be designated by such party by written notice to the other party. 25. RESELLER REPORTING Upon HP's request Reseller is required to provide HP with accurate HP Product sell-to and inventory data in a format and frequency defined by HP, using the HP-provided software utility or existing EDI standards. Participation in HP programs will be reliant on Reseller's ability to comply with program reporting requirements. 26. INTERNATIONAL SALES Reseller will sell HP Products only to end-user Customers in the U.S., for use in the U.S., and abide by any other geographic restrictions defined in this Agreement unless otherwise authorized by HP in writing. Without HP's prior written consent, Reseller will not export HP Products outside the U.S. nor will Reseller sell HP Products for export outside the U.S. U.S. GSA AGENT ADDENDUM TABLE OF CONTENTS 1. APPOINTMENT 2. INTENTIONALLY OMITTED 3. INTENTIONALLY OMITTED 4. INTENTIONALLY OMITTED 5. VOLUME COMMITMENT LEVELS 6. INTENTIONALLY OMITTED 7. INTENTIONALLY OMITTED 8. INTENTIONALLY OMITTED 9. INTENTIONALLY OMITTED 10. INTENTIONALLY OMITTED 11. INTENTIONALLY OMITTED 12. INTENTIONALLY OMITTED 13. INTENTIONALLY OMITTED 14. INTENTIONALLY OMITTED 15. INTENTIONALLY OMITTED 16. INTENTIONALLY OMITTED 17. TERM AND TERMINATION 18. INTENTIONALLY OMITTED 19. INTENTIONALLY OMITTED 20. INTENTIONALLY OMITTED 21. INTENTIONALLY OMITTED 22. U.S. GOVERNMENT 23. INTENTIONALLY OMITTED 24. INTENTIONALLY OMITTED 25. INTENTIONALLY OMITTED 26. INTERNATIONAL SALES U.S. GSA AGENT ADDENDUM 1. APPOINTMENT A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized, non-exclusive Reseller for marketing certain HP Products sold by and purchased from an HP authorized Distributor holding a valid General Services Administration ("GSA") Federal Supply Service Information Technology Schedule ("FSS IT") Contract and HP Federal Distributor Addendum. B. Reseller's appointment is subject to the terms of the U.S. Reseller Agreement, the associated Volume Product Exhibits, this Addendum, and HP Product Categories (collectively, the "Agreement") for the period from the effective date through the expiration date of the Agreement. Reseller accepts appointment on these terms. C. Reseller ("GSA Agent") may market and sell under GSA Schedule only those HP products which it is authorized to sell pursuant to its U.S. Reseller Agreement. 5. VOLUME COMMITMENT LEVELS GSA Agent minimum resale shipments for twelve (12) months under this Addendum are $250,000 of HP Products, measured by Net Distributor Price from HP to the Distributor. If the term of this Agreement or any Addendum or new Product Exhibit is less than twelve (12) months, an applicable twelve (12)-month volume commitment level will be calculated for GSA Agent by projection over a full twelve (12)-month term. 17. TERM AND TERMINATION Either party may terminate this Addendum without cause at any time upon thirty (30) days' written notice or with cause at any time upon fifteen (15) days' written notice. Such termination will not necessarily impact the remainder of Reseller's Agreement with HP. 22. U.S. GOVERNMENT Unless GSA Agent has obtained HP's prior written consent, GSA Agent is prohibited from issuing any Letter of Supply, from guaranteeing to supply, or from selling, supplying, or providing any person with HP Product for resale under any GSA contract. Unless GSA Agent has first received a Letter of Supply or other written authorization from HP, GSA Agent is prohibited from listing, and shall not list HP Products on any GSA Schedule or contract. 26. INTERNATIONAL SALES Without HP's prior written consent, GSA Agent will not export HP Products to any customer outside the U.S., nor will GSA Agent sell HP Products for export outside the U.S., with the following exception: GSA Agent may sell HP Product for use outside of the U.S. if the end-user Customer is a United States Government Agency or Department or has valid purchasing authority from GSA list of authorized end-user agencies ("Purchaser"). Purchaser must be purchasing for use in connection with the Government Agency or Department and must buy HP Products for resale or transfer only to a U.S. Government Agency or Department. Any such foreign sale shall be conducted in strict compliance with the statutes, rules and regulations governing such sales, as promulgated by the U.S. Department of Commerce and any other U.S. Government Agency. HP 220V Products that are equivalent to Products on the GSA Product List may be purchased by Distributor for these foreign sales at Net Distributor Price based on U.S. List Prices. All associated warranties require return of Products to HP in the U.S. The HP 220V Product purchases are dependent on the currently available inventory and do not apply toward order or sell-through milestones or volume commitment levels, and are not eligible for the HP Advantage program, rebates or other promotional programs. Shipments will be made only to U.S. Shipment Locations approved by HP. HEWLETT-PACKARD COMPANY U.S. FEDERAL DISTRIBUTOR ADDENDUM SIGNATURE PAGE ICN # 829 LEGAL BUSINESS NAME MICROAGE COMPUTER CENTERS INC ADDRESS 2400 SOUTH MICROAGE WAY CITY, STATE, ZIP TEMPE AZ 85282-1896 PHONE, FAX # (602)804-2000 E-MAIL/INTERNET ADDRESS ______________________________ DBA(s) ______________________________ THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR THE PURCHASE AND RESALE OF HP PRODUCTS. ADDENDA: X U.S. Federal Distributor - --- ================================================================================ EXHIBIT ELECTION HP AND DISTRIBUTOR AGREE THAT ITS VOLUME LEVEL, AT NET DISTRIBUTOR PRICE, FOR HP PRODUCTS UNDER THE U.S. FEDERAL DISTRIBUTOR ADDENDUM A ABOVE FOR THE TERM OF THIS DISTRIBUTOR'S AGREEMENT IS: U.S. FEDERAL DISTRIBUTOR ___ LEVEL 1 $15,000,000 - and up ================================================================================ STATEMENT OF OWNERSHIP: Form of Organization: (i.e. Corporation, General Partnership, Limited Partnership, Sole Proprietor):_________________________ For a Corporation, specify whether: Publicly Held:_____ Privately Held:______ State of Incorporation/Organization: ________ Identify Company ownership and management structure as follows (attach additional pages if necessary): o Sole Proprietor Identify all owners, officers and ownership percentages held o Trust: Identify Trustee(s), Administrators and Beneficiaries of Trust o Partnership: Identify all General Partners, Limited Partners, Officers and ownership percentages held Specify dollar investment of limited partners o Privately Held Corporation: Identify all shareholders with class and percentage ownership, Officers and Board of Director Members o Publicly Held Corporation: Identify owners of 20% or more of each class of shares with class and percentage ownership, Officers and Board of Director Members
NAMES TITLES OWNERSHIP INTEREST Percentage Ownership (Dollar Type of Ownership Interest Investment in Limited (Assets, Common or Partners) Preferred Shares) - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- -------------------------- - ----------------- ------------------ ---------------------------- --------------------------
If Company is 100% owned by another corporation, identify the parent corporation's ownership and management structure above and the identity of the parent corporation below: - -------------------------------------------------------------------------------- Parent/Owner, including DBA(s) - -------------------------------------------------------------------------------- Address ( ) - -------------------------------------------------------------------------------- City State Zip Telephone ( ) - -------------------------------------------------------------------------------- State of Parent/Owner's Incorporation Fax MICROAGE AUTHORIZED SIGNATURES MA FEDERAL INC. AUTHORIZED SIGNATURES /s/ Robert Ward /s/ Patrick A. Neven - --------------------------------- ------------------------------------ Authorized Signature Authorized Signature ROBERT WARD PATRICK A. NEVEN - --------------------------------- ------------------------------------ Typed Name Typed Name VP OPERATIONS PRESIDENT - --------------------------------- ------------------------------------ Title Title HEWLETT-PACKARD COMPANY /s/ Susan Weatherman March 31, 1999 - --------------------------------- -------------- --------------- Susan Weatherman Effective Date Expiration Date EX-10.47 9 U.S RESELLER AGR. WITH HEWLETT-PACKARD HP Indirect Computer Reseller HEWLETT Application Signature Page for PACKARD HP NetServer/PC/Peripheral Resellers 1. DISTRIBUTOR INFORMATION - -------------------------------------------------------------------------------- Distributor Name: Distributor Account No.: Business Address: Phone: Fax: City: State: Zip: Distributor Contact Name: Title: E-mail Address: Phone: Distributor Sales Rep: Phone: E-mail Address: 2. RESELLER INFORMATION - -------------------------------------------------------------------------------- Reseller Name (name used on business license, permits, and State and Federal Tax ID numbers: MicroAge Integration Co. Date business established using this name: 1998 DBA (other names under which reseller does business): MicroAge Address: 2400 South MicroAge Way Phone: City: Tempe State: AZ Zip: 85282-1896 Executive Contact: Mike Tatum Corporate Web Address: MicroAge.com Internet Address: 3. STATEMENT OF OWNERSHIP - -------------------------------------------------------------------------------- Form of Organization (i.e., Corporation, General Partnership, Limited Partnership, Sole Proprietor): CORPORATION For a Corporation, specify whether: [X] Publicly Held [ ] Privately Held [ ] State of Incorporation/Organization Identify company ownership and management structure as follows (attach additional pages if necessary): + Sole Proprietor: Identify all owners, officers, and ownership percentages held + Trust: Identify Trustee(s), Administrators, and Beneficiaries of Trust + Partnership: Identify all General Partners, Limited Partners, Officers, and ownership percentages held (specify dollar investment of limited partners) + Privately Held Corporation: Identify all shareholders with class and percentage ownership, Officers, and Board of Director Members + Publicly Held Corporation: Identify owners of 20% or more of each class of shares with class and percentage ownership, Officers, and Board of Director Members OWNERSHIP INTEREST TYPE OF OWNERSHIP Percentage Ownership INTEREST (Dollar Investment in (Assets, Common or NAMES TITLES Limited Partners) Preferred Shares) - ----------- ----------- --------------------- ------------------- - ----------- ----------- --------------------- ------------------- - ----------- ----------- --------------------- ------------------- If Company is 100% owned by another corporation, identify the parent corporation's ownership and management structure on the previous page and identity of the parent corporation below: Parent/Owner, including DBA(s): ----------------------------------------------- Address: ---------------------------------------------------------------------- City: State: Zip: ------------------------------------- ---------- -------- Phone:( ) Fax: ( ) ----------------------------------------------- ---------------------- State of Parent/Owner's Incorporation: 4. AUTHORIZED SIGNATURES - -------------------------------------------------------------------------------- In the event that this application is approved, Distributor and Reseller agree that their contract, whether its other terms are oral or written, will include the written terms attached as the U.S. Reseller Agreement and U.S. Volume Reseller Addendum for authorization to resell HP NetServers/PCS/Peripherals. 2 - -------------------------------------------------------------------------------- RESELLER By Reseller's signature below, Reseller agrees the statements provided in the attached application are true and complete. Reseller agrees to the term of the certifications and authorizations, of which all terms are included in this agreement by this reference. If any changes occur, I will notify the Distributor and HP in writing. Authorized Signature: /s/ Michael A. Tatum Date: 10-16-98 Print Name: Michael A. Tatum Title: Group Vice President Supplier Alliances - -------------------------------------------------------------------------------- DISTRIBUTOR To best of Distributor's knowledge, the statements provided in this application and the accompanying documentation are true and accurate. Company Name: ------------------------------------------------------------------- Authorized Signature: Date: -------------------------------- ---------------------- Print Name: Title: -------------------------------- --------------------- - -------------------------------------------------------------------------------- HEWLETT-PACKARD COMPANY /s/ Susan Weatherman - ------------ - -------------------------------------------------------------------- Susan Weatherman Reseller Contracts and Negotiation Manager 10-23-98 May 31, 1999 - ------------------------------ --------------------------- Effective Date Expiration Date 3 U.S. RESELLER AGREEMENT 1. APPOINTMENT A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized, non-exclusive Reseller for marketing the HP Products listed on the Product Exhibits and sold by and purchased from an HP Authorized Distributor. B. Reseller's appointment is subject to the terms and conditions set forth in this Agreement, Addenda, Product Exhibits and HP Product Categories (collectively, the "Agreement") for the period from the effective date through the expiration date of this Agreement. Reseller accepts appointment on these terms. 2. STATUS CHANGE A. Reseller's approved company names, including DBA(s) and selling locations, are listed on the HP Exhibit L and are the only names and selling locations under which Reseller may represent and sell HP Products. If Reseller wishes to: 1. Change its name; 2. Add, close or change an approved shipment, delivery or other HP-authorized location; 3. Undergo a merger, acquisition, consolidation or other reorganization with the result that any entity controls 25% or more of Reseller's capital stock or assets after such transaction; or 4. Undergo a significant change in control or management of Reseller operations; then Reseller shall notify HP in writing prior to the intended date of change. In no event may such notice be provided more than ten (10) days after the change has occurred. B. HP agrees to promptly notify Reseller of its approval or disapproval of any proposed change, provided that Reseller has given HP all information and documents reasonably requested by HP. C. HP must approve proposed Reseller changes prior to any obligation of HP to perform under this Agreement with Reseller as changed. 4 3. RESELLER RESPONSIBILITIES A. Reseller agrees to: 1. Advertise, promote, demonstrate and sell HP Products only within the geographies defined in this Agreement and, when defined by the HP Product Categories, on a face-to-face basis. 2. Represent HP Products fairly to all Customers. 3. Forward promptly to Customers all technical sales and promotional materials, suggested price lists and other information provided by HP for the purpose of reshipment to Customers. 4. Provide Customers with any HP ergonomics information, including, where applicable, HP WORKING IN COMFORT materials (in paper and electronic form) and any warning or advisory tags, labels, or other information relating to the use of HP Products containing keyboards. 5. Ensure that ongoing pre-sales support and post-sales technical support of HP Products and Reseller's value-added solutions is provided to all Customers. Reseller agrees to maintain or make available such qualified personnel as necessary to provide timely and knowledgeable support services sufficient to ensure a high level of Customer satisfaction. 6. Ensure that no sale, advertising, promotion, display, or disclosure of any features, availability or price of any new HP Product takes place before HP's public announcement of that Product. 7. Respond promptly to all Customer inquiries or requests related to HP Products. 8. Report promptly to HP all suspected defects in HP Products. 9. Ensure that its employees complete any required training courses and certification designated by HP. 10. Confer periodically with HP at HP's request on matters relating to market conditions, sales forecasting, and Product planning. 11. Use catalogs and telemarketing sales techniques only in conformity with current HP policies and only as a complement to face-to-face sales activity. 5 12. Identify and keep current a primary and secondary support contact for both marketing communications and post-sales support at each approved Selling Location. 13. Provide Customers with a written invoice stating the Customer's name and address, the date of purchase, and serial numbers, if any, of HP Products. Reseller will retain such records, or their equivalent, to enable Reseller to notify Customers of Product safety information, corrections for operational problems, and the like. B. Reseller may advertise only those HP Products which it is authorized to sell. Reseller's advertising may in no way mention Reseller as an authorized reseller for any other HP Product. 4. MULTIPLE AGREEMENT DISCOUNTS Unless otherwise specified by HP in writing, purchases of HP Products under any HP Product Exhibit in this Agreement and purchases under any other HP Product Exhibits in this or any other HP Agreement are exclusive of each other for the purpose of calculating volume commitment and discount levels. 7. PRICES Upon request from Reseller, at its discretion, HP may grant special pricing for particular end-user Customer transactions. In good faith, HP may retract the special pricing any time before acceptance by the end-user Customer. HP may extend the pricing on an exclusive or nonexclusive basis and may condition the pricing on a pass-through to the end-user of all or part of the non-standard offering extended by HP. 9. ORDERS AND DELIVERY HP may, from time to time, offer Reseller certain HP Products on special promotional terms. Such purchases may not, in some cases, be eligible for promotional allowance funds, price protection or stock adjustments. With these exceptions, Reseller's purchases in response to these special promotional offers are subject to the terms set forth in Reseller's Agreement. 10. SOFTWARE Reseller is granted the right to distribute software materials suppled by HP only in accordance with the license terms supplied with these materials. Reseller may alternatively acquire the software materials from HP for its own demonstration purposes in accordance with the terms for use in those license terms. 6 11. TRADEMARKS A. From time to time, HP may authorize Reseller to display one or redesignated HP trademarks, logo types, trade names, and insignia ("HP Marks"). Reseller may display the HP Marks solely to promote HP Products. Any display of the HP Marks must be in good taste, in a manner that preserves their value as HP Marks, and in accordance with standards provided by HP for their display. Reseller will not use any name or symbol in a way which may imply that Reseller is an agency or branch of HP; Reseller will discontinue any such use of a name or mark as requested by HP. Any rights or purported rights in any HP trademarks acquired through Reseller's use belong solely to HP. B. Reseller grants HP the non-exclusive, royalty-free right to display Reseller's trademarks in advertising and promotional material solely for directing prospective purchasers of HP Products to Reseller's Selling Locations. Any display of the trademarks must be in good taste, in a manner that preserves their value as Reseller's trademarks, and in accordance with standards provided by Reseller for their display. Any rights or purported rights in any Reseller trademarks acquired through HP's use belong solely to Reseller. 13. LIMITATION OF LIABILITY AND REMEDIES A. The remedies provided in this Agreement are Reseller's sole and exclusive remedies against HP. IN NO EVENT WILL HP BE LIABLE FOR LOSS OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY. B. Notwithstanding the foregoing, HP will be liable for damage to tangible property, bodily injury or death to the extent a court of competent jurisdiction determines that an HP Product sold under this Agreement is defective and has directly caused such property damage, bodily injury or death, provided that HP's liability for damage to tangible property will be limited to $1,000,000 per incident or the purchase price of the specific HP Products that caused such damage. 14. INTELLECTUAL PROPERTY PROTECTION A. HP will defend or settle any claim against Reseller that any HP Product furnished under this Agreement infringes a patent, utility model, industrial design, copyright, trade secret, mask work or trademark in the country where Reseller acquires or sells the Product from HP, provided that Reseller: 1. Promptly notifies HP in writing of the claim; 7 2. Cooperates with HP in and grants HP sole authority to control the defense and any related settlement, and 3. sold said Products or Support in complete compliance with this Agreement. HP will pay the cost of such defense or settlement and any costs and damages finally awarded by a court against Reseller. B. HP's indemnity shall extend to Reseller's authorized Customers under this Agreement provided they comply with the obligations above. C. HP may procure for Reseller, its Customers and end-users the right to continued sale or use, as appropriate, of the Product or HP may modify or replace the Product. If a court enjoins the sale or use of the Product and HP determines that none of the above alternatives is reasonably available, or in the case of a settlement agreement which binds HP, HP will have the option to replace the Product with a non-infringing Product, modify the Product so it becomes non-infringing at HP's expense, or repurchase the HP Product from Distributor or Authorized Reseller at Net Distributor price less depreciation. D. HP has no obligation for any claim of infringement arising from: 1. HP's compliance with any designs, specifications or instructions of Reseller; 2. Modification of the Product by Reseller or a third party; 3. Use of the Product in a way not specified by HP; or 4. Use of the Product with products not supplied by HP. E. This Section states HP's entire liability for intellectual property infringement by HP Products furnished under this Agreement. 15. RECORD-KEEPING AND AUDIT A. At HP's discretion and upon reasonable notice to Reseller, HP or HP's designate will be given prompt access during normal business hours, either on site, or through other means specified by HP, to Reseller's Customer records, inventory records, other books and records of account specifically related to Products as which HP believes are reasonably necessary to verify and audit Reseller's compliance with the terms of this Agreement. 8 B. Failure to comply with HP's request will be considered a repudiation of this Agreement justifying HP's termination of this Agreement on fifteen (15) days notice without further cause. C. HP may recover all reasonable actual costs associated with compliance verification procedures from Reseller's HP promotional accrual program funds accrued by Distributor(s), or by HP, on behalf of Reseller, or by Reseller. D. HP may debit Reseller's HP promotional accrual program funds for all wrongfully claimed discounts, promotional allowances, or other amounts determined as a result of HP's audit of Reseller. 16. CHANGES AND AMENDMENTS A. From time to time, HP may add Products to or delete them from the Product Exhibits, or implement or change HP policies or programs, at HP's discretion, after reasonable notice to Reseller. Additionally, HP may give Reseller thirty (30) days' advance notice of any other Amendment to this Agreement. B. Any Amendment will automatically become a part of this Agreement on the effective date specified in the notice. C. Each party agrees that the other has made no commitments regarding the duration or renewal of this Agreement beyond those expressly stated in this Agreement. 17. TERM AND TERMINATION A. Either party may terminate this Agreement or any Certification or Addendum to this Agreement, without cause at any time upon thirty (30) days' written notice or with cause at any time upon fifteen (15) days' written notice. B. Upon termination of this Agreement, or any Certification or Addendum to this Agreement, for any reason, Reseller will immediately cease to be an authorized HP Reseller and will refrain from representing itself as such and from using any HP trademark or trade name. Authorization of Reseller to use any HP trademarks will cease as of the effective date of any expiration or termination under this Agreement. C. Upon termination of this Agreement, or any Addendum or Certification to this Agreement, or expiration without renewal of this Agreement or any Addendum or Certification to this Agreement, all rights to any accrued HP promotional allowance funds will automatically lapse. 9 D. Al obligations concerning indemnities, warranties, and limitations of liability provided in this Agreement or any Addendum or Certification to this Agreement will survive termination or expiration of this Agreement, except that the provisions for confidentiality and support will survive only through the periods set forth herein. 18. RELATIONSHIP A. Reseller's relationship to HP will be that of an independent contractor purchasing HP Products from Authorized Distributor(s) for resale to Reseller's Customers. Neither party will have, nor represent that it has, any power, right, or authority to bind the other party, or to assume or create any obligation or responsibility, express or implied, on behalf of the other party's name except as expressly permitted by this Agreement or in a writing signed by HP. B. Nothing stated in this Agreement shall be construed as making Reseller and HP a franchise, joint venture or partnership, or as creating the relationship of employer and employee, master and servant, or principal and agent between the parties. Reseller will not represent itself in any way that implies Reseller is an agent or branch of HP. Reseller will immediately change or discontinue any representation or business practice found to be misleading or deceptive by Distributor or HP. C. HP shall not be deemed a party to any agreement between Reseller and Distributor or Customer. D. Unless expressly authorized by HP in writing in advance, any representation, warranty, or other commitment made by Reseller or Distributor to its Customer with respect to price, quantities, delivery, specifications, warranties, modifications, interfacing capability or suitability will be Reseller's sole responsibility. Reseller has no authority to modify any warranty provided with any HP Product, or to make any other commitment on HP's behalf. Reseller will indemnify HP from any liability arising from any such commitment by Reseller E. List prices are suggested prices for resale to end-user Customers. Reseller has the right to determine its own resale prices, and no HP representative will require that any particular resale price be charged by Reseller or grant or withhold any treatment to Reseller based on Reseller's resale pricing policies. Reseller agrees that it will promptly report any effort by HP personnel to interfere with its pricing policies directly to an HP officer or manager. F. Nothing contained in this Agreement shall prevent a Reseller from purchasing individually, on its own credit and account directly from HP should it elect to do so, but nothing shall obligate HP to sell directly to Reseller. 10 19. POLICIES AND PROGRAMS From time to time, HP may offer or change HP policies and programs, such as but not limited to the HP promotional fund accrual program(s), Product demonstration and development unit programs, Premier Support program and other programs and policies, participation in which will be on the current terms and conditions of those policies and programs. 20. GENERAL A. Neither party may assign or transfer any rights or obligation in this Agreement without the prior written consent of the other party. Any attempted assignment or transfer will be deemed void. B. Neither party's failure to enforce any provision of this Agreement will be deemed a waiver of that provision or of the right to enforce it in the future. C. This Agreement constitutes the entire and only understanding between the parties relating to its subject matter and supersedes all prior representations, discussions, negotiations and agreement, whether written or oral. HP hereby gives notice of objection to any additional or inconsistent terms set forth in any purchase order or other document issued by Distributor or Reseller. Except as provided in subsections 16.A and 16.B of this Agreement, no modification of this Agreement will be binding on either party unless made in writing and signed by both parties. D. In the event that any portion of this Agreement should conflict the terms and conditions defined in this U.S. Reseller Agreement take precedence. E. This Agreement will be governed by the laws of the State of California. F. If any clause of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remainder of the Agreement will continue unaffected. G. Neither party will be responsible for failure or delay in performance due to circumstances beyond its reasonable control, such as labor disputes, natural disaster, shortage of or inability to obtain labor, energy, and materials, war, riot, embargo, fire, or any other act or condition beyond the reasonable control of the party. 21. NUCLEAR APPLICATIONS Reseller acknowledges that HP Products are not specifically designed, manufactured, or intended for sale as parts, components, or assemblies for the planning, construction, maintenance, or use in any nuclear 11 facility. Reseller will use all reasonable efforts to prevent the sale of HP Products to any end user that intends to use those products in planning, constructing, or maintaining any nuclear facility. If Reseller sells HP Products to any end user that Reseller knows or has reason to know will use those products in planning, constructing, or maintaining any nuclear facility, Reseller will indemnify HP and hold HP harmless from any claims for loss, cost, damage, expense, or liability arising out of or in connection with the use and performance of HP Products in such nuclear facility. 22. U.S. GOVERNMENT A. No U.S. Government procurement regulations will be deemed included hereunder or binding on either party unless specifically accepted in writing and signed by both parties. B. Unless Reseller has obtained HP's prior written consent, Reseller is prohibited from issuing any Letter of Supply, from guaranteeing to supply, or from selling, supplying, or providing any person with HP Product for resale under any General Services Administration (GSA) contract. Unless Reseller has first received a Letter of Supply or other written authorization from HP, Reseller is prohibited from listing, and shall not list, HP Products on any GSA Schedule or contract. 23. CONFIDENTIALITY In the event that confidential information is exchanged between HP and Reseller, each party will protect the confidential information of the other in the same manner in which it protects its own like proprietary, confidential, and trade secret information, but in any event, not less than a reasonable degree of care. If the party claiming the benefit of the provision furnishes such information in writing and marks such information as "Confidential" or it such information is provided orally, then the transmitting party ("Discloser") will confirm in writing to the receiving party ("Recipient") that it is confidential within thirty (30) days of its communication. Such information will remain confidential for three (3) years after the date of disclosure. This Section imposes no obligation upon a Recipient with respect to confidential information which (a) was in the Recipient's possession before the Discloser; (b) is or becomes a matter of public knowledge through no fault of the Recipient; (c) is rightfully received by the Recipient from a third party without a duty of confidentiality; (d) is disclosed by the Discloser to a third party without a duty of confidentiality on the third party; (e) is independently developed by the Recipient; (f) is disclosed under operation of law; or (g) is disclosed by the Recipient with the Discloser's prior written approval. 12 24. NOTICES All notices and demands issued under the terms of this Agreement shall be in writing, delivered by fax, personal service, first class mail, postage prepaid or by registered mail to a location set forth in this Agreement or to HP at 5301 Stevens Creek Boulevard MIS 54U HC, PO Box 58059, Santa Clara, California 95052-8059, or to the assigned HP sales representative or at such different address as may be designated by such party by written notice to the other party. 25. RESELLER REPORTING Upon HP's request, Reseller is required to provide HP with accurate HP Product sell-to and inventory data in a format and frequency defined by HP, using the HP-provided software utility or existing EDI standards. Participation in HP programs will be reliant an Reseller's ability to comply with program reporting requirements. 26. INTERNATIONAL SALES Reseller will sell HP Products only to end-user Customers in the U.S., for use in the U.S., and abide by any other geographic restrictions defined in this Agreement unless otherwise authorized by HP in writing. Without HP's prior written consent, Reseller will not export HP Products outside the U.S. nor will Reseller sell HP Products for export outside the U.S. 13 EX-10.57 10 STANDARD COMMERCIAL LEASE AGREEMENT STANDARD COMMERCIAL LEASE AGREEMENT 1228 Forest Parkway Suite 100 Approximately: 131,787 square feet Paulsboro, NJ 08066 LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between Riggs & Company, a division of Riggs Bank N.A., as trustee of the Multi-Employer Property Trust hereinafter referred to as "Landlord", and Pinacor, Inc. hereinafter referred to as "Tenant"; W I T N E S S E T H 1. PREMISES AND TERM. In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord certain premises situated within the County of Gloucester, State of New Jersey, more particularly described on EXHIBIT "A" and EXHIBIT "B" attached hereto and incorporated herein by reference, together with all rights, privileges, easements, appurtenances, and immunities belonging to or in any way pertaining to the premises and together with the buildings and other improvements situated or to be situated upon said premises (said real property, building and improvements being hereinafter referred to as the "premises"). TO HAVE AND TO HOLD the same for a term commencing on the "commencement date", as hereinafter defined, and ending thirty-six (36) months thereafter, provided, however, that, in the event the "commencement date", is a date other than the first day of a calendar month, said term shall extend for said number of months in addition to the remainder of the calendar month following the "commencement date". The "commencement date" shall be September 28, 1998, and thus the scheduled expiration date of this Lease is September 30,2001. Tenant shall, upon demand, execute and deliver to Landlord a Letter of Acceptance of delivery of the premises. 2. BASE RENT, ADJUSTMENT THEREOF AND SECURITY DEPOSIT. a) Tenant agrees to pay to Landlord rent for the premises, in advance, without demand, deduction or set off, for the entire term hereof at the rate of PERIOD MONTHLY BASE RENT ANNUAL BASE RENT Months 1 - 36 $46,125.45 $ 553,505.40 One such monthly installment shall be due and payable on the date hereof and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the commencement date recited above during the hereby demised term, except that the rental payment for any fractional calendar month at the commencement or end of the lease period shall be prorated. b) In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of Forty Six Thousand One Hundred Twenty Five Dollars ($46,125.00), which sum shall be held by Landlord, without obligation for interest, as security for the performance of Tenant's covenants and obligations under this lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use such fund to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this lease that all of Tenant's obligations under this lease have been fulfilled. 3. USE. The premises shall be used only for the purpose of receiving, storing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto. Outside storage, including without limitation, trucks and other vehicles and the washing thereof at any time, is prohibited without Landlord's prior written consent. Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any such use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, Tenant's use of the premises, all at Tenant's sole expense. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the premises, not take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the building in which the premises are situated or unreasonably interfere with their use of their respective premises. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the premises to be used for any purpose or in any manner (including without limitation any method of storage) which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. If any increase in the fire and extended coverage insurance premiums paid by Landlord for the building in which Tenant occupies space is caused by Tenant's use and occupancy of the premises, or if Tenant vacates the premises and causes an increase in such premiums, then Tenant shall pay as additional rental the amount of such increase to Landlord. -2- 4. OPERATING EXPENSES. a. Tenant agrees to pay to Landlord as additional rental, in accordance with Paragraph 24, Tenant's proportionate share of the operating expenses. In the year in which this lease terminates, Landlord, in lieu of waiting until the close of the calendar year in order to determine any operating expenses, has the option to charge Tenant for Tenant's proportionate share of the operating expenses based upon the previous year's operating expenses. b. The term 'operating expenses' as used above includes all expenses incurred by Landlord with respect to the ownership, maintenance and operation of the building and/or project of which the premises are a part, including, but not limited to, maintenance and repair costs, water, sewer, security, trash and snow removal, landscaping, wages and fringe benefits payable to employees or authorized agents of Landlord whose duties are connected with the operations and maintenance of the building and/or project in an amount equal to 4% of the gross annual rental to be received hereunder, amounts paid to contractors and subcontractors for work or services performed in connection with the operation and maintenance of the building and/or project, all services, supplies, repairs, replacements or other expenses for maintaining and operating the building and/or project including common area and parking area. The term 'operating expenses' also includes all real property taxes, assessments (whether general or special) and governmental charges of any kind and nature whatsoever including assessments due to deed restrictions and/or owners' associations, which accrue against the building and/or project of which the premises are a part during the term of this lease as well as all insurance premiums Landlord is required to pay or deems necessary to pay, including without limitation public liability insurance and fire and extended coverage insurance with respect to the building and/or project. The term 'operating expenses' does not include any capital costs for roof or parking lot replacement, nor shall it include repairs, restoration or other work occasioned by fire, windstorm or other casualty to the extent of net insurance proceeds received by Landlord with respect thereto, income and franchise taxes of Landlord, expenses incurred in leasing to or procuring of tenants, leasing commissions, advertising expenses, expenses for the innovating of space for new tenants, interest or principal payments on any mortgage or other indebtedness of Landlord, nor depreciation allowance or expense, any costs or expenses for which Landlord is reimbursed or indemnified (whether by an insurer, condemnor, tenant or otherwise); depreciation or amortization of the building or its contents or components; the cost of any item or service which Tenant separately reimburses Landlord or pays to third parties, or that Landlord provides selectively to one or more tenant of the project, other than Tenant, whether or not Landlord is reimbursed by such other tenant(s); all bad debt loss, rent loss, or reserve for bad debt or rent loss. Any operating expenses incurred by Landlord with respect to the project as a whole or with respect to more than one building in the project shall be pro-rated among such buildings based on the rentable square foot areas in such buildings, and only the portion of such operating expenses allocable to the building of which the premises are a part shall be included in 'Operating Expenses' for purposes of this Paragraph 4. c. Tenant's 'proportionate share', as used in this lease, shall mean a fraction, the numerator of which is the space contained in the premises and the denominator of which is the entire space contained in the building. Thus Tenant's proportionate share is 100%. d. If at any time during the term of this lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges -3- levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents for the present or any future building or buildings on the premises, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "taxes" for the purposes hereof e. Tenant may audit Landlord's books relevant to the additional rentals due under this paragraph; however, Tenant agrees to pay all costs associated with or resulting from such audit, including reimbursement to Landlord for any additional costs incurred by Landlord. f. Any payment to be made pursuant to this Paragraph 4 with respect to the calendar year in which this lease commences or terminates shall be prorated. 5. LANDLORD'S REPAIRS. a. Landlord shall at its expense maintain only the roof, foundation and the structural soundness of the exterior walls of the building in good repair, reasonable wear and tear excepted. Tenant shall repair and pay for any damage caused by Tenant, or Tenant's employees, agents or invitees, or caused by Tenant's default hereunder. The term "walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Tenant shall immediately give Landlord written notice of defect or need for repairs, after which Landlord shall have reasonable opportunity to repair same or cure such defect. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible under any of the provisions of this lease shall be limited to the cost of such repairs or maintenance or the curing of such defect. b. Notwithstanding Tenant's obligation pursuant to Paragraph 6(a) to make repairs and replacements to the premises, Landlord shall replace, promptly after notice from Tenant of the need for such replacement (i.e., that the system or component in question is no longer capable of repair at an economically reasonable cost), any of the building's plumbing, electrical or HVAC systems or a component thereof that requires replacement, provided that (i) such system or component thereof was installed in the premises prior to the commencement date and (ii) the cost of such replacement is in excess of $5,000.00. Replacements of building systems or components thereof installed by Tenant after the commencement date or costing $5,000.00 or less shall be made by Tenant as provided in Paragraph 6(a). The cost incurred by Landlord in making any such replacement, together with interest thereon at 10% per annum, shall be amortized over the useful life of the replaced system or component in equal monthly installments. Such equal monthly installments shall be payable by Tenant to Landlord as additional rent commencing upon the first day of the first calendar month following the replacement in question and continuing until the earlier of the expiration of the term hereof (as it may be renewed or extended from time to time) or the expiration of the amortization period. 6. TENANT'S REPAIRS AND OTHER COVENANTS OF CARE AND TREATMENT OF PREMISES. a. Tenant shall at its own cost and expense keep and maintain all parts of the premises (except those for which Landlord is expressly responsible under the terms of this lease) in good -4- condition, promptly making all necessary repairs and replacements, including but not limited to, windows, glass and plate glass, doors, any special office entry, interior walls and finish work, doors and floor covering, downspouts, gutters, heating and air conditioning systems, dock boards, truck doors, dock bumpers, paving, plumbing work and fixtures, termite and pest extermination, regular removal of trash and debris, regular mowing of any grass, trimming, weed removal and general landscape maintenance, including rail spur areas, keeping the parking areas, driveways, alleys and the whole of the premises in a clean and sanitary condition, and maintaining any spur track servicing the premises (Tenant agrees to sign a joint maintenance agreement with the railroad company servicing the premises, if requested by the railroad company). Tenant shall not be obligated to repair any damage caused by fire, tornado or other casualty covered by the insurance to be maintained by Landlord pursuant to subparagraph 12(A) below, except that Tenant shall be obligated to repair all wind damage to glass except with respect to tornado or hurricane damage. b. Tenant shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or its employees, agents, customers, invitees, and/or licensees. c. In the event the premises ever constitutes a portion of a multiple occupancy building, Tenant and its employees, agents, customers, invitees, and/or licensees shall have the exclusive right to use the parking areas, if any, as may be designated by Landlord in writing (allocated based on the square footage of the building), subject to such reasonable rules and regulations as Landlord may from time to time prescribe and subject to rights of ingress and egress of other tenants. Landlord shall not be responsible for enforcing Tenant's exclusive parking rights against any third parties. Whether or not the premises constitutes a portion of a multiple occupancy building, Landlord reserves the right to perform the paving and landscape maintenance, exterior painting and common sewage line plumbing which are otherwise Tenant's obligations under subparagraph (a) above, and Tenant shall, in lieu of the obligations set forth under subparagraph (a) above with respect to such items, be liable for its proportionate share (as defined in subparagraph 4(c) above) of the cost and expense of the care for the grounds around the building, including but not limited to, the mowing of grass, care of shrubs, general landscaping, maintenance of parking areas, driveways and alleys, exterior repainting and common sewage line plumbing; provided that if Tenant or any other particular tenant of the building can be clearly identified as being responsible for obstructions or stoppage of the common sanitary sewage line, then Tenant, if Tenant is responsible, or such other tenant, shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall pay when due its share, determined as aforesaid, of such costs and expenses along with the other tenants of the building to Landlord upon demand, as additional rent, for the amount of its share as aforesaid of such costs and expenses in the event Landlord elects to perform or cause to be performed such work. d. Intentionally Omitted. e. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within the premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested -5- by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the premises. f. Tenant agrees that no washing of any type (other than reasonable restroom or kitchen washing) will take place in the premises including the truck apron and parking areas. 7. ALTERATIONS. Tenant shall not make any alterations, additions or improvements to the premises (including but not limited to roof and wall penetrations) without the prior written consent of Landlord. Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of this lease and Tenant shall, unless Landlord otherwise elects as hereinafter provided, remove all alterations, additions, improvements and partitions erected by Tenant and restore the premises to their original condition by the date of termination of this lease or upon earlier vacating of the premises; such alterations, additions, improvements and partitions shall become the property of Landlord as of the date of termination of this lease or upon earlier vacating of the premises and shall be delivered up to the Landlord with the premises unless removed as provided above. All shelves, bins machinery and trade fixtures installed by Tenant may be removed by Tenant prior to the termination of this lease if Tenant so elects, and shall be removed by the date of termination of this lease or upon earlier vacating of the premises if required by Landlord; upon any such removal Tenant shall restore the premises to their original condition. All such removals and restoration shall be accomplished in a good workmanlike manner so as not to damage the primary structure or structural qualities of the buildings and other improvements situated on the premises. 8. SIGNS. Tenant shall have the right to install signs upon the premises only when first approved in writing by Landlord and subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove all such signs by the termination of this lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the building and other improvements, and Tenant shall repair any injury or defacement, including without limitation, discoloration caused by such installation and/or removal. 9. INSPECTION. Landlord and Landlords agents and representatives shall have the right to enter and inspect the premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the premises or in order to make such repairs as may be required or permitted to be made by Landlord under the terms of this lease. During the period that is six (6) months prior to the end of the term hereof, Landlord and Landlord's agents and representatives shall have the right to enter the premises at any reasonable time during business hours for the purpose of showing the premises and shall have the right to erect on the premises a suitable sign indicating the premises are available. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the premises and shall arrange to meet with Landlord for a joint inspection of the premises prior to vacating -6- 10. UTILITIES. Landlord agrees to provide at its cost water, electricity and telephone service connections into the premises, but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any maintenance charges for utilities and shall furnish all electric light bulbs and tubes. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion as determined by Landlord of all charges jointly metered with other premises. Landlord shall in no event be liable for any interruption or failure of utility services on the premises. In the event water is not separately metered to Tenant, Tenant agrees that it will not use water for uses other than normal restroom usage; and, Tenant does further agree to reimburse Landlord for the entire amount of common water costs as additional rental if, in fact, Tenant uses water for uses other than normal restroom uses without first obtaining Landlord's written permission. Tenant agrees it will not use sewer capacity for any use other than normal, domestic restroom use. Tenant further agrees to notify Landlord of any other sewer use ("excess sewer use") and also agrees to reimburse Landlord for the costs and expenses related to Tenant's excess sewer use, which shall include, but is expressly herein not limited to the cost of acquiring additional sewer capacity to service Tenants lease. 11. ASSIGNMENT AND SUBLETTING. Tenant shall not have the right to assign, sublet, transfer or encumber this lease, or any interest therein, without the prior written consent of Landlord. Any attempted assignment, subletting, transfer or encumbrance by Tenant in violation of the terms and covenants of this Paragraph shall be void. All cash or other proceeds of any assignment, such proceeds as exceed the rentals called for hereunder in the case of a subletting and all cash or other proceeds of any other transfer of Tenant's interest in this lease (after deduction therefrom of all of Tenant's costs and expenses incurred in connection with such assignment and subletting) shall be paid to Landlord, whether such assignment, subletting or other transfer is consented to by Landlord or not, unless Landlord agrees to the contrary in writing, and Tenant hereby assigns all rights it might have or ever acquire in any such proceeds to Landlord. These covenants shall run with the land and shall bind Tenant and Tenant's heirs, executors, administrators, personal representatives, representatives in any bankruptcy proceeding, successors and assigns. Any assignee, sublessee or transferee of Tenant's interest in this lease (all such assignees, sublessees and transferees being hereinafter referred to as "successors"), by assuming Tenant's obligations hereunder shall assume liability to Landlord for all amounts paid to persons other than Landlord by such successors in contravention of the Paragraph. No assignment, subletting or other transfer, whether consented to by Landlord or not, shall relieve Tenant of its liability hereunder. Upon the occurrence of an "event of default" as hereinafter defined, if the premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided, or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. Notwithstanding any provision in this Lease to the contrary, Tenant shall have the right to assign this Lease or sublet all or a portion -7- of the Premises without Landlord's consent to any corporation or business entity which controls, is controlled by or is under common control with Tenant, or a corporation or other business entity resulting from a merger or consolidation with Tenant, or to any person or entity which acquires substantially all of the assets of Tenant's businesses as a going concern, provided that the assignee or sublessee assumes in full the obligations of the Tenant under this Lease and that the use of the Premises remains unchanged. 12. FIRE AND CASUALTY DAMAGE. a. Landlord agrees to maintain standard fire and extended coverage insurance covering the building of which the premises are a part in an amount not less than 80% (or such greater percentage as may be necessary to comply with provisions of any co-insurance clauses of the policy) of the "replacement cost" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of Fire, Lightning and Extended Coverage, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State in which there premises are situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of subparagraphs 12(C), 12(D), and 12(E) below, such insurance shall be for the sole benefit of Landlord and under its sole control. b. If the buildings situated upon the premises should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give immediate written notice thereof to Landlord. c. If the buildings situated upon the premises should be totally destroyed by fire, tornado or other casualty, or if they should be so damaged thereby that the rebuilding or repairs cannot in Landlord's estimation be completed within two hundred (200) days after the date of the casualty, this lease shall terminate and the rent shall be abated during the unexpired portion of this lease, effective upon the date of the occurrence of such damage. d. If the buildings situated upon the premises should be damaged by any peril covered by the insurance to be provided by Landlord under subparagraph 12(a) above, but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage, this lease shall not terminate, and Landlord shall at it sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair such buildings to substantially the condition in which they existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on, or about the premises by Tenant. If the premises are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event that Landlord should fail to substantially complete such repairs and rebuilding within two hundred (200) days after the date of the casualty, Tenant may at its option terminate this lease by delivering written notice of termination to Landlord as Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall cease and terminate. -8- e. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the premises requires that the insurance proceeds by applied to such indebtedness, then Landlord shall have the right to terminate this lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. f. Anything in this lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the premises, improvements to the building of which the premises are a part, or personal property (building contents) within the building, by reason of fire or the elements regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees, but only to the extent of the insurance proceeds payable under the policies of insurance covering the property. Because this subparagraph will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person), each party to this lease agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of the mutual waivers contained in this subparagraph, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this subparagraph. 13. LIABILITY. Landlord shall not be liable to Tenant or Tenant's employees, agents, patrons or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about the premises, resulting from and/or caused in part or whole by the negligence or misconduct of Tenant, its agents, servants or employees, or of any other person entering upon the premises, or caused by the buildings and improvements located on the premises becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the premises, or due to any cause whatsoever, except for the gross negligence or willful misconduct of Landlord and Tenant hereby covenants and agrees that it will at all times indemnify and hold safe and harmless the property, the Landlord (including without limitation the trustee and beneficiaries if Landlord is a trust), Landlord's agents and employees from any loss, liability, claims, suits, costs, expenses, including without limitation attorney's fees and damages, both real and alleged, arising out of any such damage or injury; except injury to persons or damage to property to the extent caused by the negligence of Landlord or the failure to Landlord to repair any part of the premises which Landlord is obligated to repair and maintain hereunder within a reasonable time after the receipt of written notice from Tenant of needed repairs. Tenant shall procure and maintain throughout the term of this lease a policy or policies of insurance, at its sole cost and expense, insuring both Landlord and Tenant against all claims, demands or actions arising out of or in connection with: (i) the premises; (ii) the condition of the premises; (iii) Tenant's operations in and maintenance and use of the premises; and (iv) Tenant's liability assumed under this lease, the limits of such policy or policies to be in the amount of not less than $2,000,000 per occurrence in respect of injury to persons (including death), and in the amount of not less than $1,000,000 per occurrence in respect of property damage or destruction, including loss of use thereof. All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certified copies of such policies, together with receipt evidencing payment of premiums therefor, shall be delivered to -9- Landlord prior to the commencement date of this lease. Not less than fifteen (15) days prior to the expiration date of any such policies, certified copies of the renewals thereof, bearing notations evidencing the payment of renewal premiums shall be delivered to Landlord. Such policies shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such policy may be canceled or changed to reduce insurance provided thereby. 14. CONDEMNATION. a. If the whole or any substantial part as determined by Landlord of the premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent or materially interfere with the use of the premises for the purpose for which they are being used, this lease shall terminate and the rent shall be abated during the unexpired portion of this lease, effective when the physical taking of said premises shall occur. b. If part of the premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this lease is not terminated as provided in the subparagraph above, this lease shall not terminate but the rent payable hereunder during the unexpired portion of this lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances. c. In the event of any such taking or private purchase in lieu thereof, Landlord and Tenant shall each be entitled to receive and retain such separate awards as may be allocated to their respective interests in any condemnation proceedings. 15. HOLDING OVER. Tenant will, at the termination of this lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this lease, unless the parties hereto otherwise agree in writing on the terms of such holding over, the hold over tenancy shall be subject to termination by Landlord or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to 150% of the rent in effect on the termination date, computed on a daily basis for each day of the hold over period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this lease except as otherwise expressly provided. The preceding provisions of this paragraph 15 shall not be construed consent for Tenant to hold over. 16. QUIET ENJOYMENT. Landlord covenants that it now has, or will acquire before Tenant takes possession of the premises, good title to the premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. Landlord represents and warrants that it has full right and authority to enter into this lease and that Tenant, upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the -10- premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this lease. 17. EVENTS OF DEFAULT. The following events shall be deemed to be events of default by Tenant under this lease: a. Tenant shall fail to pay any installment of the rent herein reserved when due, or any payment with respect to operating expenses hereunder when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date Landlord gives Tenant written notice that such sum is due, provided that Landlord shall not be obligated to give such notice, and Tenant shall not be entitled to such period of grace, more than two (2) times in any twelve (12) month period. b. Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. c. Tenant shall file a petition under any section or chapter of the National Bankruptcy Code, as amended, or under any similar law or statute of the United States or and State thereof; or an order for relief shall be entered against Tenant in any proceedings filed against Tenant thereunder. d. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. e. Tenant shall generally not pay its debts as such debts become due. f. Intentionally Omitted. g. Tenant shall fail to discharge any lien placed upon the premises in violation of Paragraph 21 hereof within twenty (20) days after any such lien or encumbrance is filed against the premises. h. Tenant shall fail to comply with any term, provision or covenant of this lease (other than the foregoing in this Paragraph 17), and shall not cure such failure within twenty (20) days after written notice thereof to Tenant. 18. REMEDIES. a. Upon the occurrence of any of such events of default described in Paragraph 17 hereof, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (i) Terminate this lease, in which event Tenant shall immediately surrender the premises to Landlord, and if Tenant fails so to do, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in rent, enter upon and take possession of the premises and expel or remove Tenant and any other person who may be -11- occupying such premises or any part thereof, by force if necessary, without being liable for prosecution or any claim of damages therefor. (ii) Enter upon and take possession of the premises and expel or remove Tenant and any other person who may be occupying such premises or any part thereof, by force if necessary, without being liable for prosecution or any claim for damages therefor, and relet the premises and receive the rent therefor. (iii) Enter upon the premises by force if necessary, without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this lease, and Tenant further agrees that Landlord shall not be liable for an damages resulting to the Tenant from such action, whether caused by the negligence of Landlord or otherwise. (iv) Alter all locks and other security devices at the premises without terminating the lease. In the event Tenant fails to pay any installment of rent hereunder as and when such installment is due, and such failure CONTINUES FOR five (5) or more days past the due date, then to help defray the additional cost to Landlord for processing such late payments, Tenant shall pay to Landlord, on demand, a late charge in an amount equal to five percent (5%) of such installment; and the failure to pay such amount within ten (10) days after demand therefor shall be an event of default hereunder, provided, however, that Landlord shall give Tenant notice of non-payment and five (5) days from receipt of such notice to cure such NON-PAYMENT TWICE in any twelve month period before assessing such late fee. The provision for such late charge shall be in addition to all of Landlords other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. b. Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the premises by Tenant, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Landlord and Tenant. No such alteration of locks or other security devices and no removal or other exercise of dominion by Landlord over the property of Tenant or others at the premises shall be deemed unauthorized or constitute a conversion, Tenant hereby consenting, after any event of default, to the aforesaid repossession and/or alteration of locks or other security devices are hereby waived, as are all claims for damages by reason of any distress warrant, forcible detainer proceedings, sequestration proceedings or other legal process. Tenant agrees that any re-entry by Landlord may be pursuant to judgment obtained in forcible detainer proceedings or other legal proceedings or without the necessity for any legal proceedings, as Landlord may elect, and Landlord shall not be liable in trespass or otherwise. c. In the event Landlord elects to terminate the lease by reason of an event of default, then notwithstanding such TERMINATION, TENANT shall be liable for and shall pay to Landlord, at the -12- address specified for notice to Landlord herein, the sum of all rental and other indebtedness accrued to date of such termination, plus, as damages, an amount equal to the difference between (i) the total rental hereunder for the remaining portion of the lease term (had such term not been terminated by Landlord prior to the date of expiration stated in Paragraph 1) and (ii) the then present value of the then fair rental values of the premises for such period. d. In the event that Landlord elects to repossess the premises without terminating the lease, then Tenant shall be liable for and shall pay to Landlord, at the address specified for notice to Landlord herein, all rental and other indebtedness accrued to the date of such repossession, plus rental required to be paid by Tenant to Landlord during the remainder of the lease term until the date of expiration of the term as stated in Paragraph I as and when due, diminished by any net sums thereafter received by Landlord through reletting the premises during said period (after deducting expenses incurred by Landlord as provided in subparagraph 17(e) below). In no event shall Tenant be entitled to any excess of any rental obtained by reletting over and above the rental herein reserved. Actions to collect amounts due by Tenant to Landlord under this subparagraph may be brought from time to time, on one or more occasions, without the necessity of Landlord's waiting until expiration of the lease term. e. In case of any event of default or breach by Tenant, or threatened or anticipatory breach or default, Tenant shall also be liable for and shall pay to Landlord, at the address specified for notice to Landlord herein, in addition to any stun provided to be paid above, reasonable brokers' fees incurred by Landlord in connection with reletting the whole or any part of the premises; the reasonable costs of removing and storing Tenant's or other occupant's property; the reasonable costs of repairing, altering, remodeling or otherwise putting the premises into condition acceptable to a new tenant or tenants; and all reasonable expenses incurred by Landlord in enforcing or defending Landlord's rights and/or remedies including reasonable attorney's fees which shall be not less than fifteen percent (15%) of all sums then owing by Tenant to Landlord whether suit is actually filed or not. f. In the event of termination or repossession of the premises for an event of default, Landlord shall use commercially reasonable efforts to relet the premises and to collect rental after reletting; and in the event of reletting, Landlord may relet the whole or any portion of the premises for any period to any tenant and for any use and purpose. Landlord shall be under no obligation to attempt to relet the premises until Tenant has delivered possession thereof to Landlord, to relet the premises prior to the lease of other available space in the project or to subdivide the premises to lease only a portion thereof. g. If Tenant should fail to make any payment or cure any default hereunder within the time herein permitted, Landlord, without being under any obligation to do so and without thereby waiving such default, may make such payment and/or remedy such other default for the account of Tenant (and enter the premises for such purpose), and thereupon Tenant shall be obligated to, and hereby agrees, to pay Landlord, upon demand, all costs, expenses and disbursements (including reasonable attorney's fees) incurred by Landlord in taking such remedial action. h. If the Landlord shall fail to pay any amount or perform any act on its part to be paid or performed under this Lease and such failure (i) continues for thirty (30) days after notice thereof -13- by Tenant (except such lesser time as is reasonable in the event of an emergency) and (ii) has a material adverse effect on tenant's ability to use the Premises for the permitted use, then Tenant may, without obligation to do so, AND WITHOUT WAIVING or releasing the Landlord from any obligations of the Landlord, make any such payment or perform any such other act on Landlord's part to be made or performed under this Lease. Landlord shall reimburse Tenant for all reasonable and necessary costs and expenses incurred by Tenant promptly upon receipt from Tenant of written demand accompanied by copies of receipts or invoices for such costs and expenses. Otherwise, in the event of any default by Landlord, tenant's exclusive remedy shall be an action for damages (Tenant hereby waiving the benefit of any laws granting it a lien upon the property of Landlord and/or upon rent due Landlord), but prior to any such action Tenant will give Landlord written notice specifying such default with particularity, and Landlord shall thereupon have thirty days in which to cure any such default. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof All obligations of Landlord hereunder will be construed as covenants, not conditions; and all such obligations will be binding upon Landlord only during the period of its possession of the premises and not thereafter. The term "Landlord" shall mean only the owner, for the time being of the premises, and in the event of the transfer by such owner of its interest in the premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Landlord thereafter accruing, but such covenants and obligations shall be binding during the lease term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. In the event of any breach or default by Landlord in any term or provision of this lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the premises; however, in no event, shall any deficiency judgment or any money judgment of any kind be sought or obtained against any party Landlord. i. In the event that Landlord shall have taken possession of the premises pursuant to the authority herein granted then Landlord shall have the right to keep in place and use all of the furniture, fixtures and equipment at the premises, including that which is owned by or leased to Tenant at all times prior to any foreclosure thereon by Landlord or repossession thereof by any lessor thereof or third party having a lien thereon. Landlord shall also have the right to remove from the premises (without the necessity of obtaining a distress warrant, writ of sequestration or other legal process) all or any portion of such furniture, fixtures, equipment and other property located thereon and to place same in storage at any premises within the County in which the premises is located; and in such event, Tenant shall be liable to Landlord for costs incurred by Landlord in connection with such removal storage. Landlord shall also have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person ("Claimant") claiming to be entitled to possession thereof who presents to Landlord a copy of any instrument represented to Landlord by Claimant to have been executed by Tenant (or any predecessor of Tenant) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Landlord to inquire into the authenticity of said instrument's copy of Tenant's or Tenant's predecessor's signature thereon and without the necessity of Landlord making any nature of investigation or inquiry as to the validity of the factual or legal basis upon which Claimant purports to act; and Tenant agrees to indemnify and hold Landlord harmless from all cost, expense, loss, damage and liability incident to Landlord's relinquishment of possession of all or any portion of such furniture, fixtures, equipment or other property to Claimant. The rights of Landlord herein -14- stated shall be in addition to any and all other rights which Landlord has or may hereafter have at law or in equity; and Tenant stipulates and agrees that the rights herein granted Landlord are commercially reasonable. 19. LANDLORD'S LIEN. In addition to any statutory lien for rent in Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest (subordinate, however, to any purchase money security interest granted by Tenant to a third party) for all rentals and other sums of money becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant situated on the premises, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged. In the event of a default under this lease, Landlord shall have, in addition to any other remedies provided herein or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this Paragraph 19 at public or private sale upon five (5) days notice to Tenant. Tenant hereby agrees to execute such financing statements and other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto. 20. MORTGAGES. Tenant accepts this lease subject and subordinate to any mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a lien or charge upon the premises or the improvements situated thereon, provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant's interest in this lease superior to any such instrument in whole or in part, then by notice to Tenant, from such mortgagee, trustee or holder, this lease shall be deemed superior to such lien, whether this lease was executed before or after said mortgage or deed of trust, and provided further that in the event of foreclosure the holder of any such mortgage or deed of trust shall not disturb Tenant's use and possession of the premises so long as Tenant is not in default hereunder. Tenant shall at any time hereafter on demand execute any instruments, releases or other documents which may be required by any mortgagee for the purpose of subjecting and subordinating this lease or making this lease superior to the lien of any such mortgage, provided that the same contains reasonable non-disturbance provisions. 21. MECHANIC'S LIENS AND TENANT'S PERSONAL PROPERTY TAXES. a. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the premises on which any lien is or can be validly and legally asserted against its leasehold interest in the premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the -15- Landlord in the premises or under the terms of this lease. Tenant agrees to give Landlord immediate written notice of the placing of any lien or encumbrance against the premises. b. Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property, furniture or fixtures placed by Tenant in the premises, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes. 22. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: a. All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address for Landlord hereinbelow set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenants obligation to pay rent and any other amounts to Landlord under the terms of this lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord. b. All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. c. With the exception of Paragraph 11(a) above, any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not when deposited in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith: LANDLORD: TENANT: Riggs & Company, a division of Riggs Bank N.A., Pinacor, Inc. as trustee of the Multi-Employer Property Trust 2400 South MicroAge Way 808 17th Street, NW, Washington, D.C. 20006 Tempe, AZ 85282 Attn: Vice President, Administration With copy to: With copy to: TC Northeast Metro, Inc. 2400 South MicroAge Way 18 10 Chapel Avenue West, Suite 220 Tempe, AZ 85282 Cherry Hill, NJ 08002 Attn: Legal Department -16- If and when included within the term "Landlord", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord; if and when included within the term "Tenant", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant", respectfully, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. 23. MISCELLANEOUS. a. Words of any gender used in this lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. b. The terms, provisions and covenants and conditions contained in this lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations in the building and property that are the subject of this lease. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this lease. c. The captions inserted in this lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this lease, or any provision hereof, or in any way affect the interpretation of this lease. d. Tenant agrees from time to time within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this lease is in full force and effect, the date to which rent has been paid, the unexpired term of this lease and such other matters PERTAINING TO this lease as may be requested by Landlord. It is understood and agreed that TENANT'S OBLIGATION to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this lease. e. This lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. f. All obligations of Tenant hereunder not fully performed as of tile expiration or earlier termination of the term of this lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and -17- insurance and all obligations concerning the condition of the premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the premises, including without limitation all heating and air conditioning systems and equipment therein, in good condition and repair, reasonable wear and tear excepted. Tenant shall also, prior to vacating the premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums for the year in which the lease expires or terminates (for the portion of the year within the Lease term). All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be. Any security deposit held by Landlord shall be credited against the. amount payable by Tenant under this Paragraph 23(F). g. If any clause or provision of this lease is illegal, invalid or unenforceable under present or future laws effective during the term of this lease, then and in that event, it is the intention of the parties hereto that the remainder of this lease shall not be affected thereby, and it is also the intention of the parties to this lease that in lieu of each clause or provision of this lease that is illegal, invalid or unenforceable, there be added as a part of this lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. h. Because the premises are on the open market and are presently being shown, this lease shall be treated as an offer with the premises being subject to prior lease and such offer subject to withdrawal or non-acceptance by Landlord or to other use of the premises without notice, and this lease shall not be valid or binding unless and until accepted by Landlord in writing and a fully executed copy delivered to both parties hereto. i. All references in this lease to "the date hereof' or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this lease. j. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction or that no broker, agent or other person brought about this transaction, other than TC Northeast Metro, Inc. and CB Richard Ellis, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. 24. OPERATING EXPENSE ADJUSTMENT. Tenant agrees to pay Landlord monthly, as an additional rental, one twelfth (1/12) of Tenant's proportionate share of the estimated "Operating Expenses". The most recent projection of "Operating Expenses" for the building is $1.41 per square foot per year. Tenant's proportionate share of this projection of "Operating Expenses" amounts to a monthly charge of Fifteen Thousand Four Hundred Eighty Five Dollars ($15,485.00), for which the Tenant will be separately billed. -18- At the end of each calendar year, or from time to time as Landlord may elect, Landlord agrees to refund to Tenant the amount that Tenant's payments exceed the actual "Operating Expenses". Conversely, Tenant agrees to pay Landlord, as additional rental-upon-demand, the amount that the actual "Operating Expenses" exceed Tenant's payments. Landlord, upon notice to Tenant, may elect to lower or raise the projected cost paid monthly by Tenant so that Tenant's payments are equal to the adjusted projection of "Operating Expenses". Notwithstanding anything to the contrary in Paragraph 4b, to the extent that employees or agents of Landlord perform tasks associated with the operation and maintenance of the building premises, which would have otherwise been performed by outside contractors, 100% of such reasonable costs for these services may be charged as operating expenses. These costs will be treated as if the services were performed by outside contractors and shall not be subject to the cap of 4% of gross annual rental which shall apply to management tasks performed by employees of agents of Landlord. The term "Operating Expenses" shall specifically exclude capital improvement which under generally accepted accounting principles and practices would be classified as capital expenditures to the building or the project of which the Premises is a part. 25. ENVIRONMENTAL MATTERS. a) Tenant shall not engage in operations at the Premises which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of "hazardous substances" or "hazardous waste" as such terms are defined under the Industrial Site Recovery Act, N.J.S.A. 13: 1k-6 et seq ("ISRA"). Tenant further covenants that it will not cause or permit to exist as result of an intentional or unintentional action or omission on its part, the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping from, on or about the Premises of any hazardous substance (as such term is defined under N.J.S.A. 58:10-23.11 (b)(k) and N.J.A.C. 7: 1 b) If Tenant's operations on the Premises now or hereafter constitute an "Industrial Establishment" subject to the requirements of ISRA, then prior to the expiration or sooner termination of this Lease or to any assignment of this Lease or any subletting of any portion of the Premises, Tenant shall, at its expense, comply with all requirements of ISRA pertaining to the transfer or closure of an Industrial Establishment. Without limitation of the foregoing, Tenant's obligations shall include (i) the proper filing of an initial notice to the New Jersey Department of Environmental Protection ("DEP") (ii) the performance of any soil, ground water and surface water sampling and tests required by the DEP and (iii) either the filing of a "negative declaration" with the DEP or the performance of a proper and approved clean up plan to the satisfaction of the DER c) In the event of Tenant's failure to comply in full with this Article, Landlord may, at its option, perform any and all of Tenant's obligations as aforesaid and all costs and expenses incurred by Landlord in the exercise of this right shall be deemed to be Additional Rent payable on demand. d) Landlord shall indemnify, defend, and hold Tenant harmless from and against any liability or expense suffered or incurred by Tenant as a result of any presence on or release from the -19- Premises of any hazardous substance or hazardous waste that occurred prior to Tenant's occupancy of the Premises. In the event that any contamination of the Premises is discovered during the term of this Lease that was caused by a release occurring prior to Tenant's occupancy of the Premises, Landlord shall, in addition to the indemnity set forth above, promptly take steps to remediate such contamination as required by law, which remediation shall be at Landlord's sole cost and expense and shall not be charged, directly or indirectly, to Tenant. e) Nothing herein shall be deemed to prohibit Tenant's use of customary office supplies and cleaners in customary quantities for office use, provided that such use is in compliance with applicable law. f) This Article shall survive the expiration or sooner termination of the Lease. 26. ESTOPPEL CERTIFICATE. Tenant shall at any time upon not less than twenty (20) days written notice execute and deliver to Landlord, lender or assignee or subtenant of Tenant, an estoppel certificate as reasonably requested by Landlord in the form attached as Exhibit "C" with any modifications thereto required by the then applicable state of facts. 27. ACCESS LAWS. a) As used in this paragraph, the term "Access Laws" shall mean the Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988, all state and local laws or ordinances related to handicapped access, or any statute, rule, regulation, ordinance, order of governmental bodies or regulatory agencies, or order or decree of any court adopted or enacted with respect to any of the foregoing. The term Access Laws shall include all Access Laws now in existence or hereafter enacted, adopted or applicable. b) Landlord makes no representations regarding the compliance of the Premises, Building or the Project with Access Laws; provided that, if any improvements or alterations constructed by Landlord do not comply with Access Laws, Landlord shall be responsible for correcting such defects if and to the extent required by law. c) Tenant agrees to notify Landlord immediately if Tenant becomes aware of (i) any condition or situation in or on the Premises occurring or arising after the commencement date of this Lease which would constitute a violation of any Access Laws, or (ii) any threatened or actual lien, action or notice of the Premises not being in compliance with any Access Laws. Tenant shall inform Landlord of the nature of any such condition, situation, lien, action or notice and of the action Tenant proposes to take in response thereto. d) Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with bringing the Premises, the Building and the common areas into compliance with the Access Laws if and to the extent such costs and expenses arise out of or relate to Tenant's use of the Premises or Tenant's modifications, improvements or alterations to the Premises after the date of this Lease. -20- e) Tenant agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, demands, damages, losses, liens, liabilities, penalties, fines, lawsuits, and other proceedings and costs and expenses (including attorneys fees), arising directly or indirectly from or out of, or in any way connected with, any activity on or use of the Premises, the Building or the Project by Tenant, its agents, employees, contractors, invitees, or any subtenant or concessionaire put into possession of all or any part of the Premises by Tenant, which activity or use results in the Premises violating any applicable Access Laws. f) The provisions in this paragraph 27 shall supersede any other provisions in this Lease regarding Access Laws to the extent inconsistent with the provisions of this paragraph. The provisions in this paragraph 27 shall survive the expiration of the term or the termination of this Lease for any other reason whatsoever. 28. ERISA REPRESENTATIONS. Tenant represents to Landlord that with the exception of this Lease, neither the Tenant nor any affiliate of the Tenant is a tenant under a lease or any other tenancy arrangement (1) with (a) Riggs & Company, a division of Riggs Bank, N.A., as trustee of the Multi-Employer Property Trust; (b) the Multi-Employer Property Trust; (c) the National Bank of Washington Multi-Employer Property Trust, the previous name of the Multi-Employer Property Trust; (d) The Riggs National Bank of Washington, D.C., as trustee of the Multi-Employer Property Trust; (e) Alameda Industrial Properties Joint Venture; (f) Harman International Business Campus Joint Venture; (g) the Beaverton-Redmond Tech Properties; (h) Corporate Drive Corporation as trustee of the Corporate Drive Nominee Realty Trust; (i) Goldbelt Place Joint Venture; j) BOCA 1515, a joint venture; (k) Arboretum Lakes-I, L.L.C., a Delaware limited liability company; (1) Village Green of Rochester Hills Associates L.L.C.; (in) Pine Street Development, L.L.C.; or (n) MEPT Realty LLC; or (2) involving any property in which any one or more of the entities named in clauses (1) (a) through (d) are known by the Tenant to have an ownership interest. 29. LIMITATION OF LANDLORD'S LIABILITY. Notwithstanding any provision to the contrary contained in this Lease, Tenant shall look solely to the estate and interest of Landlord in and to the Land and the building, and Landlord shall have no personal liability, in the even of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Leased Premises, and Tenant agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Leased Premises shall be limited solely to such estate or interest of Landlord in and to the Land and the Building and that Landlord shall have no personal liability as provided above in this sentence. No properties or assets of Landlord other than the estate and interest of Landlord in and to the Land and the Building, and no property owned by any partners, officer, member, director or trustee in or of Landlord, shall be subject to levy, execution or other reenforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Leased Premises. Further, in no event whatsoever shall any partner, officer, member, director or trustee in or of Landlord have any liability or responsibility whatsoever arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Leased Premises. -21- 30. OPTION TO RENEW. Landlord hereby grants Tenant two successive options to renew the Lease term, upon the following terms and conditions: (a) Each renewal term shall be for three (3) years, commencing on the next day following the expiration date of the Lease term (i.e., with respect to the first renewal option, the last day of the initial three (3) year Lease term and, with respect to the second renewal option (assuming that the first renewal option was exercised), the last day of the Lease term as extended by the first renewal option) and expiring at midnight on the day preceding the third (3rd) anniversary of the commencement date of such renewal term; (b) Tenant must exercise a renewal option, if at all, upon at least twelve (12) months' written notice to Landlord prior to the expiration date of the then current Lease term, it being understood that Tenant shall have no right to exercise the second renewal option if Tenant has not exercised the first renewal option; (c) At the time Tenant delivers its notice exercising a renewal option this Lease must be in full force and effect, Tenant must not have assigned this Lease or sublet more than ten percent (10%) of the area of the Premises to an entity other than a transferee contemplated by the last sentence of Paragraph 11, and no Event of Default shall have occurred and be continuing hereunder; (d) The renewal term shall be upon the same terms, covenants and conditions contained in this Lease, provided that (i) the annual base rent for the renewal term shall be the Fair Market Rent of the Premises as of the commencement of the applicable renewal term, but in no event less than the annual base rent in effect immediately prior to commencement of such renewal term, and (ii) Tenant's renewal options shall be limited to the two renewal options specifically granted in this paragraph; and (e) If Tenant exercises a renewal option, Tenant shall execute such instrument as Landlord may require to confirm such exercise, the extension of the Lease term as provided herein and the annual base rent payable during the applicable renewal term. (f) As used in this Paragraph, "FAIR MARKET RENT" shall mean the amount of annual base rent, expressed in dollars and cents per rentable square foot, equal to the market rental than being negotiated for comparable space in Class A warehouse/distribution buildings in the Gloucester County sub-market. In the event that Landlord and Tenant are unable to agree on the Fair Market Rent for a renewal term within thirty (30) days after Tenant's exercise of its renewal option, either party may require determination of the Fair Market Rent for such renewal term by giving written notice to that effect to the other party, which notice shall designate a real estate broker selected by the initiating party experienced in the warehouse/distribution leasing business in the Gloucester County sub-market. If within sixty (60) days after Tenant's exercise of a renewal option (i) the parties have not agreed in writing on the Fair Market Rent, and (ii) neither party has given notice pursuant to the preceding sentence requiring determination of the Fair Market Rent, Tenant's exercise of such renewal option shall be deemed rescinded and this option to renew terminated. -22- If written notice requiring determination of the Fair Market Rent is timely given, then within fifteen (15) days after receipt of such NOTICE, THE other party to this Lease shall select a real estate broker meeting the same requirements and give written notice of such selection to the initiating party. Within fifteen (15) days after selection of the second broker, the two (2) real estate brokers so selected shall select a third real estate broker experienced in the warehouse/distribution leasing business in the Gloucester County sub-market who (and whose firm) is not then employed as an exclusive leasing broker or management agent by either party or any of their respective affiliates within the southern New Jersey area. Each of the three (3) brokers shall determine the Fair Market Rent rate for the Premises as of the commencement of the renewal term for a term equal to the renewal term within fifteen (15) days after the appointment of the third broker. The Fair Market Rent shall be equal to the arithmetic average of such three determinations; provided, however, that if any such broker's determination deviates more than five percent (5%) from the median of such determinations the Fair Market Rent shall be an amount equal to the average of the two (2) closest determinations. Landlord shall pay the costs and fees of Landlord's broker in connection with any determination hereunder, and Tenant shall pay the costs and fees of Tenant's broker in connection with such determination. The cost and fees of the third broker shall be paid one-half by Landlord and one-half by Tenant. If a party fails to designate a real estate broker within the time period required by this paragraph, the "third" real estate broker shall be selected by the broker designated by the initiating party, and those two brokers shall determine the Fair Market Rental by averaging their determinations. 31. INITIAL IMPROVEMENTS. a. Landlord agrees that on the commencement date the HVAC, electrical, plumbing and other building systems, shall be in good working order and repair. On or before the commencement date representatives of Landlord and Tenant shall inspect the premises and prepare a written punchlist of any repairs required to place such building systems in good working order and repair. Except as may be set forth in such punchlist, the taking of possession of the premises by Tenant shall constitute Tenant's acceptance of such systems as being in good working order and repair. Except as provided in this Paragraph Landlord is delivering the premises to Tenant, and Tenant accepts the premises from Landlord, in their "as is" condition. b. Subject to reimbursement by Landlord as provided below, Tenant shall be responsible for such refurbishment of the premises, at its expense, as may be required by Tenant for its use and occupancy of the premises, including replacement of ceiling tiles, recarpeting and repainting of the office areas within the premises. Landlord agrees to reimburse Tenant for such refurbishment costs, up to a maximum of $59,100.00, within thirty (30) days after receipt from Tenant of a statement in reasonable detail of the refurbishment costs incurred, accompanied by invoices or receipts supporting the amount to be reimbursed. c. Attached hereto as Exhibit "D" is a punchlist prepared by Landlord listing items in the premises which Landlord requires be removed or repaired by the prior tenant of the premises (the "Tech Data punchlist" and "Tech Data", respectively). Tenant has advised Landlord that Tenant has separately agreed to acquire from Tech Data certain of the items noted on the Tech Data Punchlist in return for assuming Tech Data's obligations under the Tech Data Punchlist Tenant -23- shall cause to be repaired or removed from the premises all items listed on the Tech Data Punchlist on or before the expiration or sooner termination of this Lease, and repair any damage resulting from such removal, all at Tenant's expense. d. All work to be performed by Tenant pursuant to this Paragraph shall be performed in a good and workmanlike manner, in compliance with all laws and lien-free. EXECUTED BY A DULY AUTHORIZED OFFICER OF LANDLORD, this 28th day of September, 1998. Riggs & Company, a division of Riggs Bank N.A. as trustee of the Multi-Employer Property Trust Attest/Witness /s/ [Illegible] By: /s/ [Illegible] - ---------------------------------- ------------------------------------- Title: Director Title: Managing Director ---------------------------- ---------------------------------- EXECUTED BY A DULY AUTHORIZED OFFICER of TENANT, this 28th day of September, 1998. Pinacor,Inc. Attest/Witness /s/ [Illegible] By: /s/ [Illegible] - ---------------------------------- ------------------------------------- Title: Mgr. Admin. Title: V.P., Administration ---------------------------- ---------------------------------- -24- EXHIBIT "A" DESCRIPTION OF PROPERTY DESCRIPTION OF LAND TO BE KNOWN AS BLOCK 346K LOT 4 FOREST PARKWAY WEST DEPTFORD, GLOUCESTER COUNTY, NEW JERSEY ALL THAT CERTAIN tract or parcel of land situate in the Township of West Deptford, County of Gloucester and State of New Jersey being more particularly described as follows: (see attached legal description) -25- EXHIBIT "A" DESCRIPTION OF LAND TO BE KNOWN AS BLOCK 346K, LOT 4 FOREST PARKWAY WEST DEPTFORD, GLOUCESTER COUNTY, NEW JERSEY ALL THAT CERTAIN parcel or tract of land situate in the Township of West Deptford, County of Gloucester, and State of New Jersey as shown on a plan entitled "Amended Subdivision Plan, Phase 3, Forest Park Corporate Center", prepared by NTH/Russell Associates, Consulting Engineers dated October 8, 1987 and last revised April 20, 1988, prepared for Trammell Crow Company bounded and BEGINNING at a point in the northerly right of way line of Forest Parkway (60 feet wide), said point being the most easterly corner point of Block 346K, Lots 2; THENCE (1) leaving said right of way line of Forest Parkway, along the common property line between said Lot 2, and the herein described parcel; North 26 degrees 40 minutes 08 seconds West, a distance of 680.03 feet to .a point; said point being in, the southeasterly right of way line of U.S. Route 130 (250 feet wide, A.K.A. Interstate Route 295) THENCE (2) along said right of way line of U.S. Route 130, North 63 degrees 19 minutes 52 seconds East, a. distance of 460.00 feet to a point; THENCE (3) leaving said right of way line of U.S. Route 130, South 29 degrees 48 minutes 42 seconds East, a distance of 735.69 feet to a point; THENCE (4) South 00 degrees 11 minutes 18 seconds West, a distance of 205.56 feet to a point; THENCE (5) South38 degrees 21 minutes 56 seconds West, a distance of 24.98 feet to a point, said point being in the curved northerly right of way line of said Forest Parkway; THENCE (6) along said right of way line of Forest Parkway, along a curve to the left, having a radius of 430.00 feet for an arc distance of 483.08 feet to the first mentioned point and place of BEGINNING. CONTAINING 8.5357 Acres of Land. SUBJECT to all easements and restrictions of record, and subject to the rights of ingress and egress through and on said lands by the owners or users of said Lot 2 as noted on a plan entitled "Site Grading and Utility Plan," Sheet SP-2, prepared by NTH/Russell Associates, Consulting Engineers dated October 8, 1987 and last revised May 19, 1988, prepared for the Trammell Crow Company. [MAP] EXHIBIT "C" TENANT ESTOPPEL CERTIFICATE TO: RIGGS & COMPANY, A DIVISION OF RIGGS BANK N.A., AS TRUSTEE OF THE MULTI-EMPLOYER PROPERTY TRUST ("FUND") and/or whom else it may concern: THIS IS TO CERTIFY: 1. That the undersigned is the Tenant under that certain lease dated ______________ 19____, (the "Lease") by and between ______________ _________________________________________ a ___________________________ _________________ (as "Landlord) and _______________________________________________________________________ ______ (as "Tenant") covering those certain premises commonly known and designated as _________________________________________________________ (the "Premises"), and located on real property with the legal description shown on the attached Exhibit I 2. That said Lease is in full force and effect and has not been modified, changed, altered or amended in any respect (except as indicated following this sentence and as so modified is in full force and effect) and is the only Lease or agreement between Tenant and Landlord affecting the Premises: 3. To the best of Tenant's knowledge, the information regarding the Lease set forth below is true and correct: (a) Square Footage:_____________________________________________ (b) Annual rent as of the commencement of Lease: ____________________________________________________________ (c) Current annual rent (if different than at commencement): -27- _______________________________________________________ (d) Lease term commenced:__________________________________ (e) Lease termination date:________________________________ (f) Rent is paid to and including:_________________________ (g) Additional rent being paid is for and in the amount of: __________________________________________________ (h) Security Deposit:_________________________________ __________________________________________________ (i) Prepaid rental for and in amount of.___________________ _______________________________________________________ 4. Tenant has accepted and now occupies the Premises, accepts the Premises in their current condition and is not aware of any defect in the Premises. No rent has been collected in the current month other than as provided for in the Lease, and no free rent or other concessions or inducements other than as specified in the Lease have been granted to Tenant or undertaken by Landlord. 5. Tenant has not been granted any renewal, expansion, or purchase options and has not been granted any rights of first refusal except as disclosed in writing in the Lease. 6. The Lease is not in default nor has there occurred any event which, by lapse of time or otherwise, will result in default under the Lease. As of the date of this Certificate Tenant is entitled to no credit, offset or deduction in rent. 7. There are not actions, whether voluntary or otherwise, pending against Tenant under the bankruptcy laws or other law or laws for the relief of debtors of the United States or any state of the United States. 8. Tenant represents to Landlord that with the exception of this Lease, neither the Tenant nor any affiliate of the Tenant is a tenant under a lease or any other tenancy arrangement (1) -28- with (a) Riggs & Company, a division of Riggs Bank, N.A., as trustee of the Multi-Employer Property Trust; (b) the Multi-Employer Property Trust; (c) the National Bank of Washington Multi-Employer Property Trust, the previous name of the Multi-Employer Property Trust; (d) The Riggs National Bank of Washington, D.C., as trustee of the Multi-Employer Property Trust; (e) Alameda Industrial Properties Joint Venture; (f) Harman International Business Campus Joint Venture; (g) Beaverton-Redmond Tech Properties; (h) Corporate Drive Corporation as trustee of the Corporate Drive Nominee Realty Trust; (i) Goldbelt Place Joint Venture;. 6) BOCA 1515, a joint venture; (k) Arboretum Lakes-I, L.L.C., a Delaware limited liability company; (1) Village Green of Rochester Hills Associates L.L.C.; (m) Pine Street Development, L.L.C.; or (n) MEPT Realty LLC; or (2) involving any property in which any one or more of the entities named in clauses (1) (a) through (d) are known by the Tenant to have an ownership interest. 9. Except as expressly and specifically permitted by the Lease, Tenant has not engaged in operations at the Premises which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of "hazardous substances" or "hazardous waste" as such terms are defined under the Industrial Site Recovery Act, N.J.S.A. 13: 1 K-6 et seq., and the regulation promulgated thereunder. Tenant has not caused or permitted to exist as a result of an intentional or unintentional action or omission on its part, the releasing, spilling, leaking, pumping, pouring, omitting, emptying or dumping from, on or about the Premises of any hazardous substance (as such term is defined under N.J.S.A. 58:10-23.11 (b)(k) and N.J.A.C. 7:1-3.3). DATED THIS ______________ day of ______________________________, 19___. TENANT: ____________________________________ ____________________________________ -29- [EXHIBIT D] [TECH DATA PUNCHLIST] RE: Punchlist for 1228 Forest Parkway - -------------------------------------------------------------------------------- The following items were noted as needing to be repaired during an inspection on September 25, 1998. GENERAL COMMENTS >> Remove all security systems, cameras, and associated wiring >> General cleaning throughout >> Emergency lighting, exit lighting, and fire extinguishers to be compliant with Township ordinances >> Repaint all office areas GENERAL WAREHOUSE >> The existing mezzanine including all sprinklers, electrical wiring, control wiring, and any compressed air piping to be removed. All bolts in floor to be cut down and floor repaired as needed. >> Warehouse lighting above mezzanine to be reinstalled to meet standard building finishes. >> Remove remaining cables in the ceiling including data, security, telephone. >> Shelving and racks from second floor mezzanine to be removed (currently staged in center of warehouse area). >> All security gates around personnel doors and overhead doors to be removed. >> All overhead doors, dock plates, to be in good order and working repair, and weather stripped properly. >> All drywall to be repaired as necessary. >> Remove bolts from floor outside Shipping and Receiving Office >> Tables, Lockers, Workbenches stored in center of building behind central office area to be removed. >> Repair drywall opening in demising wall. OFFICE AREA #1 (Closest to I295) >> Repair drywall as needed throughout office >> Remove any telephone wiring that is not located within the wall >> Repair one door handle off of lobby area >> Remove internally built closet with pre-hung wood door and 2x4 studs >> Women's room: replace one missing lens >> Remove shelving in lunch area >> Replace damaged slats of mini-blinds >> Remove chalkboard in rear warehouse area >> Repair main door from office to warehouse where it is missing door latch >> Men's Employee Bathroom: Repair urinal screen. Remove wallcovering and repaint >> Women's Room: Repair toilet handle and remove wallcovering and paint. LOADING DOCK AREA >> Repair broken railing on personnel stairs. >> Cut down bolts in concrete truck court next to stairs >> Repair damaged concrete blocks at one loading dock location OFFICE AREA #2/LUNCH ROOM >> Remove pre-hung wood door and internal wall (future communications room). >> Replace one toilet paper holder >> Repair blinds as needed >> Remove bulletin boards and corkboards >> Remove interior drywall, which is over top of exterior windows >> Replace hardware for door into warehouse area. >> Door to warehouse/frame to be repaired or replaced >> Replace handle on men's room toilet OFFICE AREA #3 (NEXT TO FOREST PARKWAY) >> Front entrance door - replace broken glass >> Replace damaged mini blinds as needed >> Replace door strike going into old configuration room >> Remove lock from rear rollup door / verify proper operation >> Replace burnout light bulbs as needed >> Repair damaged ceiling next to rollup door EX-11 11 CALCULATION OF NET INCOME (LOSS) PER SHARE EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE MICROAGE, INC NET INCOME (LOSS) PER COMMON SHARE CALCULATION (in thousands, except per share data) Fiscal years ended -------------------------------------- November 3, November 2, November 3, 1998 1997 1996 ---- ---- ---- Basic Weighted average common shares 19,783 16,731 15,978 ======= ======= ======= Diluted Weighted average shares from basic calculation 19,783 16,731 15,978 Dilutive effect of stock options and warrants -- 904 474 ------- ------- ------- Weighted average common and common equivalent shares outstanding - fully diluted 19,783 17,635 16,452 ======= ======= ======= Net income (loss) $(8,325) $25,197 $15,529 Net income (loss) per common and common equivalent share: Basic $ (0.42) $ 1.51 $ 0.97 Diluted $ (0.42) $ 1.43 $ 0.94 EX-21 12 SUBSIDIARIES SUBSIDIARIES (AS OF 11/1/98) I. MicroAge Computer Centers, Inc., a Delaware corporation Subsidiaries: A. 153000 Canada Limited, a Canadian corporation B. MCCI Holding Company, a Delaware corporation Subsidiaries: 1. Image Choice, Inc., a Delaware corporation 2. Ecadvantage, Inc., a Delaware corporation 3. MicroAge Integration Co., a Delaware corporation Subsidiaries: (A) Centric Resources, Inc., a Delaware corporation (B) MicroAge Deutschland GmbH, a German corporation (1) ComIt, a German corporation (C) MicroAge Infosystems Services Europe, Ltd., a UK corporation Subsidiaries: (1) MicroAge Europe Limited, a UK corporation (2) MicroAge UK Limited, a UK corporation (D) MCSS, Inc., a Delaware corporation (E) MCSX, Inc., a Delaware corporation 4. Pinacor, Inc., a Delaware corporation (A) Pinacor Logistics Services, Inc., a Delaware corporation (B) Complete Distribution, Inc., a Delaware corporation (C) Contract PC, Inc., a Delaware corporation (D) ConnectWorks, Inc., a Delaware corporation Subsidiaries: (1) Phoenix, Connections, Inc., a Delaware corporation II. Pride Technologies Incorporated, a New Jersey corporation III. Access Microsystems, Inc., a California corporation IV. Gaines Computer Service, Inc., a New York corporation V. KNB Incorporated, a Pennsylvania corporation VI. Integration Partners, Inc., a Delaware corporation VII. Cass Marketing Services, Inc., a Delaware corporation VIII. Advanced Information Services, Inc., an Alaska corporation Subsidiaries: A. Margre, Inc., an Oregon corporation B. Integrated Solutions Incorporated, an Alaska corporation C. WASH Data, Inc., an Alaska corporation D. N Corporation, an Alaska corporation E. Cal Data, Inc., a California corporation IX. Microretailing, Inc., a Florida corporation Subsidiaries: A. InterPC de Venezuela, a Venezuela corporation B. InterPC de Bolivia, a Bolivia corporation C. InterPC de Ecuador, an Ecuador corporation D. InterPC de Columbia, a Columbia corporation X. ECSource, Inc., a Delaware corporation XI. MicroAge Administration, Inc., a Delaware corporation XII. MicroAge Technologies, Inc., a Delaware corporation XIII. MicroAge Ventures, Inc., a Delaware corporation XIV. IntraCom Marketing, Inc., a Delaware corporation XV. PCClearance, Inc., a Delaware corporation XVI. MicroAge Government, Inc., a Delaware corporation XVII. MicroAge Paymaster, Inc., a Delaware corporation XVIII. MicroAge Infosystems Services, Inc., a Delaware corporation XIX. PriTech Solutions, Inc., a Delaware corporation EX-23 13 CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-18967, 33-26351, 33-26565, 33-33370, 33-51978, 33-58899, 33-58901, 33-81040, 333-26247 and 333-42939) and the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 33-35674, 333-27349, 333-35613, 333-36281, 333-40007 and 333-41145) and Form S-2 (Nos. 33-38764 and 33-33094) of MicroAge, Inc. of our report dated January 8, 1999 appearing on page F-2 of this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Phoenix, Arizona January 26, 1998 EX-27.1 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED NOVEMBER 1, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT 1,000 U.S. DOLLARS YEAR NOV-01-1998 NOV-03-1997 NOV-01-1998 1 41,894 0 550,295 20,418 486,150 1,082,353 200,606 108,459 1,315,143 1,003,743 0 0 0 203 290,283 1,315,143 5,520,031 5,520,031 5,166,790 5,166,790 33,376 0 4,357 (7,418) 907 (8,325) 0 0 0 (8,325) (0.42) (0.42)
EX-27.2 15 RESTATED FDS FOR THE QUARTERS AND FISCAL YEAR 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED FEBRUARY 2, 1997, MAY 4, 1997 AUGUST 3, 1997 AND NOVEMBER 2 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 U.S. DOLLARS 3-MOS 6-MOS 9-MOS YEAR NOV-02-1997 NOV-02-1997 NOV-02-1997 NOV-02-1997 NOV-04-1996 FEB-03-1997 MAY-05-1997 NOV-04-1996 FEB-02-1997 MAY-04-1997 AUG-03-1997 NOV-02-1997 1 1 1 1 12,552 30,859 51,575 22,279 0 0 0 0 211,266 273,847 290,688 244,908 13,187 12,395 13,326 10,966 468,239 464,525 423,185 479,332 689,328 767,953 763,207 746,909 119,810 125,387 134,705 149,862 65,612 64,131 69,220 75,887 770,855 859,480 867,347 919,396 504,497 602,884 598,882 620,645 0 0 0 0 0 0 0 0 0 0 0 0 165 166 168 184 199,596 205,776 218,319 262,141 770,855 859,480 867,347 919,396 884,758 1,058,304 1,117,275 4,379,208 884,758 1,058,304 1,117,275 4,379,208 824,218 987,353 1,040,622 4,081,743 824,218 987,353 1,040,622 4,081,743 4,881 7,441 7,662 27,626 0 0 0 0 595 2,335 1,610 6,142 8,789 10,944 10,936 43,579 3,719 4,568 4,583 18,382 5,070 6,376 6,353 25,197 0 0 0 0 0 0 0 0 0 0 0 0 5,070 6,376 6,353 25,197 0.31 0.39 0.39 1.51 0.29 0.38 0.37 1.43
EX-27.3 16 RESTATED FDS FOR FISCAL YEAR 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED NOVEMBER 3, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT. 1,000 U.S. DOLLARS YEAR NOV-03-1996 OCT-30-1995 NOV-03-1996 1 21,935 0 279,593 8,405 326,924 631,373 114,301 60,429 711,979 516,408 0 0 0 162 191,418 711,979 3,608,230 3,608,230 3,401,249 3,401,249 13,998 0 1,967 26,543 11,014 15,529 0 0 0 15,529 0.97 0.94
EX-99.1 17 SAFE HARBOR COMPLIANCE FOR FWD LOOKING STMTS EXHIBIT 99.1 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENT In passing the Private Securities Litigation Reform Act of 1995 (the"Reform Act"), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. MicroAge, Inc. ("MicroAge" or the "Company") intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those and other uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of MicroAge. The Company undertakes no obligation to update or revise this Safe Harbor Compliance Statement for Forward-Looking Statements to reflect future developments. In addition, MicroAge undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. MicroAge provides the following risk factor disclosure in connection with its continuing effort to qualify its written and oral forward-looking statements under the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Annual Report on Form 10-K to which this statement is appended as an exhibit and also include the following: RISK FACTORS INTENSE COMPETITION The Company operates in intensely competitive markets in both the systems integration industry as well as the microcomputer products distribution industry. The principal competitive factors in the systems integration industry include the breadth and quality of product and service offerings, product availability, pricing, and expertise and size of workforce. The microcomputer products distribution industry is characterized by intense competition based primarily on price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services, availability of technical and product information, and recruitment and retention of resellers. While the Company believes that it competes favorably with respect to each of these factors, there can be no assurance that it will continue to do so in the future. Additionally, certain of the Company's current and potential competitors, in both the systems integration industry and the microcomputer products distribution industry, have greater financial, technical, marketing, and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion, and sales of their products and services, or to be more effective in responding to competitive bidding situations than the Company. NARROW MARGINS The Company has experienced low operating and gross profit margins caused by intense price competition within its industry. Future operating and gross profit margins may be adversely affected by market pressures, the introduction of new Company initiatives, changes in revenue mix, the Company's utilization of early payment discount opportunities, vendor pricing actions, changes in supplier incentive funds, and other competitive and economic pressures. DEPENDENCE ON SUPPLIER INCENTIVE FUNDS The Company receives funds from certain suppliers which are earned through marketing programs or meeting purchasing, sales, or other objectives established by the supplier. There can be no assurance that these programs will be continued by the suppliers. A substantial reduction in the supplier funds available to the Company would have a material adverse effect on the Company's business, financial condition, and results of operations. PRODUCT SUPPLY; DEPENDENCE ON KEY VENDORS The computer reseller industry continues to experience product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply certain products. In addition, certain vendors have initiated new channels of distribution that increase competition for the available product supply. There can be no assurance that vendors will be able to maintain an adequate supply of products to fulfill all of the Company's customer orders on a timely basis. Although the Company has not historically encountered such conditions, the failure to obtain adequate product supplies, if competitors were able to obtain them, could have a material adverse effect on the Company's business, financial condition, and results of operations. Three vendors of the Company each represented more than 10% of total product sales for the fiscal year ended November 1, 1998. They were COMPAQ Computer Corporation ("COMPAQ"), Hewlett-Packard Company ("Hewlett- Packard"), and International Business Machines Corporation ("IBM"). In fiscal 1998, sales of products from COMPAQ, Hewlett-Packard, and IBM represented 26%, 19%, and 13%, respectively, of the Company's total product sales. During fiscal 1998 and fiscal 1997, sales of these three manufacturers' products represented approximately 58% and 57%, respectively, of the Company's revenue from product sales. The Company's agreements with these vendors generally are renewed periodically and permit termination by the vendor without cause, generally upon 30 to 90 days' notice, depending on the vendor. In addition, the Company's business is dependent upon price and related terms and product availability provided by its key vendors. Although the Company considers its relationships with COMPAQ, Hewlett-Packard, and IBM to be good, there can be no assurance that these relationships will continue as presently in effect or that changes by one or more of these key vendors in their volume discount schedules or other marketing programs would not adversely affect the Company. Termination or nonrenewal of the Company's agreements with COMPAQ, Hewlett-Packard, or IBM would have a material adverse effect on the Company's business, financial condition, and results of operations. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services; the amount of supplier incentive funds received by the Company (see "Dependence on Supplier Incentive Funds" above); the results of acquired businesses; product availability; competitive conditions; new product introductions; changes in customer order patterns; and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments, and interest rates. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special vendor promotions and year-end business purchases. RISK OF DECLINES IN INVENTORY VALUE The Company's business is subject to the risk that the value of its inventory will be adversely affected by price reductions by suppliers or by technological changes affecting the usefulness or desirability of the products comprising the inventory. It is the policy of most suppliers of the Company's products to protect distributors such as the Company, who purchase directly from such suppliers, from the loss in value of inventory due to technological change or the supplier's price reductions. Under the terms of many of the Company's distribution agreements, suppliers will credit the Company for inventory losses resulting from the supplier's price reductions if the Company complies with certain conditions. However, suppliers are taking steps to reduce such price protection. In addition, under many of the Company's agreements, the Company has the right to return for credit or exchange for other products a portion of the inventory items purchased, within a designated period of time. Since the Company can return only a portion of its inventory, the Company could be forced to liquidate nonreturnable aged inventory at prices below the Company's cost. A supplier who elects to terminate a distribution agreement may repurchase from the distributor the supplier's products carried in the distributor's inventory. The industry practices discussed above are sometimes not embodied in written agreements and do not protect the Company in all cases from declines in inventory value. No assurance can be given that such practices will continue, that unforeseen new product developments will not materially adversely affect the Company, or that the Company will be able to successfully manage its existing and future inventories. The Company establishes reserves for estimated losses due to obsolete inventory in the normal course of business. Historically, the Company has not experienced losses due to obsolete inventory materially in excess of established inventory reserves. However, significant declines in inventory value in excess of established inventory reserves could have a material adverse affect on the Company's business, financial condition, or results of operations. NO ASSURANCE OF SUCCESSFUL ACQUISITIONS OR INVESTMENTS The Company has acquired or invested in, and intends to acquire or invest in, local or regional resellers to expand the Company's service offerings and its reach into certain geographic areas. As a result, the Company is continually evaluating potential acquisition and investment opportunities, which may be material in size and scope. Any acquisitions or investments by the Company may result in potentially dilutive issuances of equity securities, the incurrence of additional debt, and amortization of expenses related to goodwill and intangible assets, all of which could adversely effect the Company's profitability. Acquisitions involve numerous risks, such as the diversion of the attention of the Company's management from other business concerns, the entrance of the Company into markets in which it has had no or only limited experience, the integration of the acquired companies' management information systems with those of the Company, and the potential loss of key employees of the acquired companies, all of which could have a material adverse effect on the Company's business, financial condition, or results of operations. CAPITAL INTENSIVE NATURE OF BUSINESS The Company's business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings, and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. If the Company is successful in achieving continued revenue growth, its working capital requirements will continue to increase. The Company maintains three primary financing agreements (the "Financing Agreements") with an aggregate borrowing capacity of $800 million. The Financing Agreements expire in August 2000, but any of the Financing Agreements may be terminated 90 days after either party gives the other party notice of termination. At November 1, 1998, the Company had approximately $425 million outstanding under the Financing Agreements. Of the $800 million of borrowing capacity represented by the Financing Agreements, $375 million was unused as of November 1, 1998. Utilization of the unused $375 million is dependent upon, among other things, the Company's collateral availability at the time the funds would be needed. Borrowings under the Financing Agreements are secured by substantially all of the Company's assets, and the Financing Agreements contain certain restrictive covenants, including working capital and tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. At November 1, 1998, the Company was in compliance with these covenants. The unavailability of a significant portion of, or the loss of, the Financing Agreements or trade credit from vendors would have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will be able to borrow adequate amounts on terms acceptable to the Company. DEPENDENCE ON INFORMATION SYSTEMS The Company depends on a variety of information systems for its operations, particularly its centralized information processing system which supports, among other things, inventory management, order processing, shipping, receiving, and accounting. Although the Company has not in the past experienced significant failures or down time of its centralized information processing system or any of its other information systems, any such failure or significant down time could prevent the Company from taking customer orders, printing product pick-lists, and/or shipping product and could prevent customers from accessing price and product availability information from the Company. In such event, the Company could be at a severe disadvantage in determining appropriate product pricing or the adequacy of inventory levels or in reacting to rapidly changing market conditions. A failure of the Company's information systems which impacts any of these functions could have a material adverse effect on the Company's business, financial condition, or results of operations. In addition, the inability of the Company to attract and retain the highly-skilled personnel required to implement, maintain, and operate its centralized information processing system and the Company's other information systems could have a material adverse effect on the Company's business, financial condition, or results of operations. In order to react to changing market conditions, the Company must continuously expand and improve its centralized information processing system and its other information systems. There can be no assurance that the Company's information systems will not fail, that the Company will be able to attract and retain qualified personnel necessary for the operation of such systems, or that the Company will be able to expand and improve its information systems. DEPENDENCE ON INDEPENDENT SHIPPING COMPANIES The Company relies almost entirely on arrangements with independent shipping companies for the delivery of its products. Products are shipped from suppliers to the Company through a variety of independent common carriers. Currently, United Parcel Service ("UPS") delivers a majority of the Company's products to its reseller customers. The termination of the Company's arrangements with UPS or other independent shipping companies, or the failure or inability of one or more of these independent shipping companies to deliver products from suppliers to the Company, or products from the Company to its reseller customers or their end-user customers could have a material adverse effect on the Company's business, financial condition, or results of operations. For instance, an employee work stoppage or slow-down at one or more of these independent shipping companies could materially impair that shipping company's ability to perform the services required by the Company. There can be no assurance that the services of any of these independent shipping companies will continue to be available to the Company on terms as favorable as those currently available or that these companies will choose or be able to perform their required shipping services for the Company. TECHNOLOGICAL CHANGE The Company's industry is subject to rapid technological change, new and enhanced product specification requirements, and evolving industry standards. These changes may cause inventory and stock to decline substantially in value or to become obsolete. In addition, suppliers may give the Company limited or no access to new products being introduced. Although the Company believes that it has adequate price protection and other arrangements with its suppliers to avoid bearing the costs associated with these changes, no assurance can be given that future technological or other changes will not have a material adverse effect on the Company's business, financial condition, or results of operations. See "Risk of Declines in Inventory Value." POSSIBLE VOLATILITY OF STOCK PRICE The market price of the Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's results of operations, changes in earnings estimates by research analysts, conditions in the computer industry, or general market or economic conditions, among other factors. In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations have had a substantial effect on the market prices of many technology companies, often unrelated to the operating performance of the specific companies. Such market fluctuations could materially adversely affect the market price for the Common Stock. FUTURE RELATIONSHIP WITH PINACOR The Company, in efforts to increase shareholder value, is exploring various financial options for Pinacor. A change in the current relationship between Pinacor and the Company could cause risk and uncertainty. There can be no assurance that the future relationship between the Company and Pinacor will continue as presently in effect. Moreover, a change in the current relationship between the Company and Pinacor could affect the Company's supply of products and have a material adverse effect on the Company's business, financial condition, or results of operations. -----END PRIVACY-ENHANCED MESSAGE-----