CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT 2.1
-----------
STOCK PURCHASE AGREEMENT
AMONG
WESTERN MICRO TECHNOLOGY, INC.,
a California corporation
and
STAR MANAGEMENT SERVICES, INC.,
a Delaware corporation
and
XXXXXX X. XXXXX,
an individual
and
CARLTON XXXXXX XXXXXXX XX,
an individual
TABLE OF CONTENTS
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Page
----
1. Definitions.............................................................1
2. Sale and Purchase of Shares; Closing................................... 8
2.1 Sale and Delivery............................................. 8
2.2 Purchase Price................................................ 8
2.3 Closing Date................................................. 10
2.4 Closing Obligations.......................................... 10
2.5 Closing Financial Statements; Purchase Price Adjustments..... 11
2.6 Earn-Out Payments............................................ 13
2.7 Failure to Make Timely Payments.............................. 15
2.8 Acceleration of Obligations.................................. 16
2.9 Limitation on Issuance of WMT Common......................... 22
2.10 Reasonable Efforts to Raise Financing........................ 22
2.11 Treatment of Stockholders Equally............................ 23
3. Representations and Warranties of the Stockholders.................... 23
3.1 Ownership of Shares.......................................... 23
3.2 Delivery of Good Title....................................... 23
3.3 Execution and Delivery....................................... 23
3.4 No Conflicts................................................. 23
3.5 No Brokers................................................... 24
3.6 Investment Intent............................................ 24
4. Representations and Warranties of the Stockholders and the Company.... 24
4.1 Organization and Good Standing............................... 24
4.2 Authority; No Conflict....................................... 24
4.3 Capitalization............................................... 25
4.4 Financial Statements......................................... 26
4.5 Books and Records............................................ 26
4.6 Title to Properties; Encumbrances............................ 26
4.7 Condition and Sufficiency of Assets.......................... 27
4.8 Accounts Receivable.......................................... 27
4.9 Inventory.................................................... 27
4.10 No Undisclosed Liabilities................................... 27
4.11 Taxes........................................................ 27
4.12 No Material Adverse Change................................... 29
4.13 Employee Benefit Plans....................................... 29
4.14 Employees.................................................... 32
4.15 Compliance With Laws......................................... 32
4.16 Litigation................................................... 33
4.17 Absence of Certain Changes and Events........................ 33
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Page
----
4.18 Contracts; No Defaults....................................... 34
4.19 Insurance.................................................... 37
4.20 Environmental Matters........................................ 37
4.21 Labor Disputes; Compliance................................... 38
4.22 Intellectual Property........................................ 39
4.23 Governmental Consents........................................ 40
4.24 Certain Payments............................................. 41
4.25 Disclosure................................................... 41
4.26 Relationships With Affiliates................................ 41
4.27 Certain Proceedings.......................................... 41
4.28 Brokers or Finders........................................... 42
4.29 Investigation................................................ 42
4.30 No Implied Warranties........................................ 42
5. Representations and Warranties of WMT................................. 42
5.1 Organization and Good Standing............................... 42
5.2 Authority; No Conflict....................................... 43
5.3 Investment Intent............................................ 43
5.4 Disclosure................................................... 44
5.5 Certain Proceedings.......................................... 44
5.6 Brokers or Finders........................................... 44
5.7 Delivery of Good Title....................................... 44
5.8 Compliance With Laws......................................... 45
5.9 Litigation................................................... 45
5.10 Governmental Consents........................................ 46
5.11 Certain Payments............................................. 46
5.12 Insurance.................................................... 46
5.13 Financing.................................................... 46
5.14 Investigation................................................ 47
5.15 No Implied Warranties........................................ 47
5.16 Absence of Certain Changes................................... 47
6. Covenants of the Parties.............................................. 48
6.1 Mutual Covenants............................................. 48
6.2 Covenants of the Stockholders and the Company................ 50
7. Additional Agreements................................................. 52
7.1 Good Faith................................................... 52
7.2 Legend; Stop Transfer Instructions........................... 52
7.3 Benefits..................................................... 53
7.4 Registration Rights.......................................... 53
7.5 All Reasonable Efforts....................................... 53
7.6 No Solicitation.............................................. 53
7.7 Election to Board of Directors............................... 54
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Page
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7.8 Release of Liabilities........................................ 54
7.9 Negative Covenants............................................ 54
8. Conditions............................................................. 55
8.1 Mutual Conditions............................................. 55
8.2 Conditions to Obligations of the Company and the Stockholders. 56
8.3 Conditions to Obligations of WMT.............................. 57
9. Indemnification........................................................ 58
9.1 Indemnification by the Stockholders........................... 58
9.2 Indemnification by WMT........................................ 59
9.3 Limitation on Indemnity....................................... 60
9.4 Indemnification Payments...................................... 62
9.5 Resolution of Conflicts....................................... 62
9.6 Notice and Defense of Third-Party Claims...................... 62
10. Arbitration............................................................ 63
11. Termination............................................................ 65
11.1 Termination Events............................................ 65
11.2 Effect of Termination; Sole Remedy............................ 65
12. Miscellaneous.......................................................... 67
12.1 Notices....................................................... 67
12.2 Knowledge..................................................... 68
12.3 Further Assurances............................................ 68
12.4 Waiver........................................................ 68
12.5 Entire Agreement and Modification............................. 69
12.6 Assignments, Successors and No Third-Party Rights............. 69
12.7 Section Headings, Construction................................ 69
12.8 Time of Essence............................................... 69
12.9 Governing Law................................................. 69
12.10 Counterparts.................................................. 70
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Exhibits
--------
Exhibit A - Disclosure Letter of the Company
Exhibit B - Disclosure Letter of WMT
Exhibit C-1 - Form of Employment Agreement for Carlton Xxxxxx Xxxxxxx, XX
Exhibit C-2 - Form of Employment Agreement for Xxxxx X. Xxxxxxx
Exhibit C-3 - Form of Employment Agreement for Xxxxx X. Xxxxx
Exhibit C-4 - Form of Employment Agreement for Xxxxxxx X. X. Xxxxxx
Exhibit D - Form of Noncompetition Agreement for XXX and Stockholder 1
Exhibit E - Form of Noncompetition Agreement for Stockholder 2
Exhibit F - Form of XXX Agreement
Exhibit G - Form of Registration Rights Agreement
Exhibit H - Form of Opinion of Pillsbury Madison & Sutro LLP
Exhibit I - Form of Opinion of Xxx & Xxxxx Incorporated
Exhibit J - Form of Promissory Note
Exhibit K - Form of Common Stock Purchase Warrant
Exhibit L - Form of Warrant Registration Rights Agreement
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CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
the 4th day of June, 1997, by and among WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation ("WMT"), STAR MANAGEMENT SERVICES, INC., a Delaware
------------------------------
corporation (the "Company"), XXXXXX X. XXXXX ("Stockholder 1") and CARLTON
--------------- -------
XXXXXX XXXXXXX XX ("Stockholder 2") (such individuals are sometimes referred to
-----------------
herein individually as a "Stockholder" and collectively as the "Stockholders").
RECITALS:
A. The Stockholders own all of the issued and outstanding capital stock
of the Company.
B. The Stockholders wish to sell, and WMT wishes to purchase, all of
the issued and outstanding capital stock of the Company on the terms and subject
to the conditions set forth in this Agreement.
C. It is contemplated that prior to the Closing Date, the Company will
complete the spin-off of its End-User Business (the "Spin-off") and that at
Closing, the Company will consist solely of the Company's Distribution Business.
After the Closing, the Company shall be merged with and into a wholly owned
subsidiary of WMT (the "Acquisition Sub"), the separate existence of the Company
(except as may be continued by operation of law) shall cease, and the
Acquisition Sub shall continue as the surviving corporation as a wholly owned
subsidiary of WMT and will be operated under a new name. The parties do not
intend to file an election under section 338(h)(10) of the Code with respect to
the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises, the mutual
agreements, provisions and covenants herein contained and other good and
valuable consideration, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the following meanings:
-----------
"Acceleration Notice" is defined in this Agreement in Section 2.8(a).
"Acquired Companies" means the Company and its Subsidiaries.
"Acquisition Sub" means the wholly owned subsidiary of WMT into which
the Company will be merged after the Closing.
"Adjustment Amount" is defined in this Agreement in Section 2.5(a).
"Adjustment Arbitrator" is defined in this Agreement in Section 2.5(b).
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"Affiliate" is used in this Agreement to indicate a relationship with
one or more persons and when used shall mean any corporation or organization of
which such person is an executive officer, director or partner or is directly or
indirectly the beneficial owner of one percent (1%) or more of any class of
equity securities or financial interest therein; any trust or other estate in
which such person has a beneficial interest or as to which such person serves as
trustee or in any similar fiduciary capacity; any relative or spouse of such
person, or any relative of such spouse (such relative being related to the
person in question within the second degree); any director or executive officer
of such person; or any person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
"Agreement" means this Stock Purchase Agreement, between Western Micro
Technology, Inc., Star Management Services, Inc., Stockholder 1 and Stockholder
2.
"Average Market Price" is defined in this Agreement in Section 9.3(g).
"COBRA" is defined in this Agreement in Section 4.13(a)(v).
"Cash Payment" is defined in this Agreement in Section 2.2(a)(iii)(A).
"Change in Control" is defined in this Agreement in Section 2.8(e).
"Closing" is defined in this Agreement in Section 2.3.
"Closing A/R" is defined in this Agreement in Section 9.1(b).
"Closing Date" is referred to herein as the date on which the Closing
occurs.
"Closing Date Balance Sheet" is defined in this Agreement in Section
2.5(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Balance Sheet" is defined in this Agreement in Section 4.6.
"Company Plans" is defined in this Agreement in Section 4.13(a).
"Company's Audited Financial Statements" is defined in this Agreement
in Section 4.4.
"Company's Interim Financial Statements" is defined in this Agreement
in Section 4.4.
"Competing Business" is defined in this Agreement in Section 4.26.
"Competing Transaction" is defined in this Agreement in Section 6.2(e).
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"Confidentiality Agreement" means that certain Mutual Nondisclosure and
Nonsolicitation Agreement, dated April 22, 1997, between WMT, Sirius Computer
Solutions and the Stockholders.
"Cure Notice" is defined in this Agreement in Section 2.8(b).
"Copyrights" is defined in this Agreement in Section 4.22(a).
"Default Rate" is defined in this Agreement in Section 2.7(a)(i).
"DGCL" is defined in this Agreement in Section 6.2(a)(xi).
"Disclosure Letter" means the disclosure letters delivered by the
Company to WMT and by WMT to the Company prior to the execution and delivery of
this Agreement, and attached hereto as Exhibits A and B, respectively, and any
supplemental disclosure letters delivered by WMT or the Company as provided in
Section 6.1(h).
"Distribution Business" means the businesses owned or operated by the
Company and its Subsidiaries prior to the Closing other than the End-User
Business. The Distribution Business shall include, without limitation, the
distribution of IBM RS/6000 and IBM AS/400 products, Telxon, Motorola and other
products by, and the IBM Credit Corporation leasing business of, Sirius Computer
Solutions, Inc., the distribution of IBM midrange parts and peripherals by Star
Data Systems, Inc. and the development of Internet applications by I-Net
Systems, Inc. for sale to, or use by, midrange system resellers.
"Due Date" is that date upon which a payment to a Stockholder is due
pursuant to Section 2.2, Section 2.5(a) or Section 2.6(d), as the case may be.
"Earn-out Arbitrator" is defined in this Agreement in Section 2.6(b).
"Earn-out Payment" or an "earn-out payment" is defined in this
Agreement in Section 2.6(a).
"Employment Agreements" is defined in this Agreement in Section
2.4(a)(ii).
"Employment Laws" is defined in this Agreement in Section 4.21.
"ERISA" is defined in this Agreement in Section 4.13(a)(i).
"Encumbrance" means any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership and, except with respect to the Shares or WMT Common
or equivalents transferred hereunder, excluding (a) mortgage or security
interests shown on the Company's Audited Financial Statements and WMT's
Financial Statements for the fiscal year of the Company and WMT ended October
31, 1996 and December 31, 1996, respectively, as securing specified liabilities
or obligations,
-3-
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets by the Company
and WMT after October 31, 1996 and December 31, 1996, respectively (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (c) liens for current taxes
not yet due, (d) statutory and nonstatutory landlord liens, (e) any debt
incurred by WMT in connection with the Xxxxxxxx & Company, Inc., Xxx Xxxxxxxxxx
& Co., Inc. or other financing relating to the transactions contemplated hereby
and (f) any security interest, mortgage, lien, charge, adverse claim or
restriction listed on Exhibit A or Exhibit B.
"End-User Business" shall mean the business of selling and leasing
Products (as defined in the XXX Agreement) to End-Users (as defined in the XXX
Agreement) which will be transferred to XXX prior to Closing in the Spin-off.
"Estimated Adjustment Amount" is defined in this Agreement in Section
2.2(c).
"Estimated Cash Payment" is defined in this Agreement in Section
2.2(b).
"Estimated Closing Balance Sheet" is defined in this Agreement in
Section 2.2(c).
"GAAP" is defined in this Agreement in Section 2.2(c).
"Golden Parachute Payment" is defined in this Agreement in Section
4.13(j).
"Governmental Body" means any domestic or foreign national, state or
municipal or other local government or multinational, state or municipal or
other local government or multinational body, any subdivision, agency,
commission or authority thereof, or any quasi-governmental or private body
exercising any regulatory or taxing authority thereunder.
"HSR Act" is defined in this Agreement in Section 6.1(b).
"IBM" means International Business Machines, Inc.
"Indemnifiable Damages" is defined in this Agreement in Section 9.1(a).
"Indemnified Person" is defined in this Agreement in Section 9.3(b).
"Indemnifying Person" is defined in this Agreement in Section 9.5(a).
"Installment Payments" means the Second Installment and the Third
Installment.
"Intellectual Property Assets" is defined in this Agreement in Section
4.22(a).
-4-
"XXX" means the corporation, limited liability company or other entity
to be organized prior to the Closing Date with respect to which the End-User
Business will be transferred to and operated within after the Spin-off.
"XXX Agreement" is defined in this Agreement in Section 2.4(a)(iv).
"Knowledge," "Company Knowledge," "Stockholder Knowledge" and "WMT
Knowledge" is defined in this Agreement in Section 12.2.
"Market Price" is defined in this Agreement in Section 9.3(g).
"Marks" is defined in this Agreement in Section 4.22(a).
"Material Adverse Effect" means, with respect to any company or entity,
any event, condition or change which materially and adversely affects or is
reasonably likely to materially and adversely affect the business, financial
condition, assets or results of operations of such company or entity and its
subsidiaries, on a consolidated basis.
"Net Assets" is defined in this Agreement in Section 2.5(a).
"Net Sales" [********************************************************
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******************************************************************************
******************************************************************************
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***]
"Noncompetition Agreements" is defined in this Agreement in Section
2.4(a)(iii).
"Notice" is defined in this Agreement in Section 9.5(a).
"Objection Notice" is defined in this Agreement in Section 2.6(b) or
Section 2.8(e), as the case may be.
"Objection Period" is defined in this Agreement in Section 2.6(b).
"Organizational Documents" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Outstanding Obligation" is defined in this Agreement in Section
2.7(a).
"Patents" is defined in this Agreement in Section 4.22.
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CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Prepayment" is defined in this Agreement in Section 2.2.
"Promissory Notes" shall mean the promissory notes issued by WMT to the
Stockholders pursuant to Section 2.7 hereof.
"Proprietary Rights Agreement" is defined in this Agreement in Section
4.14.
"Protest Notice" is defined in this Agreement in Section 2.5(b).
"Purchase Price" is defined in this Agreement in Section 2.2(a).
"Recipient" is defined in this Agreement in Section 4.13(j).
"Registration Rights Agreement" is defined in this Agreement in Section
2.4(a)(v).
"Second Installment" is defined in this Agreement in Section
2.2(a)(iii)(C).
"SEC" means the Securities and Exchange Commission.
"SEC Reports" is defined in this Agreement in Section 5.4(c).
"Shares" means 3,000 shares of common stock, no par value, of the
Company or such lesser number of shares held by the Stockholders after the
Spin-off.
"Spin-off" means the transfer by the Company of the Company's End-User
Business to XXX and the transfer of the ownership interest in XXX to the
Stockholders, as more specifically described in Exhibit A.
"Stockholder 1" means Xxxxxx X. Xxxxx.
"Stockholder 2" means Carlton Xxxxxx Xxxxxxx XX.
"Stockholder" or "Stockholders" means one or both of Stockholder 1 and
Stockholder 2.
"Stockholders' Closing Documents" is defined in this Agreement in
Section 3.3.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
-6-
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Taxes" means all taxes, charges, fees, levies, interest, penalties,
additions to tax or other assessments, including, but not limited to, income,
excise, property, sales, use, value added and franchise taxes and customs
duties, imposed by any Governmental Body and any payments with respect thereto
required under any tax-sharing agreement.
"Tax Returns" means any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any Governmental Body in connection with the determination,
assessment or collection of any Taxes or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
"TRO" is defined in this Agreement in Section 11.2(d).
"Termination Fee" means the $500,000 payment, if any, made to WMT or
the Company, as the case may be, pursuant to Section 11.2(b).
"Third Installment" is defined in this Agreement in Section
2.2(a)(iii)(D).
"Trade Secrets" is defined in this Agreement in Section 4.22(a).
"Unadjusted Cash Payment" is defined in this Agreement in Section
2.2(a)(iii)(A).
"Warrant" is defined in this Agreement in Section 2.7(a)(ii).
"Warrant Registration Rights Agreement" is defined in this Agreement in
Section 2.7(c).
"WMT" means Western Micro Technology, Inc., a California corporation.
"WMT Closing Documents" is defined in this Agreement in Section 5.2.
"WMT Common" means the common stock, no par value, of WMT.
"WMT Financial Statements" is defined in this Agreement in Section 5.4.
"WMT Group" means WMT and its Subsidiaries, and each of them.
"WMT Indemnitees" is defined in this Agreement in Section 9.1(a).
"WMT Shares" is defined in this Agreement in Section 2.2(a)(iii)(B).
"Year 1" is the period beginning on the Closing Date and ending on the
first anniversary of the Closing Date. For purposes of this definition only,
Closing Date shall
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mean June 30, 1997 (notwithstanding when the actual Closing occurs) if the
Closing Date is on or before July 16, 1997; otherwise, if the Closing occurs
after July 16, 1997, Closing Date shall refer to the actual date of the Closing.
"Year 2" is the period beginning on the first anniversary of the
Closing Date and ending on the second anniversary of the Closing Date. For
purposes of this definition only, Closing Date shall mean June 30, 1997
(notwithstanding when the actual closing occurs) if the Closing Date is on or
before July 16, 1997; otherwise, if the Closing occurs after July 16, 1997,
Closing Date shall refer to the actual date of the Closing.
"1934 Act" is defined in this Agreement in Section 2.8(h).
2. Sale and Purchase of Shares; Closing.
------------------------------------
2.1 Sale and Delivery. Each Stockholder agrees to sell and deliver to
-----------------
WMT at the Closing, and WMT agrees to purchase and accept from each Stockholder
at the Closing, free and clear of any Encumbrances, on the terms and subject to
the conditions set forth in this Agreement, and for the purchase price described
in Sections 2.2 and 2.6, good and valid title to the Shares. The Shares to be
sold and purchased pursuant to this Agreement constitute all of the outstanding
capital stock of the Company.
2.2 Purchase Price.
--------------
(a) As consideration for the purchase of the Shares, WMT shall pay an
aggregate amount of (i) Forty-Five Million Dollars ($45,000,000) to be paid in
cash by wire transfer in immediately available funds in three installments,
subject to adjustment as provided in Sections 2.2(c) and 2.5, and as set forth
below in the event the Prepayment is made, (ii) 510,714 shares of WMT Common and
(iii) the Earn-out Payments, if any, as provided in Section 2.6 hereof
(collectively, the "Purchase Price"). Such Purchase Price shall be paid as
follows:
(A) at the Closing, an aggregate of Thirty Million Dollars
($30,000,000) in cash, by wire transfer in immediately available funds
(as unadjusted, the "Unadjusted Cash Payment"), of which Seventeen
Million Eight Hundred Fifty Thousand Dollars ($17,850,000) shall be
paid to Stockholder 1 and Twelve Million One Hundred Fifty Thousand
Dollars ($12,150,000) shall be paid to Stockholder 2, such amounts to
be subject to the adjustment as provided in Sections 2.2(c) and 2.5
below (as adjusted, the "Cash Payment");
(B) at the Closing, to Stockholder 2, Five Hundred Ten
Thousand Seven Hundred Fourteen (510,714) shares (the "WMT Shares") of
WMT Common;
(C) to the Stockholders, on the first anniversary of the
Closing, an aggregate of Seven Million Five Hundred Thousand Dollars
($7,500,00) in cash, by wire transfer in immediately available funds,
which shall be allocated
-8-
pro rata between the Stockholders in accordance with their percentage ownership
of the Shares (the "Second Installment");
(D) to the Stockholders, on the second anniversary of the
Closing, an aggregate of Seven Million Five Hundred Thousand Dollars
($7,500,00) in cash, by wire transfer in immediately available funds,
which shall be allocated pro rata between the Stockholders in
accordance with their percentage ownership of the Shares (the "Third
Installment"); and
(E) to the Stockholders, the Earn-out Payment as provided in
Section 2.6 hereof.
In lieu of making any Installment Payments hereunder, WMT has the option,
exercisable in its sole discretion, at Closing to pay, in addition to the
Estimated Cash Payment, Thirteen Million, Two Hundred Twenty Thousand, One
Hundred Eighty-Five and 57/100 Dollars ($13,220,185.57) in cash, by wire
transfer in immediately available funds, which shall be allocated pro rata
between the Stockholders in accordance with their percentage ownership of the
Shares (the "Prepayment"). If WMT makes such Prepayment, WMT shall have no
further obligation to the Stockholders with respect to any Installment Payments
under this Agreement, and the Purchase Price shall be increased by the amount of
the Prepayment and correspondingly reduced by Fifteen Million Dollars
($15,000,000).
(b) At the Closing, WMT shall (i) deliver to Stockholder 2 a
certificate representing the WMT Shares and (ii) pay to each Stockholder an
amount equal to his respective portion of the Unadjusted Cash Payment, as
adjusted by the Estimated Adjustment Amount allocated to such Stockholder as
provided in Section 2.2(c) below, by wire transfer of immediately available
funds to the account of such Stockholder, written notice of which account shall
have been provided to WMT not less than one (1) business day prior to the
Closing. The aggregate cash payment to be paid to the Stockholders at the
Closing, after giving effect to the Estimated Adjustment Amount, is hereinafter
referred to as the "Estimated Cash Payment." The Second Installment and the
Third Installment are collectively referred to herein as the "Installment
Payments" or "Installments."
(c) As soon as reasonably practical, but in no event later than two (2)
business days prior to the Closing, the Stockholders shall cause a balance sheet
(the "Estimated Closing Balance Sheet") of the Company as of June 30, 1997
(after giving effect to the Spin-Off ), which shall set forth on a consolidated
basis, the net assets of the Company (after giving effect to the Spin-off) as of
June 30, 1997 to be calculated and prepared in accordance with generally
accepted accounting principles ("GAAP") (the amount of such net assets as thus
determined shall hereinafter be referred to as the "Estimated Net Assets") and
to be delivered to WMT. For purposes of calculating the Estimated Cash Payment
due to the Stockholders at the Closing, the Unadjusted Cash Payment shall be
increased by the amount by which the Estimated Net Assets are greater than
$2,500,000 or reduced by the amount by which the Estimated Net Assets are less
than $2,500,000 (such increase or decrease being hereinafter referred to as the
"Estimated Adjustment Amount"); provided, however, that in no event shall the
Estimated Net Assets or Net Assets exceed $6,000,000 and provided further that
neither
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the Estimated Net Assets nor the Net Assets (each excluding unencumbered cash)
shall be greater than $2,500,000 as reflected on the Estimated Closing Balance
Sheet and Closing Date Balance Sheet (as defined in Section 2.2(c) and Section
2.5(a)), respectively. Any Estimated Net Assets or Net Assets in excess of
$6,000,000 or in excess of $2,500,000 that are not in the form of unencumbered
cash on the Estimated Closing Balance Sheet and Closing Date Balance Sheet,
respectively, shall not be credited to the Stockholders for purposes of
calculating the Estimated Cash Payment and Adjustment Amount (as defined in
Section 2.5(a)) due at the Closing, and on the Due Date specified in Section
2.5(c), respectively. The Estimated Adjustment Amount shall be allocated between
the Stockholders' respective portions of the Unadjusted Cash Payment pro rata in
accordance with their respective ownership of the Shares. The Stockholders and
the Company covenant and agree to undertake all reasonable efforts to assure
that the Estimated Net Assets and Net Assets are not less than $2,500,000. For
purposes of computing Estimated Net Assets and Net Assets, the Company shall
establish a reserve (which shall be treated as a liability for these purposes)
for all taxes ultimately payable with respect to revenue generated by the
Company for its End-User Business and Distribution Business (on a consolidated
basis) prior to the Closing even if such taxes are not then payable.
2.3 Closing Date. The Closing under this Agreement (the "Closing")
------------
shall be held on July 31, 1997 or such other date as WMT and the Stockholders
may agree to in writing. Such date on which the Closing is to be held is herein
referred to as the "Closing Date." The Closing shall be held at the offices of
Pillsbury Madison & Sutro LLP, 0000 Xxxx Xxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx, at
10:00 a.m. on such date, or at such other time and place as WMT and the
Stockholders may agree upon in writing.
2.4 Closing Obligations. At the Closing:
-------------------
(a) The Stockholders will deliver to WMT:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures guaranteed
by a commercial bank or by a member firm of the New York Stock
Exchange, for transfer to WMT;
(ii) an employment agreement in substantially the form of
Exhibit C-1 attached hereto, executed by Carlton Xxxxxx Xxxxxxx XX,
and, if such are executed by Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxx and
Xxxxxxx X. X. Xxxxxx, employment agreements in substantially the forms
of Exhibits C-2, C-3 and C-4, respectively attached hereto
(collectively, the "Employment Agreements");
(iii) noncompetition agreements in substantially the forms of
Exhibits D and E attached hereto, executed by Stockholder 1 and XXX
with respect to Exhibit D, and Stockholder 2 with respect to Exhibit E
(collectively, the "Noncompetition Agreements");
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(iv) the XXX Agreement in substantially the form of Exhibit F
attached hereto, executed by XXX (the "XXX Agreement");
(v) the Registration Rights Agreement, in substantially the
form of Exhibit G attached hereto, executed by Stockholder 2 (the
"Registration Rights Agreement"); and
(vi) a certificate executed by the Company and by each of the
Stockholders representing and warranting to WMT that, except as
otherwise stated in such certificate, each of the Company's and the
Stockholders' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date; and
(b) WMT will deliver to the Stockholders:
(i) the Estimated Cash Payment as provided in Section 2.2(b);
(ii) a certificate representing the 510,714 WMT Shares to
Stockholder 2;
(iii) a certificate executed by WMT to the Stockholders to the
effect that, except as otherwise stated in such certificate, each of
WMT's representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date;
(iv) the Employment Agreements, executed by WMT;
(v) the XXX Agreement, executed by WMT;
(vi) the Registration Rights Agreement, executed by WMT; and
(vii) the Noncompetition Agreements, executed by WMT.
2.5 Closing Financial Statements; Purchase Price Adjustments.
--------------------------------------------------------
(a) As soon as practicable following the Closing but in no event later
than sixty (60) days following the Closing Date, WMT shall cause a balance sheet
of the Company as of the Closing Date after giving effect to the Spin-off (the
"Closing Date Balance Sheet") which shall set forth on a consolidated basis, the
net assets of the Company as of the Closing Date after giving effect to the
Spin-off to be prepared in accordance with GAAP (the net assets amount thus
determined shall hereinafter be referred to as the "Net Assets") and to be
delivered to the Stockholders. The Stockholders shall cooperate with WMT in the
preparation of, and provide WMT access to the information and personnel
reasonably necessary to prepare, the Closing Date Balance Sheet. On the basis of
the Closing Date Balance Sheet,
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subject, however, to the rights of WMT and the Stockholders as provided in
Sections 2.5(b) and 2.5(c) below and the provisions of Section 2.2(c), (i) WMT
shall pay to the Stockholders the amount, if any, by which the Estimated Net
Assets are less than the Net Assets, which shall be allocated pro rata among the
Stockholders in accordance with their percentage ownership of the Shares, or
(ii) each of the Stockholders shall pay to WMT their respective share, allocated
pro rata among the Stockholders in accordance with their percentage ownership of
the Shares, of the amount by which the Estimated Net Assets exceeded the Net
Assets (as calculated, the "Adjustment Amount").
(b) Within ten (10) business days after WMT's delivery of the Closing
Date Balance Sheet, the Stockholders may deliver written notice (the "Protest
Notice") to WMT of any objections, and the basis therefor, which the
Stockholders may have to the Closing Date Balance Sheet. The failure of either
of the Stockholders to deliver such Protest Notice within the prescribed time
period will constitute the Stockholders' acceptance of the Closing Date Balance
Sheet as delivered by WMT. If either Stockholder timely delivers a Protest
Notice, both Stockholders shall be deemed to have delivered a Protest Notice on
the terms set forth in either or both such notices. During the ten (10) business
days following WMT's receipt of a Protest Notice, WMT and each Stockholder shall
attempt to resolve any disagreement with respect to the Closing Date Balance
Sheet and the accuracy thereof. If at the end of the period specified in the
immediately preceding sentence, WMT and the Stockholders shall have failed to
resolve the disagreement specified in the Protest Notice, the items in dispute
shall be referred to Ernst & Young LLP or such other accounting firm of national
reputation as may be agreed to by the parties (the "Adjustment Arbitrator") for
final determination within forty-five (45) days. This provision for arbitration
shall be specifically enforceable by the parties, and the determination of the
Adjustment Arbitrator in accordance with the provisions hereof shall be final
and binding upon WMT and both Stockholders, with no right of appeal therefrom
consistent with the provisions of Section 10 hereof. The fees and expenses of
the Adjustment Arbitrator shall be paid by the party (i.e., WMT, on the one
hand, or both Stockholders, on the other hand) whose last proposed written offer
for the settlement of the terms in dispute prior to the commencement of such
arbitration, taken as a whole, was farther away from the final determination of
the Adjustment Arbitrator. If the final determination of the Adjustment
Arbitrator splits the difference between the last proposed written offers of
WMT, on the one hand, and the objecting Stockholder or Stockholders, on the
other hand, then WMT and the Stockholders shall each pay one-half of the fees
and expenses of the Adjustment Arbitrator. For purposes of the determination set
forth in the preceding two sentences if each Stockholder delivers a separate
last written offer of settlement, the amounts in dispute so set forth on such
offer shall be averaged. Any such payment of fees and expenses by the
Stockholders shall be pro rata based on their respective ownership of the
Shares.
(c) The Stockholders and WMT agree that within five business (5) days
after the final determination of the Adjustment Amount as provided in this
Section 2.5 (either because no Protest Notice is delivered or upon receipt of
the Adjustment Arbitrator's final determination or otherwise), each of the
Stockholders shall pay to WMT, or WMT shall pay to the Stockholders, as the case
may be, such Adjustment Amount. In the event that such amount is due, but is not
paid when due, simple interest shall accrue on such obligation and be payable
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therewith from the Due Date to the day preceding the date of payment at the
annual rate equal to the Default Rate calculated as of the date such payment is
due.
2.6 Earn-Out Payments.
-----------------
(a) In addition to the Purchase Price, WMT shall pay to the
Stockholders an earn-out payment (the "Earn-out Payment") for Year 1 and Year 2
based upon [********] during each such twelve (12) month period. The Earn-out
Payment shall be calculated as follows:
(i) For Year 1, the Earn-out Payment shall be an amount equal
to [**************************************************************
******************************************************************
******************************************************************
****************].
(ii) For Year 2, the Earn-out Payment shall be an amount equal
to [**************************************************************
******************************************************************
******************************************************************
******************************************************************
****************].
The Earn-out Payments shall be allocated pro rata between the Stockholders in
accordance with their percentage ownership of the Shares.
(b) For the purpose of calculating the Earn-out Payments set forth in
Section 2.6(a), separate books and records shall be maintained by WMT with
respect to [*******]. Such books and records shall be maintained in accordance
with GAAP and consistent with the Company's past accounting practices. The
following reporting obligations shall be in effect until aggregate Earn-out
Payments of $[*******] have been made. For each calendar quarter ending on or
prior to June 30, 1999, WMT shall, on or before the thirtieth (30th) day after
the end of such quarter, deliver to each Stockholder a written calculation of
the [******] for the preceding quarter and for such Year to date. In addition,
on or before the thirtieth (30th) day after the end of Year 1 or Year 2, as the
case may be, WMT shall calculate and deliver to each Stockholder a notice
setting forth the Earn-out Payment for such twelve (12) month period, allocated
pro rata between the Stockholders in accordance with their percentage ownership
of the Shares. Within ten (10) business days after receipt by a Stockholder of
the notice of the calculation of his Earn-out Payment for Year 1 or Year 2, as
the case may be (the "Objection Period"), each Stockholder receiving such notice
may deliver a written notice (an "Objection Notice") to WMT setting forth any
objections he has to such calculation, and the basis therefor. If either
Stockholder timely delivers an Objection Notice, both Stockholders shall be
----
deemed to have delivered an Objection Notice on the terms set forth in either or
both such notices. During the ten (10) business days following WMT's receipt of
an Objection Notice, WMT and each Stockholder shall attempt in good faith to
resolve any disagreement with respect to the calculation of such Earn-out
Payment. If at the end of the period specified in the immediately preceding
sentence, WMT and the Stockholders shall have failed to resolve the disagreement
specified in the Objection Notice, the items in dispute shall
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CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
be referred to Ernst & Young LLP or such other accounting firm of national
reputation as may be agreed to by the parties (the "Earn-out Arbitrator") for
final determination within thirty (30) days. This provision for arbitration
shall be specifically enforceable by the parties, and the determination of the
Earn-out Arbitrator in accordance with the provisions hereof shall be final and
binding upon WMT and both Stockholders, with no right of appeal therefrom
consistent with the provisions of Section 10 hereof. The fees and expenses of
the Earn-out Arbitrator shall be paid by the party (i.e., WMT, on the one hand,
or the Stockholders, on the other hand) whose last proposed written offer for
the settlement of the items in dispute prior to the commencement of such
arbitration, taken as a whole, was farther away from the final determination of
the Earn-out Arbitrator. If the final determination of the Earn-out Arbitrator
splits the difference between the last proposed written offers of WMT, on the
one hand, and the Stockholder or Stockholders, as the case may be, on the other
hand, then WMT and the Stockholders shall each pay one-half of the fees and
expenses of the Earn- out Arbitrator. For purposes of the determination set
forth in the preceding two sentences, if each Stockholder delivers a separate
last written offer of settlement, the amounts in dispute, as set forth in such
offer shall be averaged. Any such payment of fees and expenses by the
Stockholders shall be pro rata based on their respective ownership of the
Shares.
(c) The Stockholders shall be entitled to audit the calculation of
[*******] with respect to each calendar quarter of Year 1 and Year 2 upon
reasonable notice (a minimum of 72 hours prior written notice) and during normal
business hours in the period from receipt of the notice setting forth the
calculation of the Earn-out Payment for such Year or [******] for the quarter,
as the case may be, until ten (10) business days after delivery of the notice
with respect to such calculation. The Stockholders, and any persons employed by
them to assist in such audit, shall execute appropriate confidentiality
agreements with respect to information received in conjunction with such audit.
(d) Unless a timely "Objection Notice" is delivered by a Stockholder to
WMT pursuant to Section 2.6(b), the Earn-out Payment shall be paid to the
Stockholders, by wire transfer in immediately available funds, not later than
the fifth (5th) business day after the expiration of the earlier of (i)
Objection Period or (ii) the Stockholders' delivery of a written notice to WMT
accepting the calculation. If a timely Objection Notice is delivered by a
Stockholder, the Earn-out Payment shall be paid to the Stockholders, by wire
transfer in immediately available funds, not later than the fifth (5th) business
day after the Stockholders and WMT resolve (through use of an Earn-out
Arbitrator or otherwise) the dispute as to the appropriate amount for the
Earn-out Payment. Notwithstanding Section 2.7 below, WMT shall use all
reasonable efforts to obtain the funds necessary to make timely payment of the
Earn-out Payments owed to the Stockholders under this Section 2.6.
(e) In the event of a [**********************************] by WMT (as
defined therein) which gives rise to the proper delivery of a [***********] as
defined in the [**************], the [*******] shall be increased by the amount
by which [*******] were adversely affected by such breach net of any payments or
other consideration received in cure thereof which were included in the
calculation of [******]; provided, however, that [*******] as computed for
purposes of the Earn-out Payments to Stockholder 2 shall be unaffected
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CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
by any such [***********] that occurs while Stockholder 2 is an officer of the
Company, Acquisition Sub, or any successor in interest thereto.
2.7 Failure to Make Timely Payments.
-------------------------------
(a) In the event that (A) WMT fails to pay an Installment or make an
Earn-out Payment (each an "Outstanding Obligation" and collectively, the
"Outstanding Obligations") on the applicable Due Date, and (B) reasonably
believes it does not have sufficient working capital to pay such Outstanding
Obligations, and (C) after using all reasonable efforts cannot obtain the funds
necessary to pay any such Outstanding Obligations, WMT shall execute and deliver
to each Stockholder to whom such Outstanding Obligation is owed the following:
(i) on the applicable Due Date with respect to each such
Outstanding Obligation, a subordinated promissory note, in
substantially the form of Exhibit J hereto, in the principal amount of
the Outstanding Obligation then owed (each, a "Promissory Note"). Such
Promissory Note shall bear simple interest from the applicable Due Date
at the rate per annum equal to the Prime Rate as listed in the Money
Rates section of The Wall Street Journal on the business day
immediately preceding the applicable Due Date, plus four percent (4%),
or the maximum rate allowable by applicable law, whichever is less (the
"Default Rate"). Such Promissory Note shall have a term of six (6)
months from the applicable Due Date, with accrued interest due and
payable at the end of such term. To the extent the Promissory Note has
not been paid in full when due, and conditioned upon payment of all
accrued interest on such Promissory Note at such time, the Promissory
Note shall automatically renew for additional six (6) month periods
with accrued interest due (and such renewal being conditioned upon
payment of such interest) at the end of each six (6) month period. In
the event that WMT subsequently obtains sufficient working capital or
is able to obtain the financing necessary to pay such obligations, WMT
shall pay such portion of the amount due under the Promissory Note as
is reasonably possible under the circumstances; and
(ii) on the applicable Due Date with respect to each such
Outstanding Obligation, a warrant, in substantially the form of Exhibit
K hereto (the "Warrant"), granting such Stockholder the right to
purchase the number of shares of WMT Common equal to (x) ten percent
(10%) of the principal amount then owed to such Stockholder pursuant to
the Promissory Note issued in accordance with Section 2.7(a)(i) above,
divided by (y) the Average Market Price of WMT Common on the applicable
Due Date with respect to the Outstanding Obligation underlying such
Promissory Note, at an exercise price equal to seventy-five percent
(75%) of the Average Market Price of WMT Common at the Due Date of the
Outstanding Obligation with respect to which such Promissory Note was
issued.
(b) If the amount due to a Stockholder under any Promissory Note
provided for in Section 2.7(a)(i) above (including accrued interest) is not paid
in full when due, and the term
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CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
of the Promissory Note is extended by six (6) months in accordance with the
provisions of Section 2.7(a)(i), WMT shall execute and deliver to the
Stockholder on such six (6) month anniversary an additional Warrant exercisable
for that number of shares of WMT Common equal to (x) twelve and one-half percent
(12.5%) of the aggregate principal amount then outstanding pursuant to such
promissory note, divided by (y) the Average Market Price of WMT Common on such
date, at an exercise price equal to sixty percent (60%) of the Average Market
Price of WMT Common on the date of issuance of the Warrant. Whenever the term of
the Promissory Note is extended thereafter (at six (6) month intervals), the
grant of additional Warrants exercisable for an additional number of shares
shall be increased in increments of two and one-half percent (2.5%) (over the
Warrant coverage percentage applicable to the previous Warrant) of the amount
then owed, and the exercise price of such additional Warrants shall be set at
fifteen percentage points below the percentage exercise price of the previously
issued Warrant. The issuance of any additional Warrants shall not have any
effect upon Warrants then outstanding, which shall remain in full force and
effect in accordance with the terms thereof.
For example: At the Due Date of the Second Installment, WMT only pays
-----------
the Stockholders an aggregate of $2,500,000 and they are therefore owed
an additional Installment Payment of $5,000,000. The Stockholders will
receive Promissory Notes from WMT for an aggregate of $5,000,000, with
interest and principal thereon due in six (6) months. The Stockholders
will also each receive a Warrant to purchase that number of shares of
WMT Common equal to ten percent (10%) of their respective portions of
the $5,000,000 divided by the Average Market Price of WMT Common
measured as of the date the Second Installment was due, at an exercise
price equal to seventy-five percent (75%) of such Average Market Price.
If such Average Market Price on such date were $10.00 per share, the
Stockholders would receive warrant exercisable for an aggregate of
50,000 shares of WMT Common at $7.50 per share. If the principal amount
of the promissory notes remain unpaid after six (6) months and the
Average Market Price of WMT Common remains at $10.00 per share, the
Stockholders will receive additional warrants entitling them to
purchase an aggregate of 62,500 shares of WMT Common at $6.00 per
share, and, assuming all accrued interest thereon has been paid, the
term of the Promissory Notes shall be extended by six (6) months.
(c) Concurrent with the delivery of each Warrant hereunder, WMT shall
deliver a registration rights agreement to each Stockholder in substantially the
form of Exhibit L (the "Warrant Registration Rights Agreement"), providing for
registration rights with respect to all Shares purchasable under such Warrant or
any other Warrant delivered hereunder.
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2.8 Acceleration of Obligations.
---------------------------
(a) If
(i) a Promissory Note is issued to either Stockholder pursuant
to Section 2.7(a)(i) above and is not paid in full (including accrued
interest) within twelve (12) months of the original date of issuance,
(ii) WMT fails to timely deliver a Promissory Note, a Warrant
or Warrant Registration Rights Agreement to either Stockholder as
required by Section 2.7(a), 2.7(b) or 2.7(c) above,
(iii) WMT materially breaches the covenants set forth in
Section 7.9 hereof,
(iv) WMT does not timely pay the Adjustment Amount as set
forth in Section 2.5,
(v) WMT fails to timely pay accrued interest, when due, on any
Promissory Note issued pursuant to Section 2.7(a), or
(vi) in the event any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation or other similar case or
proceeding in connection therewith, is filed by WMT or with respect to
WMT by its creditors.
and, after compliance with the procedures and providing the opportunity to cure
as set forth in Sections 2.8(b), (c) and (d) and (e) below, such act or omission
has not been, or cannot be, cured or corrected, each affected Stockholder may,
in his sole discretion, declare all unpaid Installment Payments, Earn-out
Payments and Promissory Notes in default and demand payment pursuant to this
Section 2.8(a) by providing WMT with a notice of its intent to so accelerate
such obligations (the "Acceleration Notice"). WMT shall, within thirty (30) days
of the receipt of the Acceleration Notice, pay, in a lump sum, (A) to
Stockholder 1 (if there shall be a default in the obligations to Stockholder 1),
the aggregate amount of $10,200,000 plus accrued interest, if any, on
outstanding Promissory Notes originally issued to Stockholder 1 minus any
Installment Payments or Earn-out Payments or principal payments on Promissory
Notes received by Stockholder 1 or any assignee thereof prior to such date, and
(B) to Stockholder 2 (if there shall be a default in the obligations to
Stockholder 2), an aggregate amount equal to $9,800,000 plus accrued interest,
if any, on outstanding Promissory Notes originally issued to Stockholder 2 minus
any Installment Payments or Earn-out Payments or principal payments on
Promissory Notes received by Stockholder 2 or any assignee thereof prior to such
date. Upon such payment, the Installment Payment and the Earn-out Payment, and
any related outstanding Promissory Note, shall be deemed satisfied in full. Such
payments under this Section 2.8(a) are in lieu of any further Installment
Payments, Earn-out Payments, payments under the Promissory Notes or other
payments hereunder or thereunder. To the extent any of the Promissory Notes have
been properly assigned prior to such date, payments shall be made to the then
holder or holders of such Promissory Notes of
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the outstanding principal and interest thereon in cancellation thereof, and the
payments otherwise due hereunder to Stockholder 1 or Stockholder 2, as the case
may be, shall be correspondingly reduced on a dollar-for-dollar basis by such
payments.
(b) In the event that a Stockholder believes that an act or omission
set forth in clause (i), (ii), (iii), (iv), (v) or (vi) of Section 2.8(a) has
occurred, either Stockholder may provide written notice to WMT of the acts or
omissions complained of, giving reasonably specific details, and to the extent
it believes such act or omission may be cured or corrected, the actions required
to cure or correct such acts or omissions (the "Cure Notice").
(c) The following procedures set forth in this Section 2.8(c) shall
apply only with respect to a Cure Notice complaining of any of the acts of
omissions described in clauses (iv), (v) and (vi) of Section 2.8(a) above. WMT
shall be given a period of ten (10) business days after receipt of a Cure Notice
(30 days with respect to clause (vi)) in which to cure or correct the act or
omission complained of therein, and if such acts or omissions are not cured or
corrected by the end of such cure period, such affected Stockholder shall then
have the right to declare all unpaid Installment Payments, Earn-out Payments and
Promissory Notes in default by delivering an Acceleration Notice to WMT pursuant
to Section 2.8(a). If the acts or omissions complained of are cured or corrected
during such ten (10) business day cure period or thirty (30) day cure period, as
the case may be, such Stockholder shall not be entitled to accelerate such
obligations for the acts or omissions set forth in such Cure Notice.
(d) The following procedures set forth in this Section 2.8(d) shall
apply only with respect to a Cure Notice relating to Section 2.8(a)(iii)
complaining of any of the acts or omissions described in clauses (i), (ii) and
(iii) of Section 7.9 hereof. WMT shall be given a period of ten (10) business
days (thirty (30) days with respect to acts or omissions relating to clause
(iii) of Section 7.9 hereof) after receipt of a Cure Notice in which to cure or
correct the act or omission complained of therein, and if such acts or omissions
are not cured or corrected by the end of such applicable cure period, or by
their nature cannot be cured or corrected, such affected Stockholder shall then
have the right to declare all unpaid Installment Payments, Earn-out Payments and
Promissory Notes in default by delivering an Acceleration Notice to WMT pursuant
to Section 2.8(a). If the acts or omissions complained of are cured or corrected
during such ten (10) business day cure period or thirty (30) day cure period, as
the case may be, such Stockholder shall not be entitled to accelerate such
obligations for the acts or omissions set forth in such Cure Notice.
(e) The following procedures set forth in this Section 2.8(e) shall
apply only with respect to a Cure Notice complaining of any of the acts or
omissions described in clauses (i) and (ii) of Section 2.8(a) above. The parties
recognize that the provisions regarding payment on an accelerated basis of the
Installment Payments, Earn-out Payments and Promissory Notes set forth in this
Section 2.8 can impose a severe and unexpected burden on WMT and that a bona
fide dispute can arise as to the proper characterization for these purposes of
acts or omissions which could give rise to such acceleration of payment or as to
the appropriateness of any offsets to amounts owed pursuant to Section 9.1 or
9.3. WMT shall, within ten (10) business days of Stockholder's delivery of such
Cure Notice, deliver written notice to such Stockholder of its good faith
objections to any of the matters set forth in the Cure Notice (the
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"Objection Notice"), including, without limitation, whether the acts or
omissions complained of in such Cure Notice have occurred or as to the actions
required therein to cure or correct such acts or omissions, or both. In the
event the acts or omissions complained of relate to clause (i) of Section
2.8(a), WMT's objection shall set forth the amount not in dispute as being owed
under such Promissory Note (such dispute to be limited to the set-off rights of
WMT pursuant to Sections 9.1 and 9.3 hereof or calculation of interest
thereunder) and WMT shall deliver within the ten (10) business day period
following delivery of the Cure Notice, a cash payment for the entire undisputed
amount. In the event that the acts or omissions complained of relate to clause
(ii) of Section 2.8(a), WMT shall deliver with the Objection Notice, as partial
performance of its obligations with respect thereto, a Promissory Note, Warrant
or Warrant Registration Rights Agreement, as the case may be, reflecting the
principal amount or number of shares of WMT Common not in dispute. Such payment
of a Promissory Note or partial performance pursuant to the preceding two
sentences shall not be deemed acceptance by a party, or waiver of a party's
rights, with respect to the matters in dispute as set forth in the Cure Notice
and the Objection Notice. The failure of WMT to deliver an Objection Notice
within the required time will constitute WMT's acceptance of the matters not
objected to therein and the failure of WMT to object to any matter stated in
such Objection Notice will constitute WMT's acceptance of the matters not
objected to therein. Notwithstanding any provision in this Agreement to the
contrary, the failure of WMT to deliver the payment of the undisputed amount due
under a Promissory Note or partially perform its obligations as required herein
within ten (10) business days of delivery of the Cure Notice shall entitle the
effected Stockholder to immediately declare (without arbitration or further
rights to cure), all unpaid Installment Payments, Earn-out Payments and
Promissory Notes in default by delivering an Acceleration Notice to WMT pursuant
to Section 2.8(b).
If WMT timely objects to any of the matters set forth in the Cure
Notice and delivers the payment of the undisputed amount or partially performs
its obligations as required herein, such Stockholder and WMT shall endeavor in
good faith for the ten (10) business day period following such objection period
to resolve the dispute. If at end of such ten (10) business day period, WMT and
such Stockholder are unable to resolve such dispute, it shall be resolved by
arbitration in accordance with Section 10 hereof, such dispute, if practicable,
to be resolved in one (1) arbitration proceeding. During the pendency of any
such arbitration proceeding, such Stockholder shall not be entitled to declare
all unpaid Installment Payments, Earn-out Payments and Promissory Notes in
default for the acts or omissions complained of in such Cure Notice. The
arbitrators shall be instructed to resolve these matters, and only these
matters, to the extent objected to in the Objection Notice, each matter set
forth in (i), (ii), (iii) and (iv) below being subject to an affirmative finding
of the arbitrators (mutual agreement of the parties) of the immediately
preceding matter: (i) whether the act or omission complained of in the Cure
Notice occurred, is material or can form a basis for an acceleration of WMT's
obligations to the Stockholders pursuant to Section 2.8(a), (ii) whether the
acts required under the Cure Notice to correct or cure such actions or omissions
complained of therein will cure such act or omission, and if not, what action is
necessary to cure or correct the acts or omissions complained of in the Cure
Notice, (iii) with respect to any breach of clause (ii) of Section 2.8(a) only,
any actual damages incurred by such affected Stockholder as a result of a
failure to timely deliver a Warrant or Warrant Registration Rights Agreement
complained of in the Cure Notice, (iv) any set-off rights to obligations under
the Installment
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Payments, Earn-out Amounts or Promissory Notes that WMT may have under Sections
9.1 and 9.3 to the extent set forth in the Objection Notice and with respect to
which proper timely notice was given pursuant to Section 9 hereof. If the
arbitrator concludes that an act or omission set forth in a Cure Notice under
clause (ii) of Section 2.8(a) relating to delivery of a Warrant or Warrant
Registration Rights Agreement cannot be cured or corrected, the arbitrators, as
part of the arbitrators' decision, shall determine the actual damages (which
shall not include incidental or consequential damages) suffered by the affected
Stockholder as a consequence of such failure, such actual damages not to be
duplicative with the necessary actions to cure or correct the matters set forth
in the Cure Notice. WMT shall have ten (10) business days after the final
resolution of the matters set forth in the Cure Notice (whether upon the failure
to timely object, mutual agreement by the parties, or pursuant to the finding of
the arbitrators, as the case may be), to the extent such acts or omission are
curable or correctable, to take such actions finally determined (whether upon
the failure to timely object, mutual agreement by the parties, or pursuant to
the finding of the arbitrators, as the case may be) pursuant to this section to
be necessary to cure or correct such act or omission and, with respect to the
above-referenced breaches of clause (ii) of Section 2.8(a) only, pay within such
ten (10) business day period, to such affected Stockholder the amount of such
actual damages finally determined. If such actions finally determined pursuant
to this section to be necessary to cure or correct such act or omission are
taken, and, with respect to the aforementioned breaches of clause (ii) of
Section 2.8(a) only, the payment of such actual damages are made, within such
ten (10) business day period, such Stockholder shall not be entitled to
accelerate such obligation for the acts or omissions set forth in the Cure
Notice. If such actions finally determined pursuant to this section to be
necessary to cure or correct such act or omission are not taken within such
applicable cure period, or with respect to the aforementioned breaches of clause
(ii) of Section 2.8(a) only or the payment of such actual damages are not made
within the applicable cure period, such affected Stockholder shall then have the
right to declare all unpaid Installment Payments, Earn-out Payments and
Promissory Notes in default by delivering an Acceleration Notice to WMT pursuant
to Section 2.8(a). The affected Stockholder shall be entitled to accelerate
payments pursuant to the foregoing sentence without any further notice (other
than the Acceleration Notice), cure periods or arbitration proceedings set forth
in this Section 2.8(e) as to whether WMT properly cured or corrected such act or
omission or paid the actual damages as finally determined. Each of the parties
agree to participate in good faith in the arbitration process and to take all
reasonable action to conclude such arbitration as soon as possible.
(f) The failure of WMT to cure the acts or omissions set forth in the
Cure Notice and the exercise by a Stockholder of its right to deliver the
Acceleration Notice shall not release WMT from, or be deemed a waiver by a
Stockholder of, any obligations or liabilities of WMT with respect to the matter
which gave rise to the Cure Notice (e.g., WMT shall still be obligated to
deliver the Promissory Note, Warrant or Warrant Registration Rights Agreement,
as the case may be, or make payment on any unpaid portion Promissory Note which
is the subject of such Cure Notice) within ten (10) business days of final
determination of the amount owed under such note).
(g) With respect to each Stockholder, in the event (i) WMT's
contractual relationship with IBM is terminated or expires, or (ii) WMT's
contractual relationship with IBM is
-20-
materially modified or amended and such modification or amendment adversely puts
the End- User Business at a competitive material disadvantage and materially and
adversely affects such Stockholder's ability to earn his Earn-out Payments, WMT
shall, with respect to each Stockholder, within thirty (30) days of the first to
occur of the events specified in clause (i) or (ii) above with respect to such
Stockholder, accrue as a liability due and payable to such Stockholder his pro
rata allocation of the Earn-out Payment on an accrual basis as of such date, but
such Earn-out Payment shall not be due and payable to such Stockholder until
such Earn-out Payment would otherwise be due and payable in accordance with the
provisions of Section 2.6. Any accrual of a liability pursuant to this paragraph
shall not affect the rights of either Stockholder to receive the entire Earn-out
Payment possible pursuant to Section 2.6.
For example: assuming a [*******] target for Year 1 of $[*******] and,
six (6) months into Year 1, WMT's contractual relationship with IBM is
terminated and, at such six (6) month benchmark, the Company has
achieved $[********] in [******]; then WMT shall, within thirty (30)
days of such event, accrue and record a liability on its books to the
Stockholder 1 in an amount equal to [**********] percent ([***]%) of
$[******] (e.g., [****]% of $[******]) or $[****] and accrue and record
a liability on its books to Stockholder 2 in an amount equal to
[*************] ([***]%) of $[*******] (e.g., [**]% of $[*********]),
or $[*******].
(h) Concurrent with a Change in Control, WMT shall pay, in a lump sum,
(i) to Stockholder 1, the aggregate amount of $10,200,000 plus accrued interest,
if any on outstanding Promissory Notes originally issued to Stockholder 1 minus
any Installment Payments or Earn-out Payments or principal payments on
Promissory Notes received by Stockholder 1 or any assignee thereof prior to such
date, and (ii) to Stockholder 2, an aggregate amount equal to $9,800,000 plus
accrued interest, if any on outstanding Promissory Notes minus any Installment
Payments or Earn-out Payments or principal payments on Promissory Notes received
by Stockholder 2 or any assignee thereof prior to such date. A "Change in
Control" will be deemed to have occurred upon (A) a sale of substantially all of
the assets of WMT and its subsidiaries, on a consolidated basis, (B) any person
acting alone or together that would constitute a "group" for purposes of section
13d-3 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), as
then in effect, shall acquire beneficial ownership (as defined in Rule 13(d)
under such Act) of more than fifty percent (50%) of the WMT Common or (C) a
merger or consolidation of WMT with another company if the holders of the voting
stock of WMT immediately prior to such merger or consolidation do not own or
control more than fifty percent (50%) of the voting stock of the surviving
corporation. Such payments under this Section 2.8(h) are in lieu of any further
Installment Payments, Earn-out Payments, payments under the Promissory Notes or
other payments hereunder or thereunder. To the extent any of the Promissory
Notes have been properly assigned prior to such date, payments shall be made to
the then holder or holders of such Promissory Notes of the outstanding principal
and interest thereon in cancellation thereof, and the payments otherwise due
hereunder to Stockholder 1 or Stockholder 2, as the case may be, shall be
correspondingly reduced on a dollar-for-dollar basis by such payments.
-21-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
(i) The death of either Stockholder, or the permanent disability (as
defined in WMT's long-term disability plan) of either Stockholder or Stockholder
2's termination of employment with WMT for any reason, shall not affect the
rights of either Stockholder to Installment Payments pursuant to Section 2.2(a)
and Earn-out Payments pursuant to Section 2.6.
(j) For purposes of calculating the amounts due upon acceleration of
payment, the delivery of a Promissory Note shall not be deemed payment of an
Installment Payment or Earn-out Payment, as the case may be. It shall be a
condition of payment on each Promissory Note that it be delivered to WMT for
cancellation concurrent with the payment thereof.
Notwithstanding anything contained in this Agreement to the contrary, for all
purposes pursuant to this Agreement, if WMT has made the Prepayment, the
Installment Payments will be deemed to have been paid in full. Without limiting
the generality of the foregoing, for the purposes of Sections 2.8(a) and Section
2.8(h), upon payment by WMT of the Prepayment, Stockholder 1 will be deemed to
have received $[******] in Installment Payments and Stockholder 2 will be deemed
to have received $[******] in Installment Payments. Notwithstanding anything in
this Agreement to the contrary, if the [****************] is terminated prior to
the delivery of an Acceleration Notice, the Stockholders shall only be entitled
to payment, when due, of Earn-out Payments that had accrued as of the date of
such termination and, upon payment of such accrued amounts, the Earn-out
Payments shall be deemed to have been paid in full for purposes of Sections
2.8(a) and 2.8(h). Without limiting the generality of the foregoing, for the
purposes of Sections 2.8(a) and 2.8(h), upon payment of such accrued amounts,
Stockholder 1 will be deemed to have received $[********] in Earn-out Payments
and Stockholder 2 will be deemed to have received $[********] in Earn-out
Payments.
2.9 Limitation on Issuance of WMT Common. Notwithstanding any provision
------------------------------------
in this Agreement to the contrary, in no event shall (a) the aggregate number of
shares of WMT Common issuable in connection with the transactions contemplated
by this Agreement, including, but not limited to, the WMT Shares issuable to
Stockholder 2 pursuant to Section 2.2(a)(iii)(B) or issuable upon the exercise
of any warrant or warrants granted pursuant to Section 2.7(a)(ii) equal twenty
percent (20%) or more of the number of shares of WMT Common outstanding before
such issuance or (b) WMT be obligated to issue any shares of WMT Common in
connection with the transactions contemplated by this Agreement, including, but
not limited to, Sections 2.2(a)(iii)(B) and 2.7(a)(ii), if the WMT Common to be
so issued has or will have upon issuance voting power equal to or in excess of
twenty percent (20%) of the voting power of WMT outstanding before such
issuance. WMT will issue the greatest number of shares of WMT Common required
under this Agreement that will not exceed the limitations set forth in this
Section 2.9.
2.10 Reasonable Efforts to Raise Financing. WMT shall continue to use
-------------------------------------
all reasonable efforts to obtain the financing necessary to pay the obligations
due with respect to the Installment Payments, Earn-out Payments and the
Promissory Notes. In the event that WMT has sufficient working capital, or
obtains the financing necessary, to (a) pay all or a portion of the Earn-out
Payments or Installments then due or owing, or (b) pay all or a portion of the
outstanding principal and interest under the Promissory Notes delivered
-22-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
pursuant to Section 2.7 (whether or not due and owing), WMT shall promptly make
such payments.
2.11 Treatment of Stockholders Equally. The Company shall not
---------------------------------
discriminate among the Stockholders with respect to the timely payment of
Earn-out Payments or Installment Payments, the timely issuance of Warrants or
Promissory Notes pursuant to Section 2.8(a) or otherwise in connection with the
performance of its obligations under this Section 2.
3. Representations and Warranties of the Stockholders. Except for the
--------------------------------------------------
representation and warranty contained in Section 3.6 herein which representation
and warranty is being made solely by Stockholder 2, each of the Stockholders
hereby severally represents and warrants to WMT that:
3.1 Ownership of Shares. Such Stockholder owns of record and
-------------------
beneficially the number of Shares set forth in Exhibit A, and has, and at all
times prior to and as of the Closing such Stockholder will have, good and valid
title to such Shares free and clear of all Encumbrances.
3.2 Delivery of Good Title. Upon delivery of the Shares to be sold by
----------------------
such Stockholder hereunder and payment of the Purchase Price therefor pursuant
to this Agreement, WMT will have good and valid title to such Shares, free and
clear of all Encumbrances.
3.3 Execution and Delivery. All consents, approvals, authorizations and
----------------------
orders necessary for the execution, delivery and performance by such Stockholder
of this Agreement (including, without limitation, the transfer and sale of the
Shares to be sold by such Stockholder to WMT) have been duly and lawfully
obtained, and such Stockholder has, and at the Closing will have, full right,
power, authority and capacity to execute, deliver and perform this Agreement.
This Agreement has been duly executed and delivered by such Stockholder and
constitutes a legal, valid and binding agreement of such Stockholder enforceable
against such Stockholder in accordance with its terms. Upon execution and
delivery by each of the Stockholders of the Noncompetition Agreements and
Stockholder 2 of an Employment Agreement in substantially the form attached
hereto as Exhibit C-1 (collectively, the "Stockholders' Closing Documents"), the
Stockholders' Closing Documents will constitute the legal, valid and binding
obligations of such Stockholder enforceable against such Stockholder in
accordance with their respective terms, subject only to the effect of applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.4 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the Stockholders' Closing Documents and the consummation of the
transactions contemplated thereby will not conflict with or result in a breach
or violation of any term or provision of, or (with or without notice or passage
of time, or both) constitute a default under, any indenture, mortgage, deed of
trust, trust (constructive and other), loan agreement or other agreement nor
instrument to which such Stockholder is a party or by which such Stockholder or
such
-23-
Stockholder's Shares are bound, or violate any laws or regulations applicable to
or binding upon such Stockholder.
3.5 No Brokers. No broker, finder or similar agent has been employed by
----------
or on behalf of such Stockholder in connection with this Agreement or the
transactions contemplated hereby, and such Stockholder has not entered into any
agreement or understanding of any kind with any person or entity for the payment
of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
3.6 Investment Intent. Stockholder 2 is acquiring the WMT Shares for
-----------------
his own account and not with a view to their distribution within the meaning of
section 2(11) of the Securities Act.
4. Representations and Warranties of the Stockholders and the Company.
------------------------------------------------------------------
Except as set forth in Exhibit A and, except with respect to the End-User
Business actually transferred to the XXX for which no representations and
warranties are being made, the Stockholders and the Company represent and
warrant as follows:
4.1 Organization and Good Standing.
------------------------------
(a) Exhibit A contains a complete and accurate list for each Acquired
Company of its name, its jurisdiction of incorporation, other jurisdictions in
which it is authorized to do business, and its capitalization (including the
identity of each stockholder and the number of shares held by each). Each
Acquired Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has full
corporate power and authority to carry on its business as it is now being
conducted, to own or hold under lease the properties and assets which it owns or
holds under lease and perform all its obligations under the agreements and
instruments to which it is a party or by which it is bound. Each Acquired
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which the
ownership or leasing of the properties owned by it or the nature of the
activities of its business requires such qualification except where the failure
to so qualify would not have a Material Adverse Effect on the Company. Schedule
4.1 of Exhibit A lists each such jurisdiction other than jurisdictions in which
the failure to so qualify would not have a Material Adverse Effect on the
Company. No Acquired Company presently owns or controls, directly or indirectly,
any interest in any corporation, association, partnership or other business
entity other than those listed on Exhibit A.
(b) The Stockholders and the Company have delivered to WMT copies of
the Organizational Documents of each Acquired Company as currently in effect.
4.2 Authority; No Conflict. This Agreement constitutes the legal, valid
----------------------
and binding obligation of the Company, enforceable against the Company in
accordance with its terms. The XXX Agreement, when executed, will constitute a
legal, valid and binding obligation of the XXX, enforceable against the XXX in
accordance with their terms. As of the Closing, the
-24-
XXX will have all requisite right, power, authority and capacity to execute and
deliver the XXX Agreement and to perform its obligations in accordance with its
terms. The Company has all requisite right, power, authority and capacity to
execute and deliver this Agreement and to perform its obligations hereunder.
Neither the execution and delivery of this Agreement or the Stockholders'
Closing Documents by the Stockholders or the Company or the execution of the XXX
Agreement by the XXX nor the consummation by any such party of the transactions
contemplated by any of such agreements will:
(a) violate or conflict with (x) any provision of the Organizational
Documents of the Acquired Companies or any other charter document of the Company
(which documents have been previously provided to WMT), or (y) any resolution
adopted by the board of directors or the stockholders of any Acquired Company;
(b) violate or conflict with any provision of any law, rule,
regulation, order, permit, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any court, government, governmental
agency or instrumentality, domestic or foreign, or arbitrator, binding upon any
Acquired Company;
(c) result in a breach of, or constitute a default under (or with
notice or lapse of time, or both, result in a breach of or constitute a default
under) or otherwise give any person the right to terminate, any lease, license,
contract or other agreement or instrument to which any Acquired Company is a
party or by which it is bound if such termination would have a Material Adverse
Effect on the Company; or
(d) result in, or require, the creation or imposition of, any
Encumbrance upon or with respect to any of the properties now owned or used by
any Acquired Company.
Except for the satisfaction of any conditions referred to in Section 8
or identified in Exhibit A, neither the XXX, the Stockholders nor the Company is
required to give prior notice to, or obtain any consent, approval or
authorization of, any governmental authority, creditor or other person in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated by it.
4.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 3,000 shares of common stock, no par value, of which 3,000 shares
are issued and outstanding as of the date of this Agreement. The Stockholders
are and will be on the Closing Date the record and beneficial owners and holders
of the Shares, free and clear of all Encumbrances. As of the date of this
Agreement, Stockholder 1 owns 1,530 of the Shares and Stockholder 2 owns 1,470
of the Shares. With the exception of the Shares (which are owned by
Stockholders), all of the outstanding equity securities and other securities of
each Acquired Company are owned of record and beneficially by one or more of the
Acquired Companies, free and clear of all Encumbrances. No legend or other
reference to any purported Encumbrance appears upon any certificate representing
equity securities of any Acquired Company. All of the issued and outstanding
shares of capital stock of each Acquired Company have been duly authorized,
validly issued and are fully paid and nonassessable, with no preemptive rights,
have been offered and sold in compliance with federal and state securities laws,
and are owned of record
-25-
and beneficially by the Stockholders or Acquired Company in the amounts set
forth in Exhibit A, subject to the transfers contemplated in connection with the
Spin-off. Except as set forth on Exhibit A, there are no existing agreements,
options, warrants, rights, calls or commitments of any character to which any
Acquired Company is a party or by which it is bound providing for the issuance
of any additional shares, or for the repurchase or redemption of shares of its
capital stock and there are no outstanding securities or other instruments
convertible into or exchangeable for shares of such capital stock and no
commitments to issue such securities or instruments. No Acquired Company owns,
or has any agreement to acquire, any equity securities or other securities of
any Person (other than Acquired Companies) or any direct or indirect equity or
ownership interest in any other business.
4.4 Financial Statements. The Company has delivered to WMT its audited
--------------------
consolidated financial statements for the fiscal years ended October 31, 1994,
1995 and 1996 (the "Company's Audited Financial Statements") and has, or will
deliver as soon as practicable prior to the Closing Date to WMT its unaudited
consolidated financial statements for the six (6) month period ended April 30,
1997 excluding the End-User Business (as if the Spin-off had occurred) (the
"Company's Interim Financial Statements"). Such financial statements and notes
have been and will be prepared in accordance with GAAP (in the case of the
Company's Interim Financial Statements, subject to normal year-end adjustments
and the absence of footnotes) and fairly present the financial condition and
results of operations of the business of the Acquired Companies at the
respective dates thereof and for the periods referred to therein subject in the
case of the unaudited portion of the Company's Interim Financial Statements to
normal year-end audit adjustments which will not be material and the absence of
footnote disclosures.
4.5 Books and Records. The books of account, minute books, stock record
-----------------
books and other records of the Acquired Companies, all of which have been made
available to WMT, are complete and correct in all material respects and have
been maintained in accordance with sound business practices. Except as set forth
in Exhibit A, the minute books of the Acquired Companies contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders and the board of directors of the Acquired Companies, and no
meetings of such stockholders or of such board of directors have been held for
which minutes have not been prepared and are not contained in such minute books.
4.6 Title to Properties; Encumbrances. None of the Acquired Companies
---------------------------------
own any real property. The Stockholders and the Company have delivered or made
available to WMT copies of all leases of real property to which any Acquired
Company is a party, all of which are listed on Exhibit A. Each Acquired Company
owns (with good and marketable title, subject only to the matters permitted by
the following sentence) all the personal properties and assets (tangible and
intangible) that it purports to own, including, but not limited to, all the
personal properties and assets reflected in the April 30, 1997 balance sheet of
the Company's Interim Financial Statements (the "Company Balance Sheet") (except
for personal property sold since the date of the Company Balance Sheet, in the
ordinary course of business and consistent with past practice), and all the
personal properties and assets purchased or otherwise acquired by the Company
since the date of the Company Balance Sheet (except for personal property
acquired and sold since the date of the Company Balance Sheet in the
-26-
ordinary course of business and consistent with past practice), which
subsequently purchased or acquired personal properties and assets (other than
inventory, short-term investments and other immaterial personal properties and
assets) are listed in Exhibit A. Except as set forth in Exhibit A, all material
personal properties and assets reflected in the Company Balance Sheet and the
personal properties and assets subsequently purchased or acquired which are
listed in Exhibit A are free and clear of all Encumbrances.
4.7 Condition and Sufficiency of Assets. The tangible assets of each
-----------------------------------
Acquired Company are in good operating condition and repair and are adequate for
the uses to which they are being put (subject to ordinary wear and tear).
4.8 Accounts Receivable. All accounts receivable of each Acquired
-------------------
Company that are reflected in the Company Balance Sheet or on the accounting
records of the Company as of the Closing Date represent or will represent valid
obligations arising from sales actually made in the ordinary course of business,
and the Company Balance Sheet reflects adequate reserves with respect to such
accounts receivable. Subject to such reserves, each of the Accounts Receivable
either have been or will be collected in full, without any set-off, within
twelve (12) months following the Closing Date.
4.9 Inventory. All inventory of each Acquired Company consists of a
---------
quality and quantity usable and salable in the ordinary course of business
except for obsolete materials and materials below standard quality for which
adequate reserves have been provided. All inventories have been priced at the
lower of cost or market. All inventory of each Acquired Company will be salable
within twelve (12) months following the Closing Date.
4.10 No Undisclosed Liabilities. The Stockholders do not know of any
--------------------------
material liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise) of any Acquired Company that were not fully reflected or reserved
against in the Company Balance Sheet, except (x) matters specifically referred
to in this Agreement or that exist solely by reason of the mere existence of
agreements listed in Exhibit A or other agreements not required in Section 4.18
to be listed on Exhibit A and (y) liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since the
respective dates thereof.
4.11 Taxes. All Tax Returns that are or were required to be filed with
-----
respect to each Acquired Company have been filed on a timely basis pursuant to
the laws, regulations or administrative requirements of each Governmental Body
with taxing power over the Acquired Company, except where the failure to file
such Tax Returns would not have a Material Adverse Effect on the Acquired
Company. All such Tax Returns were correct and complete in all material respects
[except to the extent that failure to do so would not have a Material Adverse
Effect on the Company].
All Taxes owed and payable by each Acquired Company or which may be
asserted against an Acquired Company as due and payable as a result of
activities of the business of an Acquired Company prior to the date hereof
(whether or not shown on any Tax Return) have been paid. None of the Acquired
Companies is currently the beneficiary of any
-27-
extension of time within which to file any Tax Return. No claim is outstanding
by a Governmental Body in a jurisdiction where an Acquired Company does not file
Tax Returns that an Acquired Company is or may be subject to taxation by that
jurisdiction due to activities of an Acquired Company or its business. There are
no Encumbrances on any of the assets of any Acquired Company that arose in
connection with any failure (or alleged failure) to pay any Taxes.
Each Acquired Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
Neither the Acquired Companies nor any of its directors or officers (or
employee responsible for matters related to Taxes) expects any Governmental Body
to assess against any Acquired Company any additional Taxes for any period prior
to the Closing Date. There is no dispute or claim concerning Taxes affecting any
Acquired Company or the business of any Acquired Company either claimed or
raised by a Governmental Body in writing or as to which an Acquired Company or
its directors and officers (and employees responsible for matters related to
Taxes) has any knowledge based upon personal contact with any agent of such
Governmental Body.
No Acquired Company has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to an assessment or
deficiency with respect to the Taxes.
No Acquired Company has filed a consent under Code section 341(f)
concerning collapsible corporations. None of the Acquired Companies has made any
payments, is obligated to make any payments, nor is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Code section 280G. None of the Acquired Companies
has been a United States real property holding corporation within the meaning of
Code section 897(c)(2) during the applicable period specified in Code section
897(c)(1)(A)(ii). None of the Acquired Companies is a party to any allocation or
sharing agreement with respect to Taxes.
The Company has provided to WMT the following information with respect
to each Acquired Company as of the most recent practicable date: the basis of
each Acquired Company in its assets; the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax or excess
charitable contribution allocable to each Acquired Company; and the amount of
any deferred gain or loss allocable to each Acquired Company arising out of any
deferred intercompany transaction (within the meaning of Income Tax Regulations
section 1.1502-13(a)(2)).
The current unpaid Taxes of the Acquired Companies do not materially
exceed the reserve for Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and tax income) set forth
on the face of any Acquired Company Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date.
-28-
4.12 No Material Adverse Change. Except as provided in Exhibit A, since
--------------------------
the date of the Company Balance Sheet, there has not been any material adverse
change in the business, operations, properties, assets or condition of any
Acquired Company or to the Stockholders' knowledge any event, condition or
contingency that is reasonably likely to have a Material Adverse Effect on any
Acquired Company.
4.13 Employee Benefit Plans.
----------------------
(a) Except for the plans and agreements listed in Exhibit A
(collectively, the "Company Plans"), the Acquired Companies do not maintain, are
not party to, do not contribute to and are not obligated to contribute to any of
the following (whether or not set forth in a written document):
(i) any employee pension benefit plan, as defined in section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including (without limitation) any multi-employer plan, as
defined in section 3(37) of ERISA;
(ii) any employee welfare benefit plan, as defined in section
3(1) of ERISA;
(iii) any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom
stock, debenture, supplemental pension, profit-sharing, royalty pool,
commission or similar plan or arrangement;
(iv) any plan, program, agreement, policy, commitment or other
arrangement relating to severance or termination pay, whether or not
published or generally known;
(v) any plan, program, agreement, policy, commitment or other
arrangement relating to the provision of any benefit described in
section 3(1) of ERISA to former employees or directors or to their
survivors, other than procedures intended to comply with the
Consolidated Omnibus Budget Reconciliation Act of 1984, as amended
("COBRA");
(vi) any employment, consulting or termination agreement; or
(vii) any other plan, program, agreement, procedure, policy,
commitment, understanding or other arrangement relating to employee
benefits, executive compensation, fringe benefits, severance pay, terms
of employment or services as an independent contractor.
(b) The Company has provided to WMT complete, accurate and current
copies of each of the following:
-29-
(i) the text (including amendments) of each of the Company
Plans, to the extent reduced to writing;
(ii) a description of all material elements of each of the
Company Plans, to the extent not previously reduced to writing;
(iii) with respect to each Company Plan that is an employee
benefit plan (as defined in section 3(3) of ERISA), the following:
(A) the most recent summary plan description, as
described in section 102 of ERISA;
(B) any summary of material modifications that has
been distributed to participants or filed with the U.S.
Department of Labor but that has not been incorporated in an
updated summary plan description furnished under subparagraph
(A) above; and
(C) the annual reports, as described in section 103
of ERISA, for the most recent three (3) plan years for which
an annual report has been prepared (including all schedules
and attachments);
(iv) with respect to each Company Plan that is intended to
qualify under section 401(a) of the Code, the most recent determination
letter concerning the plan's qualification under section 401(a) of the
Code, as issued by the Internal Revenue Service; and
(v) any handbook, manual, policy statement or similar written
guidelines furnished to employees of the Company, excluding any such
item that has been superseded by any subsequent handbook, manual,
policy statement or similar written guidelines.
(c) With respect to each Company Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA) and that is subject to the reporting,
disclosure and record retention requirements set forth in Part 1 of Subtitle B
of Title I of ERISA and the regulations thereunder, each of such requirements
has in all material respects been fully met on a timely basis.
(d) With respect to each Company Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA) and that is subject to Part 4 of Subtitle
B of Title I of ERISA, none of the following now exists or has existed within
the six (6) year period ending on the date hereof:
(i) any act or omission constituting a violation of section
402, 403, 404 or 405 of ERISA; or
-30-
(ii) any act or omission that constitutes a violation of
sections 406 and 407 of ERISA and is not exempted by section 408 of
ERISA or that constitutes a violation of section 4975(c) of the Code
and is not exempted by section 4975(d) of the Code.
(e) Each Company Plan that is intended to qualify under section 401(a)
of the Code meets in all material respects all requirements for qualification
under section 401(a) of the Code and the regulations thereunder, except to the
extent that such requirements may be satisfied by adopting retroactive
amendments under section 401(b) of the Code and regulations thereunder. Each
such Company Plan has been administered in accordance with its terms and the
applicable provisions of ERISA and the Code and the regulations thereunder in
all material respects except to the extent that failure to do so would not have
a Material Adverse Effect on the Company.
(f) No Company Plan is subject to section 412 of the Code or Title IV
of ERISA. The Acquired Companies do not have liability or potential liability
under section 412 of the Code or Title IV of ERISA as a result of the
underfunding or termination of, or withdrawal from, any plan by any Acquired
Company or by any person which may be aggregated with any Acquired Company for
purposes of section 412 of the Code or Title IV of ERISA.
(g) All contributions, premiums or other payments due from each
Acquired Company to (or under) any Company Plan have been fully paid or
adequately provided for on the books and financial statements of each Acquired
Company. All accruals (including, where appropriate, proportional accruals for
partial periods) have been made in accordance with prior practices.
(h) Each Company Plan complies in all material respects with all
applicable requirements of the Age Discrimination in Employment Act of 1967, as
amended, and the regulations thereunder, Title VII of the Civil Rights Act of
1964, as amended, and the regulations thereunder, the health care continuation
provisions of COBRA and any other applicable law.
(i) There is no material pending or threatened litigation relating to
any Company Plan.
(j) No payment made to any employee, officer, director or independent
contractor of any Acquired Company (the "Recipient") pursuant to any employment
contract, severance agreement or other arrangement (the "Golden Parachute
Payment") will be nondeductible by the Company because of the application of
sections 280G and 4999 of the Code to the Golden Parachute Payment, nor will any
Acquired Company be required to compensate any Recipient because of the
imposition of an excise tax (including any interest or penalties related
thereto) on the Recipient by reason of sections 280G and 4999 of the Code.
(k) The Company has provided WMT with its reasonable estimate of the
unfunded liability for retiree life and medical benefits for each Acquired
Company's current or former employees, together with a description of the
assumptions used in estimating such liability.
-31-
Each Acquired Company has the right to modify or terminate such benefits at any
time and in any respect, with regard to both former employees and active
employees.
4.14 Employees. Schedule 4.14 of Exhibit A contains a complete and
---------
accurate list dated May 1, 1997 of current employees of the Company and the
starting date and salary history of each such employee. Since May 1, 1997, there
have not been, and will not be, any changes to the information set forth on
Schedule 4.14 of Exhibit A other than increases in salary and other compensation
granted in the ordinary course of business. To the Stockholders' knowledge, no
former or current employee or current or former director of any Acquired Company
is a party to, or is otherwise bound by, any agreement or arrangement,
including, without limitation, any confidentiality, noncompetition or
proprietary rights agreement between such employee or director and any other
entity or person ("Proprietary Rights Agreement") which in any way adversely
affected, affects or will affect the performance of his or her duties as an
employee or director of an Acquired Company or its ability to conduct its
business. Except as disclosed in Exhibit A or may otherwise be contemplated by
this Agreement, to the Stockholders' knowledge, no director, officer or other
key employee of any Acquired Company intends to terminate his or her employment
with the Acquired Company.
4.15 Compliance With Laws.
--------------------
(a) Except as set forth in Exhibit A and excepting local, state and
federal laws relating to pollution and protection of the environment (including,
without limitation, land use and zoning laws), each Acquired Company is, and at
all times during the four (4) year period prior to the date hereof, has been, in
substantial compliance with all statutes, orders, rules, ordinances and
regulations (including without limitation statutes, orders, rules, guidelines,
ordinances and regulations pertaining to occupational safety and health
practices, fair labor practices and standards, equal opportunity practices,
public or employee health or safety), applicable to it or to its ownership of
assets or the operation of its business, except where any failure so to be in
compliance would not have a Material Adverse Effect on the Company, and the
Companies have no knowledge or any basis to reasonably expect, nor have
received, any order, notice or other communication from any federal, state or
local governmental agency of any alleged, actual or potential violation and/or
failure to comply with any such statute, order, rule, ordinance or regulation,
except in each case for those instances where such violation, noncompliance or
obligation would not have a Material Adverse Effect on the Company.
(b) Set forth in Exhibit A is a list of all consents, licenses,
permits, approvals and certificates, other than those required pursuant to
local, state or federal laws relating to pollution and protection of the
environment (including, without limitation, land use and zoning laws), from
Governmental Bodies necessary to permit each Acquired Company to own, operate,
use and maintain its assets in the manner in which they are now operated and
maintained and to conduct its business as now being conducted, all of which
consents, licenses, permits, approvals and certificates are, or as of the
Closing Date will be, held or obtained by the Company other than failures that
would not have a Material Adverse Effect on the Company. Except as set forth in
Exhibit A, all required filings with respect to such
-32-
consents, licenses, permits, approvals and certificates have been timely made
and all required applications for renewal thereof have been timely filed other
than failures that would not have a Material Adverse Effect on the Company. All
such consents, licenses, permits, approvals and certificates are in full force
and effect (except as set forth herein or in Exhibit A and other than failures
that would not have a Material Adverse Effect on the Company) and there are no
proceedings or investigations pending or, to the Stockholders' knowledge,
threatened that seek the revocation, cancellation, suspension or adverse
modification thereof.
4.16 Litigation.
----------
(a) No Acquired Company is subject to any judgment, award, injunction,
rule, order or decree in which relief is sought involving, affecting or relating
to the ownership, operation or use of its assets or the conduct of its business
or which would prevent, delay or make illegal the transactions contemplated by
this Agreement.
(b) There are no actions, lawsuits, audits, investigations, claims or
proceedings pending or, to the Stockholders' knowledge, threatened against,
involving, affecting or relating to any Acquired Company or to its ownership,
operation or use of its assets or to the conduct of its business before any
court, arbitrator or federal, state, municipal or other governmental department,
board, agency or instrumentality.
4.17 Absence of Certain Changes and Events.
-------------------------------------
(a) Except as set forth in Exhibit A, and except as required by the
transactions contemplated hereby or in connection with the Spin-off, since
October 31, 1996, there has not been any:
(i) change in any authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such
capital stock; grant of any registration rights; purchase, redemption,
retirement or other acquisition by any Acquired Company of any shares
of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(ii) amendment to the Organizational Documents of any Acquired
Company;
(iii) except in the ordinary course of business, payment or
increase of any bonuses, salaries or other compensation to any
director, officer or employee or stockholder of any Acquired Company or
entry into any employment, severance or similar agreement with any
director, officer or employee of any Acquired Company; provided,
however, bonuses to executives out of the ordinary course of business
may be made prior to Closing;
-33-
(iv) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employees of any Acquired Company;
(v) damage, destruction or loss to any asset or property of
any Acquired Company or the business of any Acquired Company, whether
or not covered by insurance, that would have a Material Adverse Effect
on the Company;
(vi) entry into, termination or receipt of notice of
termination of any license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement, or any
commitment, contract, agreement or transaction (other than as
contemplated by clause (vii) below) involving a total remaining
commitment with respect to any Acquired Company of at least $100,000;
(vii) entry into, termination or receipt of notice of
termination of any agreement with any industry remarketer affiliate or
similar reseller, which agreement represents more than one percent (1%)
of any Acquired Company's annual revenues;
(viii) sale (other than sales of inventory in the ordinary
course of business), lease or other disposition of any material asset
or property of any Acquired Company or mortgage, pledge or imposition
of any Encumbrance on any material asset or property of any Acquired
Company or the business of any Acquired Company;
(ix) cancellation or waiver of any claims or rights with a
value to any Acquired Company in excess of $100,000;
(x) conduct of business or entering into any transaction,
other than in the ordinary course of business, of any Acquired Company,
inconsistent with past practices of the business of any Acquired
Company;
(xi) material change in the accounting methods followed by any
Acquired Company or with respect to the business of any Acquired
Company; or
(xii) agreement, whether or not in writing, to do any of the
foregoing by any Acquired Company or with respect to the business of
any Acquired Company.
4.18 Contracts; No Defaults.
----------------------
(a) Exhibit A contains a listing of all contracts, agreements or
commitments (whether written or oral) described in clauses (i) through (xv)
below, to which any Acquired Company
-34-
is a party. Copies of contracts referred to in clauses (ii) through (xv) have
been delivered or made available to WMT. Copies of contracts referred to in
clause (i) are available for inspection and copying by WMT and its agents and
representatives upon written request.
(i) each contract, agreement or commitment (whether written or
oral), whether in the ordinary course of business or not, which
involves performance of services or delivery of goods and/or materials,
by one or more Acquired Companies of any amount or value in excess of
$100,000 other than invoices and purchase orders for goods and services
in the ordinary course of business;
(ii) each contract, agreement or commitment (whether written
or oral) out of the ordinary course of business involving expenditures
or receipts of one or more Acquired Companies in excess of $100,000;
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other contract,
agreement or commitment (whether written or oral) affecting the
ownership of, leasing of, title to, use of or any leasehold or interest
in, any real or personal property of any Acquired Company (except
personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than
$100,000 and with terms of less than one (1) year);
(iv) each licensing agreement or other agreement or commitment
with respect to patents, trademarks, copyrights or other intellectual
property, including agreements with current or former employees,
consultants or contractors regarding the appropriation or the
nondisclosure of Intellectual Property Assets, as hereinafter defined,
of any Acquired Company involving expenditures or receipts of any
Acquired Company in excess of $100,000;
(v) each contract, agreement or commitment known to the
Stockholders to which any employee, consultant, adviser or contractor
of any Acquired Company is bound which in any manner purports to
restrict such employee's, consultant's or contractor's freedom to
engage in any line of business or to compete with any other person, or
assign to any other person such employee's, consultant's or
contractor's rights to any invention, improvement or discovery;
(vi) each collective bargaining agreement or other contract or
commitment to or with any labor union or other employee representative
of a group of employees relating to wages, hours and other conditions
of employment of any Acquired Company;
(vii) each joint venture contract, partnership arrangement or
other agreement (however named) involving a sharing of profits, losses,
costs or liabilities by any Acquired Company with any other person or
party;
-35-
(viii) each contract, agreement or commitment (whether written
or oral) containing covenants which in any way purport to restrict any
Acquired Company's business activity or purport to limit the freedom of
any Acquired Company to engage in any line of business or to compete
with any person;
(ix) each contract, agreement or commitment (whether written
or oral) providing for payments to or by any person or entity based on
sales, purchases or profits, other than direct payments for goods
relating to any Acquired Company;
(x) each power of attorney which is currently effective and
outstanding relating to any Acquired Company;
(xi) each contract, agreement or commitment (whether written
or oral) entered into other than in the ordinary course of business
which contains or provides for an express undertaking by any Acquired
Company to be responsible for consequential damages;
(xii) each contract, agreement, purchase order or commitment
(whether written or oral) for capital expenditures in excess of $50,000
relating to any Acquired Company;
(xiii) each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended by any
Acquired Company other than in the ordinary course of business;
(xiv) each other material agreement to which any Acquired
Company is a party or by which any Acquired Company is bound; and
(xv) each amendment, supplement and modification (whether
written or oral) in respect of any of the foregoing.
(b) To the Stockholders' knowledge, all of the contracts, agreements or
commitments listed in Exhibit A pursuant to Section 4.18(a) hereof are in full
force and effect, are valid and enforceable in accordance with their terms, and
to Stockholders' knowledge no condition exists or event has occurred which, with
notice or lapse of time or both, would constitute a default or a basis for force
majeure or other claim of excusable delay or nonperformance thereunder on the
part of any Acquired Company or, to the Stockholders' knowledge, a default or a
basis for force majeure or other claim of excusable delay or nonperformance
thereunder on the part of any other party thereto, which would have a Material
Adverse Effect on the Company.
(c) Other than in the ordinary course of business, there are no current
renegotiations of, or attempts to renegotiate, or outstanding contractual rights
to require renegotiation of, any material amounts paid or payable to any
Acquired Company under current or completed contracts, agreements or commitments
with any person or entity having the contractual or
-36-
statutory right to demand or require such renegotiation. To the knowledge of the
Stockholders, no such person or entity has made written demand for such
renegotiation.
(d) The contracts, agreements or commitments relating to the sale,
design, manufacture or provision of products or services by any Acquired Company
have been entered into in the ordinary course of business and have been entered
into without the commission of any act alone or in concert with any other
person, or any consideration having been paid or promised, which is or would be
in violation of any applicable law.
4.19 Insurance.
---------
(a) Exhibit A contains an accurate and complete list of all policies of
property, fire and casualty, product liability, workers' compensation and other
forms of insurance owned or held by each Acquired Company. Such list identifies,
among other things, the issuer of each such policy, the amount of coverage still
available and outstanding under each such policy, whether each such policy is a
"claims made" or an "occurrences" policy, any retrospective premium adjustments
of which the Stockholders or the Company has knowledge, and the commencement and
expiration dates for such policy. Copies of such policies have been delivered or
made available to WMT.
(b) All policies described in Exhibit A are issued by insurance
companies reasonably believed by the Stockholders to be financially sound and
reputable, taken together, are sufficient for material compliance with all
requirements of law and of all applicable agreements to which any Acquired
Company is a party or by which it is bound, are valid, outstanding and
enforceable policies, provide adequate insurance coverage for the assets and the
operations of each Acquired Company for all material risks normally insured
against and with coverage amounts normally insured by a Person or entity
carrying on the same business as an Acquired Company and will not in any way
terminate or lapse by reason of, or to the Stockholders' knowledge, in any way
be affected by, the transactions contemplated by this Agreement.
(c) No Acquired Company has received any notice of cancellation of any
policy described in Exhibit A or refusal of coverage thereunder, any notice that
any issuer of such policy has filed for protection under applicable bankruptcy
laws or is otherwise in the process of liquidating or has been liquidated, or
any other indication in writing that such policies are no longer in full force
or effect or that the issuer of any such policy is no longer willing or able to
perform its obligations thereunder.
4.20 Environmental Matters.
---------------------
(a) Except as set forth in Exhibit A, each Acquired Company is, and at
all times during the period prior to the date hereof has been, in material
compliance with all local, state and federal statutes, orders, rules, ordinances
and regulations relating to pollution or protection of the environment,
including, without limitation, laws relating to zoning and land use and to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, hazardous or toxic materials or wastes into or on land, ambient
air, surface water, ground
-37-
water, personal property or structures (including the protection, cleanup,
removal, remediation or damage thereof), or otherwise related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of pollutants, contaminants or hazardous or
toxic substances, materials or wastes.
(b) Exhibit A lists all permits, consents and approvals which each
Acquired Company is required to obtain under local, state or federal laws
respecting pollution or protection of the environment for operation of its
business except for such permits, consents and approvals the failure of which to
obtain would not have a Material Adverse Effect on any Acquired Company. Each
Acquired Company has obtained and is, and at all times prior to the date hereof
has been, in material compliance with the terms and conditions of the permits,
consents and approvals listed in Exhibit A. Further, all of the listed permits,
consents and approvals have not been modified and are in full force and effect,
and there is no proceeding pending which may result in the reversal, rescission,
termination, modification or suspension of any such permit or approval.
(c) There have been no judicial or administrative proceedings or other
investigations and there are no judicial or administrative proceedings or other
investigations pending or, to the Stockholders' knowledge, threatened alleging
violation by any Acquired Company of any local, state or federal laws respecting
pollution or protection of the environment, including, without limitation, laws
regulating the use, storage, transportation or disposal of hazardous or toxic
materials, substances or wastes. Further, neither the Stockholders nor any
Acquired Company has received any notice alleging violation by any Acquired
Company of any local, state or federal laws respecting pollution or protection
of the environment, including, without limitation, laws regulating the use,
storage, transportation or disposal of hazardous or toxic materials, substances
or wastes.
(d) Each Acquired Company has kept all records and made all filings
required by all applicable local, state and federal laws relating to pollution
and protection of the environment with respect to all emissions, discharges and
releases into the environment and the proper use, storage, transportation and
disposal of all contaminants except for such failures that would not have a
Material Adverse Effect on any Acquired Company.
4.21 Labor Disputes; Compliance. No Acquired Company has been nor is a
--------------------------
party to, or subject to, or affected by, any collective bargaining agreement or
other labor contract. There is not presently pending or existing, any strike,
slowdown, picketing, work stoppage, labor arbitration or proceeding in respect
of the grievance of any employee, an application or complaint filed by an
employee or union with the National Labor Relations Board or any comparable
state or local agency, organizational activity or other labor dispute against or
affecting any Acquired Company, or any of its premises, or to the Stockholders'
knowledge threatened, and no application for certification of a collective
bargaining agent is pending, or to the Stockholders' knowledge threatened. To
the Stockholders' knowledge, no facts or circumstances exist which could
reasonably be expected to provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by any Acquired Company, nor is
any such action contemplated by it. Each Acquired Company has complied in all
respects with all laws, rules and regulations relating to employment, equal
employment
-38-
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health and plant closing ("Employment Laws") except where the failure
to comply would not have a Material Adverse Effect on any Acquired Company. No
Acquired Company is liable for the payment of taxes, fines, penalties or other
amounts, however designated, for failure to comply with any of the foregoing
Employment Laws except for failures that would not have a Material Adverse
Effect on any Acquired Company.
4.22 Intellectual Property.
---------------------
(a) Intellectual Property Assets. The term "Intellectual Property
----------------------------
Assets" shall mean all fictitious business names, trade names, registered and
unregistered trademarks, service marks and applications (but specifically
excluding the name "Sirius Computer Solutions" and "Star Data Systems, Inc."
which will be transferred to XXX in connection with the Spin-off) (collectively
"Marks"), all patents and patent applications (collectively "Patents"), all
copyrights in both published works and unpublished works which are material to
the business ("Copyrights") and all know-how, trade secrets, confidential
information, software, technical information, process technology, plans,
drawings and blueprints which are not generally known in the industry and have
value ("Trade Secrets") owned, used or licensed by any Acquired Company as
licensee or licensor.
(b) Agreements. Exhibit A contains an accurate and complete listing and
----------
summary description, including any royalties paid or received by each Acquired
Company, of all agreements relating to the Intellectual Property Assets to which
any Acquired Company is a party. There are no outstanding and, to the
Stockholders' knowledge, no threatened disputes or disagreements with respect to
any such agreement.
(c) Know-How Necessary for the Business.
-----------------------------------
(i) To the Stockholders' knowledge, the Intellectual Property Assets
are sufficient for the operation of the business of each Acquired Company as it
is currently conducted. Except as provided in Exhibit A, each Acquired Company
has free access to or is the owner of all right, title and interest in and to
each of its Intellectual Property Assets free and clear of all Encumbrances and
has the right to use without payment to a third party all the Intellectual
Property Assets.
(ii) To the knowledge of the Stockholders, no employee of any Acquired
Company has entered into any agreement with anyone other than an Acquired
Company which restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer, assign or
disclose information concerning his work to anyone other than an Acquired
Company.
(d) Patents. None of the Acquired Companies own any Patents.
-------
-39-
(e) Trademarks.
----------
(i) Exhibit A contains an accurate and complete listing and summary
of all Marks.
(ii) No Xxxx has been or is now involved in any opposition,
invalidation or cancellation proceeding nor, to the Stockholders' knowledge, is
any such action threatened with respect to any of the Marks.
(iii) The Stockholders are not aware of any potentially interfering
trademark or trademark application of any third party.
(iv) No Xxxx is infringed or, to the Stockholders' knowledge, has been
challenged or threatened in any way. Except as provided in Exhibit A, neither
the Stockholders nor any Acquired Company has notice that the Marks infringe or
are alleged to infringe any trade name, trademark or service xxxx of any third
party.
(f) Copyrights.
----------
(i) Exhibit A is an accurate and complete listing and summary of all
registered Copyrights for material works of authorship of each Acquired Company.
(ii) To Stockholders' knowledge, no Copyright is infringed or has been
challenged or threatened in any way. To the Stockholders' knowledge, none of the
Copyrights infringe or are alleged to infringe any copyright of any third party.
(g) Trade Secrets.
-------------
(i) With respect to each Trade Secret of each Acquired Company, the
documentation, if any, relating to such Trade Secret is current, accurate and
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the special knowledge or memory of
others.
(ii) Each Acquired Company has taken all reasonable precautions to
protect the secrecy, confidentiality and value of its Trade Secrets.
(iii) Each Acquired Company has good title and an absolute (although
not necessarily exclusive) right to use its Trade Secrets. The Trade Secrets are
not part of the public knowledge to the detriment of any Acquired Company. No
Trade Secret is subject to any adverse claim, nor has any Trade Secret been
challenged or, to the Stockholders' knowledge, threatened in any way.
4.23 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of any Acquired Company is required in connection with the consummation
of the transactions contemplated by this Agreement, except as set forth in
Exhibit A.
-40-
4.24 Certain Payments. During the period preceding the date hereof, no
----------------
Acquired Company nor any director, officer, agent or employee of any Acquired
Company has and, to the Stockholders' knowledge, no other person associated with
or acting for or on behalf of any Acquired Company has, directly or indirectly,
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback
or other payment to any person or entity, private or public, regardless of form,
whether in money, property or services, to obtain favorable treatment in
securing business, to pay for favorable treatment for business secured or to
obtain special concessions or for special concessions already obtained for or in
respect of any Acquired Company or any Affiliate of any Acquired Company or
established or maintained any fund or asset which has not been recorded in the
books of the Acquired Companies.
4.25 Disclosure.
----------
(a) No representation or warranty of the Stockholders or the Company
contained in this Agreement or statement in Exhibit A contains any untrue
statement or omits a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
(b) There is no fact known to the Stockholders or the Company which has
specific application to any Acquired Company (other than general economic or
industry conditions) and which has a Material Adverse Effect on the Company
which has not been set forth in this Agreement or Exhibit A.
(c) The disclosures in Exhibit A, and those in any supplement thereto,
shall relate to the representations and warranties in the section of this
Agreement to which they specifically relate and to any general representation or
warranty to which they may also relate.
4.26 Relationships With Affiliates. No Affiliate of any Acquired
-----------------------------
Company has had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of any Acquired Company.
During the period beginning with the next to last completed fiscal year of the
business of the Acquired Companies through, to and including the date hereof, no
Acquired Company, nor any Affiliate of any Acquired Company, individually or
collectively, own nor have owned of record nor as a beneficial owner, an equity
interest or any other financial or profit interest in any firm, corporation or
any other entity or person which has had business dealings or a material
financial interest in any transaction with any Acquired Company other than
business dealings or transactions which are conducted in the ordinary course of
business with the Acquired Companies at substantially prevailing market prices
and on substantially prevailing market terms, or which is in competition with
any Acquired Company with respect to any line of the products or services of the
Acquired Company (a "Competing Business") in any market presently served by such
Acquired Company except for less than one percent (1%) of the outstanding
capital stock of any Competing Business which is publicly traded on any
recognized exchange or in the over-the-counter market.
4.27 Certain Proceedings. There is no pending proceeding that has been
-------------------
commenced against any of the Acquired Companies and that challenges, or may have
the effect of
-41-
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated hereby. To the Stockholders' and the Company's
knowledge, no such proceeding has been threatened.
4.28 Brokers or Finders. Except as set forth in Exhibit A, no Acquired
------------------
Company, nor any Acquired Company's officers and agents has incurred an
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other like payment in connection with this Agreement
and the Company will indemnify and hold WMT harmless from any such payment
alleged to be due by or through any Acquired Company as a result of the action
of any Acquired Company or any Acquired Company's officers and agents.
4.29 Investigation. As of the Closing Date, the Stockholders and the
-------------
Company will have conducted inspections of the properties and financial and
other records of WMT and other due diligence with respect to WMT and the WMT
Shares. As of the Closing Date, the Stockholders and the Company will have had
an opportunity to ask questions of WMT relating to its business, management and
financial affairs, which questions will be answered to the Stockholders' and the
Company's satisfaction, and to examine all books and records of WMT.
4.30 No Implied Warranties. It is understood and agreed that WMT is not
---------------------
making and has not made, any representation or warranty of any kind, express or
implied, to the Stockholders or the Company except for those specifically
provided in Section 5 of this Agreement. Except for the matters which are
expressly covered by such representations and warranties, and upon which the
Stockholders and the Company intend to rely, the Stockholders and the Company
are relying on their own investigation and analysis in entering into this
Agreement and consummating the transactions contemplated hereby. Without
limiting the generality of the foregoing, and notwithstanding any otherwise
express representations and warranties made by WMT in Section 5 hereof, WMT
makes no representation or warranty to the Stockholders or the Company regarding
(a) any projections, estimates or budgets heretofore delivered or made available
to the Stockholders or the Company of future revenues, expenses or expenditures,
future results of operations (or any component thereof), future cash flows or
future financial conditions (or any component thereof) of WMT or the future
business operations of WMT; or (b) any other information or documents made
available to the Stockholders, the Company or their counsel, accountants or
advisors with respect to WMT or the WMT Shares except as expressly set forth in
Section 5 hereof.
5. Representations and Warranties of WMT. Except as set forth in
-------------------------------------
Exhibit B, WMT hereby represents and warrants to the Stockholders as follows:
5.1 Organization and Good Standing. WMT is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California, and each of the WMT Group has full corporate power and authority to
carry on its respective business as it is now being conducted, to own or hold
under lease the properties and assets which it owns or holds under lease and
perform all its respective obligations under the agreements and instruments to
which it is a party or by which it is bound. Each of the WMT Group is duly
qualified to do
-42-
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which the ownership or leasing of the properties
owned by it or the nature of the activities of its respective business requires
such qualification except where the failure to so qualify would not have a
Material Adverse Effect on WMT.
5.2 Authority; No Conflict. This Agreement constitutes the legal, valid
----------------------
and binding obligation of WMT enforceable against WMT in accordance with their
terms. Upon the execution and delivery by WMT of the Employment Agreements, the
Registration Rights Agreement, the XXX Agreement, Promissory Notes, Warrants and
Warrant Registration Rights Agreement (collectively, the "WMT Closing
Documents"), the WMT Closing Documents will constitute the legal, valid, and
binding obligations of WMT, enforceable against WMT in accordance with their
respective terms. WMT has all requisite right, power, authority and capacity to
execute and deliver this Agreement and the WMT Closing Documents and to perform
its obligations hereunder. Neither the execution and delivery of this Agreement
or the WMT Closing Documents by WMT nor the consummation of the transactions
contemplated by WMT will:
(a) violate or conflict with any provision of the Articles of
Incorporation, as amended, or Bylaws or any other charter document of WMT (which
documents have been previously provided to the Company);
(b) violate or conflict with any provision of any law, rule,
regulation, order, permit, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any court, government, governmental
agency or instrumentality, domestic or foreign, or arbitrator, binding upon WMT;
(c) result in a breach of, or constitute a default under (or with
notice or lapse of time, or both, result in a breach of or constitute a default
under) or otherwise give any person the right to terminate, any lease, license,
contract or other agreement or instrument to which WMT is a party or by which it
is bound, except where such violation or conflict or termination would not have
a Material Adverse Effect on WMT; or
(d) result in, or require, the creation or imposition of, any
Encumbrance upon or with respect to any of the properties now owned or used by
WMT.
Except for the satisfaction of any conditions referred to in Section 8,
WMT is not required to give prior notice to, or obtain any consent, approval or
authorization of, any governmental authority, creditor or other person in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated herein.
5.3 Investment Intent. WMT is acquiring the Shares for its own account
-----------------
and not with a view to their distribution within the meaning of section 2(11) of
the Securities Act.
-43-
5.4 Disclosure. Except as disclosed in all registration statements,
----------
reports, proxy statements and other materials (collectively "SEC Reports") filed
by WMT with the SEC:
(a) No representation or warranty of WMT contained in this Agreement or
statement in Exhibit B contains any untrue statement or omits to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
(b) There is no fact known to WMT which has specific application to the
WMT Group (other than general economic or industry conditions) and which has a
Material Adverse Effect on WMT which has not been set forth in this Agreement or
Exhibit B.
(c) All SEC Reports filed by WMT with the SEC since January 1, 1993
were filed within the applicable required time periods (or any extensions
related thereto), complied in all material respects with the applicable
requirements of the Securities Act of 1933 and the 1934 Act and the applicable
rules and regulations of the SEC promulgated thereunder, and at the time filed
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. The consolidated financial statements of the WMT Group which are a
part of the SEC Reports (the "WMT Financial Statements") have been prepared in
accordance with GAAP and fairly present the financial condition and results of
operations of the businesses of the WMT Group at the respective dates thereof
and for the periods referred to therein. Since January 1, 1994, WMT has made all
filings with the SEC which it is required to make and has not received any
request from the SEC to file any amendment or supplement to any of the reports
described in the preceding sentence. To the knowledge of WMT, neither it, nor
any of its officers, directors or principal shareholders have been or currently
are the subject of any investigation or proceeding by any state or federal
securities agency or any self-regulatory authority, have been made subject to
any stop order or similar restriction in the offer or sale of securities, been
enjoined from any activities relating to the offer or sale of securities, or had
entered against it or him a judgment involving fraud or misrepresentation with
respect to any transaction involving a security.
5.5 Certain Proceedings. There is no pending proceeding that has been
-------------------
commenced against WMT and that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated hereby. To WMT's knowledge, no such proceeding has been threatened.
5.6 Brokers or Finders. Except as set forth in Exhibit B, WMT and WMT's
------------------
officers and agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other like
payment in connection with this Agreement and WMT will indemnify and hold the
Company harmless from any such payment alleged to be due by or through WMT as a
result of the action of WMT or WMT's officers and agents.
5.7 Delivery of Good Title. Upon payment to Stockholder 2 of the WMT
----------------------
Shares, such shares will be validly issued, fully paid and nonassessable, free
and clear of all
-44-
Encumbrances (except as contemplated in Section 7.2 hereof), and will not be
issued in violation of any preemptive rights.
5.8 Compliance With Laws.
--------------------
(a) Except as set forth in Exhibit B and excepting local, state and
federal laws relating to pollution and protection of the environment (including,
without limitation, land use and zoning laws), each of the WMT Group is, and at
all times during the four (4) year period prior to the date hereof, has been, in
substantial compliance with all statutes, orders, rules, ordinances and
regulations (including without limitation statutes, orders, rules, guidelines,
ordinances and regulations pertaining to occupational safety and health
practices, fair labor practices and standards, equal opportunity practices,
public or employee health or safety), applicable to it or to its ownership of
assets or the operations of the business of the WMT Group, except where any
failure to be in compliance would not have a Material Adverse Effect on WMT, and
WMT has no knowledge or any basis to reasonably expect, nor has it received any
order, notice or other communication from any federal, state or local
governmental agency of any alleged, actual or potential violation and/or failure
to comply with any such statute, order, rule, ordinance or regulation, except in
each case for those instances where such violation, noncompliance or obligation
would not have a Material Adverse Effect on WMT.
(b) Except as set forth in Exhibit B, all required filings with respect
to all consents, licenses, permits, approvals and certificates from Governmental
Bodies necessary to permit each of the WMT Group to own, operate, use and
maintain its assets in the manner in which they are now operated and maintained
and to conduct its business as now being conducted, have been timely made and
all required applications for renewal thereof have been timely filed other than
failures that would not have a Material Adverse Effect on WMT. All such
consents, licenses, permits, approvals and certificates are in full force and
effect (except as set forth herein or in Exhibit B and other than failures that
would not have a Material Adverse Effect on WMT) and there are no proceedings or
investigations pending or, to WMT's knowledge, threatened that seek the
revocation, cancellation, suspension or adverse modification thereof.
5.9 Litigation.
----------
(a) None of the WMT Group is subject to any judgment, award,
injunction, rule, order or decree in which relief is sought involving, affecting
or relating to the ownership, operation or use of any of the WMT Group's assets
or the conduct of any of their businesses or which would prevent, delay or make
illegal the transactions contemplated by this Agreement.
(b) There are no actions, lawsuits, audits, investigations, claims or
proceedings pending or, to WMT's knowledge, threatened against, involving,
affecting or relating to the WMT Group or to their ownership, operation or use
of their respective assets or to the conduct of their respective businesses
before any court, arbitrator or federal, state, municipal or other governmental
department, board, agency or instrumentality.
-45-
5.10 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of WMT is required in connection with the consummation of the
transactions contemplated by this Agreement, except as set forth in Exhibit B.
5.11 Certain Payments. During the period preceding the date hereof,
----------------
neither any of the WMT Group nor any of their respective directors, officers,
agents or employees has and, to WMT's knowledge, no other person associated with
or acting for or on behalf of any of the WMT Group has, directly or indirectly,
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback
or other payment to any person or entity, private or public, regardless of form,
whether in money, property or services, to obtain favorable treatment in
securing business, to pay for favorable treatment for business secured or to
obtain special concessions or for special concessions already obtained for or in
respect of WMT or any Affiliate of WMT or established or maintained any fund or
asset which has not been recorded in the respective books of the WMT Group.
5.12 Insurance.
---------
(a) Exhibit B contains an accurate and complete list of all policies of
property, fire and casualty, product liability, workers' compensation and other
forms of insurance owned or held by WMT. Such list identifies, among other
things, the issuer of each such policy, the amount of coverage still available
and outstanding under each such policy, whether each such policy is a "claims
made" or an "occurrences" policy, any retrospective premium adjustments of which
WMT has knowledge, and the commencement and expiration dates for such policy.
Copies of such policies have been delivered or made available to the Company.
(b) All policies described in Exhibit B are issued by insurance
companies reasonably believed by WMT to be financially sound and reputable,
taken together, are sufficient for material compliance with all requirements of
law and of all applicable agreements to which WMT is a party or by which it is
bound, are valid, outstanding and enforceable policies, provide adequate
insurance coverage for the assets and the operations of WMT for all material
risks normally insured against and with coverage amounts normally insured by a
Person or entity carrying on the same business as WMT and will not terminate or
lapse by reason of or to WMT's knowledge, in any way be affected by the
transactions contemplated by this Agreement.
(c) WMT has not received any notice of cancellation of any policy
described in Exhibit B or refusal of coverage thereunder, any notice that any
issuer of such policy has filed for protection under applicable bankruptcy laws
or is otherwise in the process of liquidating or has been liquidated, or any
other indication in writing that such policies are no longer in full force or
effect or that the issuer of any such policy is no longer willing or able to
perform its obligations thereunder.
5.13 Financing. WMT has engaged Xxxxxxxx & Company, Inc. and Lew
---------
Lieberbaum & Co. to secure financing to consummate the transactions contemplated
hereby.
-46-
5.14 Investigation. As of the Closing Date, WMT will have conducted
-------------
inspections of the properties and financial and other records of the Company and
other due diligence with respect to the Company and the Shares. As of the
Closing Date, WMT will have had an opportunity to ask questions of the Company
relating to its business, management and financial affairs, which questions will
be answered to WMT's satisfaction, and to examine all books and records of the
Company.
5.15 No Implied Warranties. It is understood and agreed that the
---------------------
Company and the Stockholders are not making and have not made, any
representation or warranty of any kind, express or implied, to WMT except for
those specifically provided in Sections 3 and 4 of this Agreement. Except for
the matters which are expressly covered by such representations and warranties,
and upon which WMT intends to rely, WMT is relying on its own investigation and
analysis in entering into this Agreement and consummating the transactions
contemplated hereby. Without limiting the generality of the foregoing, and
notwithstanding any otherwise express representations and warranties made by the
Stockholders in Section 3 and the Stockholders and the Company in Section 3 and
Section 4 hereof, the Stockholders and the Company make no representation or
warranty to WMT regarding (a) any projections, estimates or budgets heretofore
delivered or made available to WMT of future revenues, expenses or expenditures,
future results of operations (or any component thereof), future cash flows or
future financial conditions (or any component thereof) of the Company or the
future business operations of WMT; or (b) any other information or documents
made available to WMT or its counsel, accountants or advisors with respect to
the Company or the Shares except as expressly set forth in Section 3 and Section
4 hereof.
5.16 Absence of Certain Changes. Except as provided in Exhibit B or set
--------------------------
forth in the SEC Reports filed by WMT with the SEC or otherwise contemplated
herein, since December 31, 1996, there has not been with respect to the WMT
Group:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of the WMT Group which change by itself or
in conjunction with all other such changes, whether or not arising in the
ordinary course of business, has had, or can reasonably be expected to have, a
Material Adverse Effect on WMT;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the WMT Group;
(c) any split, combination or recapitalization of the capital stock of
WMT or any direct or indirect redemption, purchase or other acquisition of the
capital stock of WMT, other than repurchases of shares from employees upon
termination of employment with any of the WMT Group;
(d) any declaration or payment of any dividend to the holder of the WMT
Common ; or
(e) any material change with respect to the management, supervisory,
development or other key personnel of the WMT Group.
-47-
6. Covenants of the Parties. The parties hereto hereby agree as follows
------------------------
with respect to the period from and after the date of this Agreement.
6.1 Mutual Covenants.
----------------
(a) General. Each of the parties shall use its reasonable efforts to
-------
take all action and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation, using its reasonable efforts to cause the conditions set forth in
Section 8 for which they are responsible to be satisfied as soon as reasonably
practicable and to prepare, execute and deliver such further instruments and
take or cause to be taken such other and further action as any other party
hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any event no later than ten
-------
(10) business days after the date hereof, each of the parties hereto will file
any Notification and Report Forms and related material required to be filed by
it with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act, as amended (the "HSR Act"), with respect to the transactions contemplated
hereby, will use its reasonable efforts to obtain an early termination of the
applicable waiting period, and shall promptly make any further filings pursuant
thereto that may be necessary proper or advisable; provided, however, that WMT
shall not be required hereunder to divest or hold separate any portion of its
business or assets. WMT shall pay all HSR Act filing fees.
(c) Other Governmental Matters. Each of the parties shall use its
--------------------------
reasonable efforts to take any additional action that may be necessary, proper
or advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any Governmental Body that it may be
required to give, make or obtain.
(d) Expenses. Except as expressly otherwise provided herein, each party
--------
to this Agreement shall bear its respective expenses incurred in connection with
the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants. The termination of this Agreement
shall not affect the obligation of each party to pay its own expenses; provided,
however, that nothing contained in this Section 6.1(d) shall limit the terms and
provisions of Section 11.2 hereof.
(e) Public Announcements. Unless otherwise required by Applicable Laws
--------------------
or requirements of the National Association of Securities Dealers or the Nasdaq
Stock Market (and in that event only if time does not permit), at all times
prior to the earlier of the Closing Date or termination of this Agreement
pursuant to Section 11.1, WMT and the Stockholders and the Company shall consult
with each other before issuing any press release with respect to the
transactions contemplated hereby and shall not issue any such press release
prior to such consultation.
-48-
(f) Access. From and after the date of this Agreement until the Closing
------
Date (or the termination of this Agreement), WMT and the Company shall permit
representatives of the other to have appropriate access at all reasonable times
to the other's premises, properties, books, records, contracts, tax records,
documents, customers and suppliers, including those of each Acquired Company.
Information obtained by WMT and the Company pursuant to this Section 6.1(f)
shall be subject to the provisions of the Confidentiality Agreement of which
agreement Section A and C4 shall remain in full force and effect with the
remaining sections being superseded and replaced hereby.
(g) Required Approvals. As promptly as practicable after the date of
------------------
this Agreement, the Stockholders will, and will cause the Company to, and WMT
will, make all filings required by law to be made by them, in order to
consummate the transactions contemplated hereby (including all filings under the
HSR Act). Between the date of this Agreement and the Closing Date, the
Stockholders will, and will cause the Company to, and WMT will, (i) cooperate
with the other with respect to all filings that the other elects to make or is
required by law to make in connection with the transactions contemplated hereby,
and (ii) use reasonable efforts to obtain, and cooperate with the other in
obtaining, all consents identified in Exhibit A or Exhibit B, as the case may be
(including taking all actions requested by WMT or the Stockholders to cause
early termination of any applicable waiting period under the HSR Act).
(h) Notification of Certain Matters. Each of the parties hereto shall
-------------------------------
give prompt notice to the other if such party becomes aware of any fact,
condition or occurrence or nonoccurrence of any event which (i) will make the
satisfaction of the conditions in Section 8 impossible or unlikely or (ii) would
cause any of a party's representations or warranties contained in this Agreement
to be untrue or inaccurate at or prior to the Closing Date and any material
failure of a party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. Should any such fact
or condition require any change in Exhibit A or Exhibit B, as the case may be,
if such exhibit were dated the date of the occurrence or discovery of any such
fact or condition, the party affected will promptly deliver to the other a
supplement specifying such change, which supplement shall be deemed to be
incorporated herein by reference as a part of Exhibit A or Exhibit B, as the
case may be. In the event that a party delivers a supplement to Exhibit A or
Exhibit B, as the case may be, the party receiving such supplement shall, within
three (3) business days after receipt of such supplement, give notice if such
party deems the matters set forth in such supplement as a basis for terminating
this Agreement pursuant to Section 11.1(a) and whether such party elects to
terminate this Agreement thereunder. The failure of the party to give such
notice or the failure to state whether such party elects to terminate this
Agreement shall be deemed a waiver of the right to terminate this Agreement or
refuse to consummate the transactions contemplated hereby based on such
additional disclosure. All of such supplements and notices under this Section
6.1(h) shall be made either by hand delivery or by facsimile and followed by
express overnight delivery service.
-49-
6.2 Covenants of the Stockholders and the Company.
---------------------------------------------
(a) Conduct of the Company's Operations. During the period from the
date of this Agreement to the earlier of the Closing Date or the date of
termination of this Agreement and except as set forth on Exhibit A or in
connection with the Spin-Off, each Acquired Company shall use its reasonable
efforts to maintain and preserve its business organization and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, during the period from the date of this
Agreement to the earlier of the Closing Date or the termination of this
Agreement, the Stockholders and the Company shall not permit any of the Acquired
Companies to, and each Acquired Company shall not, except as otherwise expressly
contemplated by this Agreement and the transactions contemplated hereby or as
set forth in Exhibit A, without the prior written consent of WMT, which shall
not be unreasonably withheld:
(i) sell, transfer, lease, pledge, mortgage, encumber or
otherwise dispose of any of its personal property or assets other than
sales or leases of inventory or licensing of Intellectual Property
Assets made in the ordinary course of business;
(ii) make or propose any changes in its Articles of
Incorporation or Bylaws:
(iii) merge or consolidate with any other person or acquire a
material amount of assets or capital stock of any other person or enter
into any confidentiality agreement with any person;
(iv) other than for borrowings in the ordinary course under an
Acquired Company's existing working capital credit facility, incur,
create, assume or otherwise become liable for indebtedness in excess of
$100,000 normal working capital for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible
or liable for obligations in excess of $100,000 of any other
individual, corporation or other entity, except in the ordinary course
of business;
(v) create any Subsidiaries (other than in connection with
the Spin-off);
(vi) enter into or modify any employment, severance,
termination or similar agreements or arrangements with, or grant any
bonuses, salary increases, severance or termination pay to, any
officer, director, consultant or employee other than payments granted
in the ordinary course of business;
(vii) change its method of doing business or change any method
or principle of accounting in a manner that is inconsistent with past
practice;
-50-
(viii) settle any actions, whether now pending or hereafter
made or brought involving an amount in excess of $100,000;
(ix) modify, amend or terminate, or waive, release or assign
any material rights or claims with respect to, any material contract
set forth in Exhibit A, any other material contract to which any
Acquired Company is a party or any confidentiality agreement to which
the Company is a party;
(x) incur or commit to any capital expenditures, obligations
or liabilities in respect thereof which in the aggregate exceed or
would exceed $300,000 on a cumulative basis;
(xi) take any action to cause WMT to (x) constitute an
"interested stockholder" within the meaning of section 203 of the
General Corporation Law of the State of Delaware (the "DGCL") or (y)
become subject to any other state takeover law or state law that
purports to limit or restrict business combinations or the ability to
acquire or vote shares;
(xii) collect accounts receivable and pay accounts payable
other than in the normal course of business consistent with past
practices prior to the execution of this Agreement; or
(xiii) agree in writing or otherwise to take any of the
foregoing actions.
(b) Negative Covenant. Except as otherwise expressly permitted by this
-----------------
Agreement or set forth on Exhibit A, between the date of this Agreement and the
Closing Date, the Stockholders will not, and will cause each Acquired Company
not to, without the prior consent of WMT, take any affirmative action, or fail
to take any reasonable action within their or its control, as a result of which
any of the changes or events listed in Section 4.17 is likely to occur.
(c) Employment Agreements. The Stockholders and the Company shall use
---------------------
its reasonable efforts to cause each of Carlton Xxxxxx Xxxxxxx XX, Xxxxx X.
Xxxxxxx, Xxxxx X. Xxxxx and Xxxxxxx X. X. Xxxxxx to enter into Employment
Agreements with WMT substantially in the forms of Exhibits C-1, C-2, C-3 and C-4
attached hereto, respectively, and to cause each employee of each Acquired
Company set forth in Schedule 8.3(f) to agree to be employed by WMT.
(d) Intellectual Property Matters. The Stockholders and the Company
-----------------------------
shall cause each Acquired Company to use its reasonable efforts to preserve its
ownership rights to the Intellectual Property free and clear of any liens,
claims or Encumbrances and shall use its reasonable efforts to assert, contest
and prosecute any infringement of any issued foreign or domestic patent,
trademark, service xxxx, trade name or copyright that forms a part of the
Intellectual Property Assets or any misappropriation or disclosure of any trade
secret, confidential information or know-how that forms a part of the
Intellectual Property Assets.
-51-
(e) No Solicitation. The Company and each of the Stockholders agrees
---------------
that, during the term of this Agreement, it or he shall not, and shall not
authorize or permit any directors, officers, employees, agents or
representatives of any Acquired Company to, directly or indirectly, solicit,
initiate, encourage or facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving any Acquired Company, or acquisition of any capital stock (other than
upon exercise of outstanding options of the Company) or any material portion of
the assets (except for acquisition of assets in the ordinary course of business
consistent with past practice) of the Acquired Companies, or any combination of
the foregoing (a "Competing Transaction"), or negotiate, explore or otherwise
engage in discussions with any person other than WMT or its directors, officers,
employees, agents and representatives) with respect to any Competing Transaction
or enter into any agreement, arrangement or understanding requiring it or him to
abandon, terminate or fail to consummate the transactions contemplated hereby or
any other transactions contemplated by this Agreement.
7. Additional Agreements.
---------------------
7.1 Good Faith. Subject to Section 7.5 hereof, each party shall act in
----------
good faith in an attempt to cause to be satisfied all the conditions precedent
to its obligations and those of the other parties to this Agreement over which
it has control or influence. Each party will act in good faith and take all
reasonable action within its capability necessary to render accurate as of the
Closing Date its representations and warranties contained in this Agreement.
7.2 Legend; Stop Transfer Instructions. Stockholder 2 understands and
----------------------------------
agrees that:
(a) the WMT Shares issued to Stockholder 2 will bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES
LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER FEDERAL AND
STATE SECURITIES LAWS IS NOT REQUIRED.
; and
(b) any applicable state blue-sky legends.
Stop transfer instructions will be given to WMT's transfer agent with respect to
certificates evidencing the WMT Shares. WMT agrees to remove promptly such stop
transfer instructions and legend upon full compliance with this Agreement by the
undersigned,
-52-
including, without limitation, a sale or transfer of WMT Shares in accordance
with Rules 144 and 145.
7.3 Benefits. WMT will provide the employees identified on Schedule
--------
8.3(f) who have agreed to be employed by WMT with the standard WMT employee
benefit programs. Time of service with the Company will be credited for the WMT
employee benefit program up to a maximum of five (5) years and the Company's
current 401(k) program may be rolled into the WMT 401(k) program provided,
however, that WMT shall not be obligated to make any matching contributions. The
Company's stock option and stock purchase plans shall not be included within the
term "employee benefit plan" for purposes of this Section 7.3.
7.4 Registration Rights. WMT and Stockholder 2 shall enter into the
-------------------
Registration Rights Agreement in substantially the form of Exhibit G attached
hereto.
7.5 All Reasonable Efforts. Between the date of this Agreement and the
----------------------
Closing Date, WMT shall use its all reasonable efforts to obtain financing
sufficient to enable WMT to consummate the transactions contemplated hereby. The
Stockholders and the Company during such period shall reasonably cooperate in
such efforts by WMT to raise such financing.
7.6 No Solicitation.
---------------
(a) WMT agrees that, from and after the date of this Agreement until
the Closing Date (or the termination of this Agreement pursuant to Section 11
hereof), without the written consent of the Stockholders it shall not, and shall
not authorize or knowingly permit any of its directors, officers, employees,
agents, representatives or affiliates, directly or indirectly, to explore,
negotiate or otherwise engage in discussions, or make any proposal with respect
to, any acquisition by WMT or its affiliates of the business of any company
engaged in the IBM Midrange Business or the End-User Business, whether through
acquisition of assets or stock, whether through merger, consolidation, business
combination or similar transaction except where such acquisition would involve
the issuance of less than twenty percent (20%) of the outstanding capital stock
of WMT and/or less than $1,000,000 in cash or cancellation of indebtedness.
(b) Prior to the Closing or the termination of this Agreement, WMT
agrees that it will not, and shall not authorize or knowingly permit any of
WMT's directors, officers, employees, agents or representatives, directly or
indirectly, to solicit, initiate, encourage or facilitate, or furnish or
disclose nonpublic information in furtherance of, any inquiries or the making of
any proposal with respect to any (i) recapitalization, merger, consolidation or
other business combination involving WMT or any of its subsidiaries, or
acquisition of more than fifty percent (50%) of WMT's capital stock, whether
through merger, consolidation or otherwise with a single acquiror or group of
related acquirors (other than upon exercise of outstanding options of WMT) or
(ii) any sale of any material portion of the assets (except for sale of assets
in the ordinary course of business consistent with past practice) of WMT or any
of its Subsidiaries, or (iii) any other transaction that would result in a
Change in Control, or any combination of the foregoing, or negotiate, explore or
otherwise engage in discussions
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with any person (other than the Company or its stockholders, directors,
officers, employees, agents and representatives) with respect to any such
transaction or enter into any agreement, arrangement or understanding requiring
it to abandon, terminate or fail to consummate the transactions contemplated
hereby or any other transactions contemplated by this Agreement. Notwithstanding
the foregoing, WMT shall be entitled to consider an unsolicited proposal
regarding such a transaction if the Board of Directors of WMT concludes in its
reasonable judgment that it must consider such proposal in accordance with its
fiduciary duty to WMT's shareholders.
7.7 Election to Board of Directors. Prior to Payment of Earn-Out and
------------------------------
Installment Amounts. Effective as of the Closing, Stockholder 2 shall be elected
as a member of the Board of Directors of WMT and a member of the Board of
Directors of Acquisition Sub. The members of the WMT Board serve, in accordance
with WMT's bylaws and applicable corporate law and may be removed by the
shareholders or fail to be elected by the shareholders at the annual meeting or
any meeting called for the purpose of electing directors. Therefore, WMT cannot
give the Stockholders any absolute assurance that Stockholder 2 will continue to
serve on WMT's Board of Directors for the period ending with the payment in full
of the Installment Payments, the Earn-Out Payments and Promissory Notes (net of
any offsets pursuant to Section 9.1 and Section 9.3). WMT will undertake best
efforts, however, to include Stockholder 2 on its slate of directors presented
to its shareholders for election in conjunction with any proxy statement
presented to its shareholders after the date hereof and prior to the payment in
full of the Installment Payments, the Earn-Out Payments and Promissory Notes
(net of any offsets pursuant to Section 9.1 and Section 9.3). During such
period, Stockholder 2 will be maintained as a member of the Board of Directors
of Acquisition Sub.
7.8 Release of Liabilities. WMT and the Company shall use all
----------------------
reasonable efforts to cause Stockholder 1 to be released at or prior to Closing
from any material liabilities, obligations, guarantees of payment or performance
of the Company identified on Exhibit A hereto (the "Guarantees").
7.9 Negative Covenants. From and after the Closing until all amounts
------------------
owed by WMT with respect to the Installments, Earn-out Payments and the
Promissory Notes relating thereto, have been paid-in full net of any offsets
pursuant to Section 9.1 and Section 9.3, WMT agrees that:
(a) there will not be any direct or indirect redemption,
purchase or other acquisition of the capital stock of WMT by WMT (other
than in connection with (i) a reincorporation; (ii) the repurchase of
unvested stock by WMT in connection with the termination of employment
of Western Micro employees or (iii) the redemption or repurchase by WMT
of any preferred stock issued by WMT in connection with the Xxx
Xxxxxxxxxx & Co. financing or other equity raised for the purpose of
financing the transactions contemplated by this Agreement (or to pay
any Earn-out Payments, Installment Payments or Promissory Notes
relating thereto);
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(b) there will not be a declaration or payment of any cash
dividend or other non-equity distribution or non-equity payment in
respect of shares of capital stock (other than in connection with the
declaration or payment of any cash dividend or other non-equity
distribution or non-equity payment made with respect to any preferred
stock issued by WMT in connection with the Xxx Xxxxxxxxxx & Co.
financing or other equity raised for the purpose of financing the
transactions contemplated by this Agreement or to pay any Earn-out
Payments, Installment Payments or Promissory Notes relating thereto);
(c) neither it nor any of its Subsidiaries will, directly or
indirectly, acquire or enter into any agreement to acquire any Person
or business, or division thereof, for cash whether through acquisition
of assets or stock, whether through merger, consolidation, business
combination or similar transaction; provided, however, WMT shall be
permitted to make such acquisitions during Year 1 and Year 2 to the
extent that the aggregate consideration (excluding capital stock of
WMT) paid by WMT in connection with such post- Closing acquisitions is
less than $1,000,000 in any calendar quarter during such period and is
in the aggregate less than $2,500,000 in Year 1 or $2,500,000 in Year 2
with respect to such post-Closing acquisitions, as the case may be.
Notwithstanding the foregoing, in no event shall WMT consummate any
such acquisition in Year 2 or thereafter unless the First Installment
and the Earn-out Payments for Year 1 (or any Promissory Note issued in
lieu thereof) have been paid in full. Nothing in this clause (iii)
shall limit WMT or its Subsidiaries' ability to complete acquisitions
for WMT capital stock.
Notwithstanding the provisions of Section 10 hereof, if WMT breaches, or
threatens to breach, any of the provisions of Section 7.9 hereof, in addition to
any other remedies that the Stockholders may have, each of which shall be
independent of the other and severally enforceable, the Stockholders shall have
the right to have the provisions of Section 7.9 of this Agreement specifically
enforced by injunction or other equitable relief by any court having equity or
other jurisdiction, without bond being required to be posted in connection
therewith, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Stockholders and that money damages
will not provide an adequate remedy to the Stockholders; provided, however, the
Stockholders must bring such action or proceeding in a state or federal court
sitting in the state of Delaware if such action or proceeding may be properly
brought in or properly heard by a state or federal court sitting in the state of
Delaware.
8. Conditions.
----------
8.1 Mutual Conditions. The obligations of the parties hereto to
-----------------
consummate the transactions contemplated hereby shall be subject to fulfillment
of the following conditions unless waived by the Stockholders and WMT:
(a) No temporary restraining order, preliminary or permanent injunction
or other order or decree which prevents the consummation of the transactions
contemplated hereby shall
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have been issued and remain in effect or threatened, and no statute, rule or
regulation shall have been enacted by any Governmental Body which prevents the
consummation of the transactions contemplated hereby.
(b) All waiting periods applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated.
(c) No action shall be instituted by any Governmental Body which seeks
to prevent consummation of or seeking material damages in connection with the
transactions contemplated hereby which continues to be outstanding.
(d) IBM shall have approved of XXX as an industry remarketer affiliate
of WMT and such approval shall not have been withdrawn.
(e) All material third party approvals, consents, permits or waivers
necessary for consummation of the transactions contemplated by this Agreement
shall have been obtained in form and substance reasonably satisfactory to the
Stockholders and WMT, except to the extent the failure to obtain such approvals,
consents, permits or waivers would not have a Material Adverse Effect on WMT,
the Company, any Acquired Company or the XXX.
8.2 Conditions to Obligations of the Company and the Stockholders. The
-------------------------------------------------------------
obligations of the Company and the Stockholders to consummate the transactions
contemplated hereby and the transactions contemplated hereby shall be subject to
the fulfillment of the following conditions unless waived by the Company and the
Stockholders.
(a) The representations and warranties of WMT set forth in Section 5
shall be true and correct in all material respects (without giving effect to any
supplemental disclosures as provided in Section 6.1(h)) on the date hereof and
on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date, which
need be true and correct only as of the specified date).
(b) WMT shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder prior to the Closing
Date.
(c) WMT shall have furnished the Company and the Stockholders with a
certificate dated the Closing Date signed on behalf of it by the Chairman,
President or any Vice President to the effect that the conditions set forth in
Sections 8.2(a), 8.2(b) and 8.2(e) have been satisfied.
(d) The Company and the Stockholders shall have received the legal
opinion, dated the Closing Date of Pillsbury Madison & Sutro LLP, counsel to
WMT, in substantially the form of Exhibit H attached hereto.
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(e) Since the date of this Agreement, except to the extent contemplated
by Exhibit B, there shall not have been any material adverse change in the
assets, liabilities, results of operations, business or financial condition of
WMT or any Material Adverse Effect on WMT.
(f) Stockholder 1 shall have been released from all material
obligations, liabilities, guarantees and duties with respect to any Guarantees.
(g) The Spin-off shall have been completed by the Company as described
on Exhibit A.
(h) The financing shall include no provision for principal payments to
the lender in Year 1 or in Year 2; provided, however, that the financing may
include provisions for accelerating the due date of principal payments into Year
1 or Year 2 upon breach of the loan agreement, any other agreement entered in
conjunction therewith or any covenants or restrictions set forth therein or
repayment of principal during Year 1 or Year 2 from the proceeds of any equity
raised by WMT during such periods.
(i) WMT shall have executed and delivered the XXX Agreement in
substantially the form of Exhibit F attached hereto.
8.3 Conditions to Obligations of WMT. The obligations of WMT to
--------------------------------
consummate the transactions contemplated hereby shall be subject to the
fulfillment of the following conditions unless waived by WMT:
(a) The representations and warranties of each of the Stockholders set
forth in Sections 3 and 4 and the Company set forth in Section 4, shall be true
and correct in all material respects (without giving effect to any supplemental
disclosures as provided in Section 6.1(h)) on the date hereof and on and as of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be true
and correct only as of the specified date).
(b) Each of the Stockholders and the Company shall have performed in
all material respects each obligation and agreement and shall have complied in
all material respects with each covenant to be performed and complied with by it
hereunder at or prior to the Closing Date.
(c) The Company and the Stockholders shall have furnished WMT with a
certificate dated the Closing Date signed on its behalf by its Chairman,
President or any Vice President to the effect that, except as otherwise stated
therein, the conditions set forth in Sections 8.3(a), 8.3(b) and 8.3(e) have
been satisfied.
(d) WMT shall have received the legal opinion, dated the Closing Date,
of Xxx & Xxxxx Incorporated, in substantially the form of Exhibit I attached
hereto.
(e) Since the date of this Agreement, except to the extent contemplated
by Exhibit A, there shall not have been any material adverse change in the
assets, liabilities, results of
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operations, business or financial condition of the Company or any material
adverse effect on the ability of the Company to consummate the transactions
contemplated hereby.
(f) Each of Carlton Xxxxxx Xxxxxxx XX, Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxx
and Xxxxxxx X. X. Xxxxxx shall have executed Employment Agreements in
substantially the forms of Exhibits C-1, C-2, C-3 and C-4 attached hereto,
respectively, and at least eighty percent (80%) of the employees identified in
Schedule 4.14 of Exhibit A of the Company shall have agreed to be employed by
WMT.
(g) Stockholder 1 and XXX shall have executed a noncompetition
agreement in substantially the form of Exhibit D attached hereto.
(h) Stockholder 2 shall have executed a noncompetition agreement in
substantially the form of Exhibit E attached hereto.
(i) WMT shall have obtained financing sufficient to enable WMT to
consummate the transactions contemplated hereby.
(j) There must not have been made or threatened by any person any claim
asserting that such person (i) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (ii) is entitled
to all or any portion of the Purchase Price payable for the Shares.
(k) The Spin-off shall have been completed by the Company in form and
substance reasonably satisfactory to WMT, and the XXX shall, as part of such
Spin-off have agreed to indemnify and hold harmless WMT, Acquisition Sub and
their Affiliates from and against any and all liability relating to the End-user
Business of the XXX, regardless of when incurred except to the extent such
liability is reflected on the Closing Date Balance Sheet.
(l) XXX shall have executed and delivered the XXX Agreement in
substantially the form of Exhibit F attached hereto.
9. Indemnification.
---------------
9.1 Indemnification by the Stockholders.
-----------------------------------
(a) Breach of Representations, Warranties and Covenants. Each
---------------------------------------------------
Stockholder, severally based on his pro rata ownership of the Company at Closing
as set forth on Exhibit A hereof, after the Closing, agrees to defend and
indemnify WMT and its affiliates, directors, officers and stockholders, and its
successors and assigns (collectively, the "WMT Indemnitees"), against, and hold
each of them harmless from, any and all losses, liabilities, taxes, claims,
suits, proceedings, demands, judgments, damages, expenses and costs, including,
without limitation, reasonable counsel fees, costs and expenses incurred in the
investigation, defense or settlement of any claims (collectively, the
"Indemnifiable Damages") which any such indemnified person may suffer or incur
by reason of the inaccuracy of any of
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the representations or warranties (after giving effect to any supplemental
disclosures as permitted in Section 6.1(h)), or breach of any covenants to be
performed after the Closing Date, of the Company or the Stockholders contained
in this Agreement or any documents, certificate or agreement delivered pursuant
hereto. Notwithstanding the foregoing, WMT shall not be entitled to
Indemnifiable Damages if (i) WMT had actual knowledge that such representations
or warranties were untrue or inaccurate or that covenants had been breached in
any respect on the Closing Date and (ii) the Stockholders shall have sustained
the burden of proving that WMT had such actual knowledge, which burden shall
only be sustained by the Stockholders' production of a written document or
documents created by WMT and reviewed by the President and Chief Executive
Officer and by the Chief Financial Officer of WMT demonstrating that WMT had
such actual knowledge hereunder in any event. Notwithstanding Section 9.3(e)
below (except with respect to Section 9.3(b) which shall limit the parties'
remedies hereunder in any event), nothing in this Section 9.1(a) shall limit in
any way WMT's remedies (x) in the event of breach by the Company or the
Stockholders of any of their covenants or agreements hereunder to be performed
or complied with after the Closing or (y) for any claim made under Rule 10b-5 of
the 1934 Act.
(b) Collection of Accounts Receivable; Sale of Inventory Offset. In the
-----------------------------------------------------------
event that WMT, using normal collection and sales practices, has not on or prior
to twelve (12) months from the Closing Date collected with respect to the
accounts receivable reflected on the Closing Date Balance Sheet (the "Closing
A/R") an amount equal to or greater than the amount set forth on the Closing
Date Balance Sheet for the accounts receivable balance (minus any allowance or
reserve for doubtful accounts) or sold the Inventory reflected on Closing Date
Balance Sheet, WMT may cause the Acquisition Sub to transfer, assign, convey and
deliver the uncollected Closing A/R or such inventory, as the case may be, to
the Stockholders in exchange for a dollar for dollar offset against the
Installment Payments and Earn-out Payments to be paid to the Stockholders
pursuant to Sections 2.2(a) and 2.6 hereof, each offset to be allocated between
the Stockholders' respective Earn-out Payments or Installment Payments as due
pro rata in accordance with their percentage ownership of the Shares; provided
such uncollected Closing A/R or inventory must be assigned, transferred and
delivered to the Stockholders on or before 13 months from the Closing Date
(unless otherwise agreed by the parties hereto). WMT agrees to provide the
Stockholders with access to the information reasonably necessary to enable the
Stockholders to collect such accounts receivable. The amount collected with
respect to the Closing A/R shall include the proceeds from the sale of any
products (as to which the Closing A/R relates) repossessed by, or returned to
the Company or WMT. Any such products not resold by the Company or WMT shall be
transferred and delivered to the Stockholders concurrent with the assignment of
the corresponding Closing A/R.
9.2 Indemnification by WMT. After the Closing, WMT agrees to defend and
----------------------
indemnify the Stockholders and their respective successors and assigns, against,
and hold each of them harmless from, the Indemnifiable Damages which any such
indemnified person may suffer or incur by reason of the inaccuracy of any of the
representations or warranties (after giving effect to any supplemental
disclosures as permitted in Section 6.1(h), or breach of any covenants of WMT to
be performed after the Closing Date contained in this Agreement or any
documents, certificate or agreement delivered pursuant hereto. Notwithstanding
the
-59-
foregoing, the Stockholders and their respective successors and assigns shall
not be entitled to Indemnifiable Damages if (a) the Stockholder seeking
indemnification had actual knowledge that such representations or warranties
were untrue or inaccurate or that covenants had been breached in any respect on
the Closing Date and (b) WMT shall have sustained the burden of proving that
such Stockholder had such actual knowledge, which burden shall only be sustained
by WMT's production of a written document or documents created by the Company or
the Stockholder and reviewed by such Stockholder demonstrating that such
Stockholder had such actual knowledge. Notwithstanding Section 9.3(e) below
(except with respect to Section 9.3(b) which shall limit the parties' remedies
hereunder in any event), nothing in this Section 9.2 shall limit in any way the
Stockholders' remedies in the event of breach by WMT of any of its covenants or
agreements hereunder to be performed or complied with after the Closing or for
any claim made under Rule 10b-5 of the 1934 Act.
9.3 Limitation on Indemnity. The indemnification obligations of the
-----------------------
parties hereto under this Section 9 shall be subject to the following:
(a) Threshold. Neither the WMT Indemnitees nor the Stockholders shall
---------
be entitled to seek indemnification under this Section 9 until the aggregate
amount of all such Indemnifiable Damages to which the WMT Indemnitees or the
Stockholders, as the case may be, are entitled (other than claims for
Indemnified Damages arising out of the breach of covenants and agreements to be
performed or complied with subsequent to Closing) exceeds $100,000.
(b) Limitations on Damages. Any indemnifiable claim under this Section
----------------------
9 with respect to any breach or nonperformance by any party of a representation,
warranty, covenants or agreement shall be limited to the amount of actual
damages sustained by the party seeking indemnification (the "Indemnified
Person") by reason of such breach or nonperformance. Notwithstanding anything to
the contrary elsewhere in this Agreement, no party or its affiliates shall in
any event be liable to any other party or its affiliates for any consequential
damages, including, but not limited to, loss of future revenue or income, cost
of capital, or loss of business reputation or opportunity. Each party further
agrees that it shall not seek, and shall not be entitled to, punitive damages as
to any matter relating to this Agreement or the transactions contemplated by it.
(c) Maximum Liability. Notwithstanding any other provision to the
-----------------
contrary in this Agreement except Section 9.1(a) hereof, the aggregate liability
of the Stockholders, on the one hand, and WMT, on the other hand, in connection
with all claims for Indemnifiable Damages hereunder (other than claims for
Indemnified Damages arising out of the breach of covenants and agreements to be
performed or complied with subsequent to Closing) shall not exceed $7,500,000,
provided that, with respect to Indemnifiable Damages to which the WMT
Indemnitees are entitled, amounts set-off against the Installment Payments,
Earn-out Payments or any Promissory Notes which are issued and relate thereto
pursuant to Section 9.3(f) shall be applied against such amount.
(d) Insurance Proceeds; Recoveries; Tax Benefits. The Indemnifiable
--------------------------------------------
Damages hereunder shall be deemed reduced by the amount of any insurance
proceeds, indemnities or
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recoveries from third parties recoverable by such Indemnified Person with
respect to such Indemnifiable Damages.
(e) Exclusivity. Except as otherwise expressly provided in the last
-----------
sentence of Section 9.1(a) and Section 9.2, the sole and exclusive remedy of the
parties hereto for any claim resulting in a breach by any of the parties hereto
of their respective representations, warranties, covenants or agreements made
hereby or the failure by any party to perform their respective obligations under
this Agreement discovered after the Closing shall be a claim under this Section
9. Notwithstanding any of the foregoing, no party shall be able to avoid the
limitations expressly set forth in this Section 9 or Section 11 by electing to
pursue any other remedy. The parties hereby waive any provision of law to the
extent that it would limit or restrict the agreements set forth in this Section
9 or Section 11.
(f) Payment of Claims.
-----------------
(i) Any amounts owed by a Stockholder under this Section 9 to WMT
Indemnitees with respect to Indemnifiable Damages shall be first offset by WMT
against Earn-out Payments and Installment Payments (or the principal balance of
the Promissory Notes delivered in lieu thereof pursuant to Section 2.7) to be
paid to such Stockholder; provided, however, in no event shall (x) WMT's offset
with respect to each such payment which would be otherwise due exceed fifty
percent (50%) of such Earn-out Payment and Installment Payment (or the principal
balance of the Promissory Notes delivered in lieu thereof pursuant to Section
2.7) or (y) subject to clause (iii) below, WMT's payments to any Stockholder
hereunder in each of Year 1 or Year 2 with respect to Indemnifiable Damages
(other than Indemnifiable Damages relating to breaches of covenants to be
performed or complied with after the Closing) owed by WMT shall not exceed such
maximum amount which WMT is allowed to offset against such payments during such
period.
(ii) If the amount to which WMT is entitled to offset against the
Earn-out Payments and Installment Payments and Promissory Notes owed to a
Stockholder pursuant to clause (i) above is less than the amount of
Indemnifiable Damages owed by such Stockholder, the WMT Indemnitee shall be
entitled to seek such excess directly from such Stockholder after the end of
Year 2.
(iii) If WMT has made the Prepayment pursuant to Section 2.2, then,
without limiting the entitlement of WMT to offset against Earn-out Payments
otherwise due pursuant to clause (i) above or to seek any excess directly from
such Stockholder pursuant to clause (ii) above, WMT shall be entitled, prior to
the end of Year 2, to seek directly from a Stockholder the amount of the
Indemnifiable Damages owed to WMT from such Stockholder and each Stockholder
shall not be limited in seeking Indemnifiable Damages by Section 9.3(f)(i)(y)
above.
(iv) Without limiting the obligation and entitlement of WMT to first
offset against the Earn-out Payments and Installment Payments and Promissory
Notes, payment of Indemnifiable Damages owed by a Stockholder under this Section
9 for claims made pursuant to clause (ii) above may be paid in cash or WMT
Common or other shares of capital stock of WMT then owned by such Stockholder in
his sole discretion or by application by such Stockholder
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of amounts owed to such Stockholder with respect to a Promissory Note and, if
WMT has made the Prepayment pursuant to Section 2.2, the Earn-out Payments to
the extent due and owing at the time a claim is made.
(g) Unless otherwise specified herein, any shares of WMT Common used to
satisfy obligations under this Section 9 shall be valued at the Average Market
Price as of the date payment of such satisfaction is made. "Average Market
Price" shall mean as of a specified date the average Market Price of WMT Common
for the twenty (20) trading days ending on the day prior to such date. "Market
Price" means the closing sale price of WMT Common on the Nasdaq National Market
or similar system of automated dissemination of quotations of securities prices
then in common, if so quoted, or exchange. If the WMT Common is not quoted on
any market or quotation system, or traded on an exchange, the average Market
Price per share shall be mutually agreed upon in good faith by the parties. If,
during such period of calculation of the Average Market Price, there is effected
a dividend, stock split, reverse stock split, distribution, recapitalization,
reorganization or other similar action with respect to WMT Common, the Market
Price for the days prior thereto shall be adjusted as appropriate to give effect
to such action as if such action had occurred prior to the commencement of such
calculation period.
9.4 Indemnification Payments. WMT and the Stockholders agree to treat
------------------------
any indemnity payment made pursuant to this Section 9 as an adjustment to the
Purchase Price for tax purposes.
9.5 Resolution of Conflicts.
-----------------------
(a) Any request for indemnification under this Section 9 must be made
in writing (the "Notice") and presented by the Indemnified Person to the party
from whom indemnification is sought (the "Indemnifying Person") within 375
calendar days after the Closing Date. Any Notice delivered after such time shall
be void and of no effect. The representations and warranties of the parties
under this Agreement shall survive for a period of 375 calendar days after the
Closing Date. If the Stockholders or WMT, as applicable, shall object in writing
to the indemnity of an Indemnified Person in respect of any claim or claims made
in any Notice, the Stockholders and WMT shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of such claims.
(b) If no such agreement can be reached after good faith negotiation
within sixty (60) days after objection by either the Stockholders or WMT, either
WMT or the Stockholders may demand arbitration of the matter and the matter
shall be settled by arbitration in accordance with the terms and provisions of
Section 10 hereof.
9.6 Notice and Defense of Third-Party Claims. If any action, claim or
----------------------------------------
proceeding shall be brought or asserted under this Section 9 by any third party
against any Indemnified Persons in respect of which indemnity may be sought
under this Section 9 from an Indemnifying Person or any successor thereto, the
Indemnified Person shall give prompt written notice of such action or claim to
the Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the
-62-
Indemnified Person and the payment of all reasonable expenses; except that any
delay or failure so to notify the Indemnifying Person shall relieve the
Indemnifying Person of its obligations hereunder only to the extent, if at all,
that (a) it is prejudiced by reason of such delay or failure, or (b) the
Indemnified Person fails to give notice of its claim within the 375 calendar day
period specified in Section 9.5(a). The Indemnified Person shall have the right
to employ separate counsel in any of the foregoing actions, claims or
proceedings and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Person unless both
the Indemnified Person and the Indemnifying Person are named as parties and the
Indemnified Person shall in good faith determine that representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicting interests between them; provided, however, that in no event shall
the Indemnifying Person be obligated to assume the expense of more than one such
separate counsel in connection with Indemnifiable Damages arising out of the
same claim or cause of action. In the event that the Indemnifying Person, within
thirty (30) days after notice of any such action or claim, fails to assume the
defense thereof, the Indemnified Person shall have the right to undertake the
good faith defense of such action, claim or proceeding for the account of the
Indemnifying Person, subject to the right of the Indemnifying Person to assume
the defense of such action, claim or proceeding at any time prior to the
settlement, compromise or final determination thereof. Anything in this Section
9 to the contrary notwithstanding, (i) the Indemnifying Person shall not,
without the Indemnified Person's prior written consent, settle or compromise any
action or claim or consent to the entry of any judgment with respect to any
action, claim or proceeding for anything other than money damages paid by the
Indemnifying Person, and (ii) the Indemnified Person shall not settle or
compromise any action or claim or consent to the entry of any judgment, except,
where the Indemnifying Person has failed to assume the defense of such action or
claim, and then only with the prior consent of the Indemnifying Person, which
shall not be unreasonably withheld. The Indemnifying Person may, without the
Indemnified Person's prior consent, settle or compromise any such action, claim
or proceeding or consent to entry of any judgment with respect to any such
action or claim that requires solely the payment of money damages by the
Indemnifying Person. The Indemnified Person shall make available to the
Indemnifying Person all records, other materials and personnel reasonably
required by it for its use in contesting any third party claims and shall
cooperate fully with the Indemnifying Person in the defense of all such claims.
As a condition to asserting any rights under this Section 9, each WMT Indemnitee
must appoint WMT as its sole agent for all matters relating to any claim
hereunder and agree to cooperate with the Indemnifying Person to the extent
reasonably requested in order to permit the proper and adequate defense of such
claim. As a condition to asserting any rights under this Section 9, each
Stockholder shall act as his own agent for all matters relating to any claim
hereunder and agree to cooperate with the Indemnifying Person to the extent
reasonably requested in order to permit the proper and adequate defense of such
claim. No party shall have any rights to indemnity pursuant to this Section 9
prior to the Closing and the parties obligations under this Section 9 are
expressly made conditioned on such Closing.
10. Arbitration. Except with respect to injunctive relief sought
-----------
pursuant to Section 7.9, any dispute arising out of or relating to this
Agreement, any schedule, certificate or other document delivered by any party in
connection with this Agreement or incident to
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the transactions contemplated hereby or the breach, inaccuracy, termination or
validity hereof or thereof or otherwise arising out of or relating to the
transactions contemplated hereby and thereby, or any other agreement among them
or between any of them, whether entered into prior to, on or subsequent to the
date of this Agreement or those arising under any federal, state or local law,
regulation or ordinance, shall be determined by binding arbitration in
accordance with certain aspects of the then-current Commercial Arbitration Rules
of the American Arbitration Association; provided, however, that any dispute
relating to the Adjustment Amount and the Earn-out Payments shall be resolved in
accordance with certain aspects of Sections 2.5 and 2.6(b), respectively. If the
amount in controversy in the arbitration exceeds Two Hundred Fifty Thousand
Dollars ($250,000), exclusive of interest, attorneys' fees and costs, the
arbitration shall be conducted by a panel of three (3) neutral arbitrators.
Otherwise, the arbitration shall be conducted by a single neutral arbitrator.
The parties shall endeavor to select neutral arbitrators by mutual agreement. If
such agreement cannot be reached within thirty (30) calendar days after a
dispute has arisen which is to be decided by arbitration, any party or the
parties jointly shall request the American Arbitration Association to submit to
each party an identical panel of fifteen (15) persons. Alternate strikes shall
be made to the panel, commencing with the party bringing the claim, until the
names of three (3) persons remain, or one (1) person if the case is to be heard
by a single arbitrator. The parties may, however, by mutual agreement, request
the American Arbitration Association to submit additional panels of possible
arbitrators. The person(s) thus remaining shall be the arbitrator(s) for such
arbitration. If three (3) arbitrators are selected, the arbitrators shall elect
a chairperson to preside at all meetings and hearings. If a dispute is to be
resolved by a sole arbitrator in accordance with the terms hereof, or if the
dispute is to be resolved by a panel of three (3) arbitrators as provided
hereinabove, then such sole arbitrator or the chairperson of such panel, as the
case may be, shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
arbitrators in the case of a panel of arbitrators, shall be in writing and
reasoned, shall be based on the evidence admitted and the substantive law of the
State of Delaware and shall contain an award for each issue and counterclaim.
The award shall be made within thirty (30) days following the close of the final
hearing and the filing of any post hearing briefs authorized by the
arbitrator(s). The award of the arbitrator(s) shall be final and binding on the
parties thereto and the subject matter. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1-16, and judgment upon the award
rendered by the arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Denver, Colorado. Each party shall be
entitled to inspect and obtain a copy of relevant documents in the possession or
control of the other party and to take depositions of the other parties'
employees, agents, representatives and witnesses (including expert witnesses).
All such discovery shall be in accordance with procedures approved by the
arbitrator(s). Unless otherwise provided in the award, each party shall bear its
own costs of discovery and of the arbitration. No party shall be entitled to
submit interrogatories to the other parties. All discovery shall be expedited,
consistent with the nature and complexity of the claim or dispute and consistent
with fairness and justice. The arbitrator(s) shall have the power to compel any
party to comply with discovery requests of the other parties and to issue
binding orders relating to any discovery dispute which shall be enforceable in
the same manner as awards. The arbitrator(s) also shall have the power to impose
sanctions for abuse
-64-
or frustration of the arbitration process, including without limitation, the
refusal to comply with orders of the arbitrator(s) relating to discovery and
compliance with subpoenas. Consistent with the terms and provisions of Section
9.3(b) of this Agreement, the arbitrator(s) are not empowered to award damages
in excess of actual damages and the Company, the Stockholders and WMT hereby
irrevocably waive any right to recover such damages with respect to any dispute
resolved by arbitration.
11. Termination.
-----------
11.1 Termination Events. This Agreement may, by written notice given at
------------------
or prior to the Closing Date in the manner hereinafter provided, be terminated:
(a) by WMT, on the one hand, or the Company and the Stockholders, on
the other hand, if a material default or breach shall be made by the other
parties hereto with respect to the due and timely performance of any of its
covenants and agreements contained herein, or with respect to the material
compliance with any of its representations, warranties or covenants, and such
default cannot be cured prior to the Closing Date and has not been waived;
(b) by mutual consent of WMT and the Stockholders; or
(c) by WMT, on the one hand, or the Stockholders, on the other hand, if
the Closing shall not have occurred on or before July 31, 1997 or such later
date as may be mutually agreed upon in writing by the parties.
11.2 Effect of Termination; Sole Remedy.
----------------------------------
(a) Notwithstanding any provisions in this Agreement to the contrary,
if the Closing does not occur, (i) neither WMT, the Company nor the Stockholders
shall be entitled to indemnification for the falsity of any representations or
warranties or a breach of any of the covenants and agreements contained herein
to be performed at or prior to the Closing and (ii) WMT's, the Company's and the
Stockholders' sole and exclusive remedy shall be the receipt of the Termination
Fee, if any, as provided in this Section 11.2. In the event that this Agreement
shall be terminated pursuant to Section 11.1, all further obligations of the
parties hereto under this Agreement (other than pursuant to Sections 6.1(d), 10,
11.2 and 12 and as provided in the Confidentiality Agreement) shall terminate
without further liability or obligation of either party to the other party
hereunder.
(b) Subject to clause (c) of this Section 11.2 and except with respect
to terminations pursuant to Section 11.1(b) above,
(i) if this Agreement is terminated by any party and (A) all
of the conditions of the Closing set forth in Sections 8.1 and 8.3
(other than the condition set forth in 8.3(i)) have been, or are
reasonably expected to be at or prior to the Closing, satisfied or
waived (or would be satisfied but for the failure of WMT to perform its
obligations hereunder), and (B) the Stockholders
-65-
are not in breach of this Agreement in any material respect, WMT shall pay to
the Company a termination fee of $500,000 within two (2) business days of such
termination, and the payment of such termination fee shall be the sole remedy of
the Company and the Stockholders hereunder.
(ii) if this Agreement is terminated by any party and (A) all
of the conditions of the Closing set forth in Sections 8.1 and 8.2 have
been, or are reasonably expected to be at or prior to the Closing,
satisfied or waived (or would be satisfied but for the failure of the
Stockholders and the Company to perform their respective obligations
hereunder), (B) and WMT is not in breach of this Agreement in any
material respect, the Company shall pay to WMT a termination fee of
$500,000 within two (2) business days of such termination, and the
payment of such termination fee shall be the sole remedy of WMT
hereunder.
(c) The parties hereto expressly agree that (i) the amounts set forth
in Section 11.2(b) are intended to be liquidated damages for harm caused by
termination of this Agreement and are reasonable forecasts of just compensation
in the light of the anticipated harm which would be attributable to such
termination, (ii) losses incurred by reason of termination of this Agreement
would be incapable or difficult of estimation and (iii) otherwise obtaining an
adequate remedy would be inconvenient or nonfeasible.
(d) Notwithstanding the foregoing, neither party shall be required to
pay such Termination Fee if the reason that Closing has not occurred is (i) the
HSR Act filing has not cleared (unless the failure to clear is due to a failure
by either party to make the necessary filing or provide the Federal Trade
Commission or the Antitrust Division of the United States Department of Justice
with requested information within a reasonable amount of time), (ii) a court
shall have issued a restraining order ("TRO") or an injunction (or a TRO or an
injunction is threatened) preventing the consummation or the Closing of the
transactions contemplated hereby, (iii) IBM does not consent to the transactions
contemplated hereby or to XXX becoming an industry remarketer affiliate of WMT,
(iv) an action shall have been instituted by any Governmental Body seeking to
prevent consummation of or seeking material damages in connection with the
transactions contemplated hereby and such action continues to be outstanding,
(v) if such termination occurs and is based on an inaccuracy in the
representation or warranty of the party who would otherwise be obligated to pay
such Termination Fee which have not been waived if the representations and
warranties subject to such inaccuracy were true and correct in all material
respects as of the date of this Agreement, (vi) failure to obtain any material
third-party approval consent, waiver or permit necessary for the consummation of
the transactions contemplated by this Agreement (unless the failure is due to a
failure by either party to take some reasonable action), (vii) the failure to
obtain a release for Stockholder 1 from all material obligations, liabilities,
guarantees and duties with respect to the Guarantees unless such failure is due
to a failure by either party to take some reasonable action or (viii) the
financing is obtained or obtainable but cannot be consummated because the
Stockholders or the Company will not waive the condition set forth in Section
8.2(h).
-66-
12. Miscellaneous.
-------------
12.1 Notices. Except as otherwise set forth herein, all notices given
-------
in connection with this Agreement shall be in writing and shall be delivered
either by personal delivery, by telegram, telex, telecopy or similar facsimile
means, by certified or registered mail, return receipt requested, or by express
courier or delivery service, addressed to the parties hereto at the following
addresses:
Company (before Closing):
Star Management Services, Inc.
000 Xxxx Xxxx
Xxx Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. Xxxxx and Xxxxxxx Xxxxxx Xxxxxxx XX
Fax No.: (000) 000-0000
with a copy to:
Xxx & Xxxxx Incorporated
000 X. Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
Xxxxxx X. Xxxxx, Esq.
Fax No.: (000) 000-0000
Stockholder 1:
Xxxxxx X. Xxxxx
0 Xxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxx 00000
Fax No.: (000) 000-0000
Stockholder 2:
Carlton Xxxxxx Xxxxxxx XX
00 Xxxxxxxxx Xxx
Xxx Xxxxxxx, Xxxxx 00000
Fax No.: (000) 000-0000
Company (after Closing):
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: P. Xxxxx Xxxxx
Fax No.: (000) 000-0000
-67-
WMT:
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: P. Xxxxx Xxxxx
Fax No.: (000) 000-0000
with a copy to:
Pillsbury Madison & Sutro LLP
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxx del Xxxxx, Esq.
Fax No.: (000) 000-0000
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telex, telecopy or other facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if
handdelivered, sent by express courier or delivery service, or sent by certified
or registered mail, return receipt requested.
12.2 Knowledge. As used in this Agreement, the term "knowledge" shall
---------
mean actual knowledge, the terms "to the Company's knowledge" and "to the
Stockholders' knowledge" shall mean the actual knowledge of the Stockholders and
the term "to WMT's knowledge" shall mean the actual knowledge of P. Xxxxx Xxxxx
and Xxxxx X. Xxxxx.
12.3 Further Assurances. The parties hereto agree to furnish upon
------------------
request to each other such further information, to execute and deliver to each
other such other documents, and to do such other acts and things, all as the
other party hereto may at any time reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to herein.
12.4 Waiver. The rights and remedies of the parties to this Agreement
------
are cumulative and not alternative. Neither the failure nor any delay on the
part of any party in exercising any right, power or privilege under this
Agreement or the documents referred to herein shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law, no
claim or right arising out of this Agreement or the documents referred to herein
can be discharged by one party hereto, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party
hereto; no waiver which may be given by a party hereto shall be applicable
except in the specific instance for which it is given; and no notice to or
demand on one party hereto shall be deemed to be a waiver of any obligation of
such party or
-68-
of the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to herein.
12.5 Entire Agreement and Modification. This Agreement, including all
---------------------------------
exhibits and schedules hereto, and Sections A and C4 of the Confidentiality
Agreement are intended by the parties to this Agreement as a final expression of
their agreement with respect to the subject matter hereof, and are intended as a
complete and exclusive statement of the terms and conditions of that agreement.
This Agreement may not be modified, rescinded or terminated orally, and no
modification, rescission, termination or attempted waiver of any of the
provisions hereof (including this Section 12.5) shall be valid unless in writing
and signed by the party against whom the same is sought to be enforced.
12.6 Assignments, Successors and No Third-Party Rights. This Agreement
-------------------------------------------------
shall apply to and be binding in all respect upon, and shall inure to the
benefit of, the successors and assigns of the parties hereto. Nothing expressed
or referred to in this Agreement is intended or shall be construed to give any
person or entity other than the parties to this Agreement any legal or equitable
right, remedy or claim under or with respect to this Agreement, or any provision
hereof, it being the intention of the parties hereto that this Agreement and all
of its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement, their successors and assigns, and for the benefit of
no other person or entity. The parties expressly agree that either of the
Stockholders may assign, transfer and convey their rights to receive any portion
of the Purchase Price (including without limitation Installment Payments and
Earn-out Payments) to a spouse or relative (such relative being related to the
Stockholder in the second degree), or to a trust, corporation, partnership or
other entity in which all of the beneficial interest is held by or for such
person, persons or Stockholder; provided, however, such assignment shall not
affect WMT's rights with respect to set-offs against the Installment Payments or
Earn-out Payments pursuant to Section 9.3.
12.7 Section Headings, Construction. The headings of articles and
------------------------------
sections contained in this Agreement are provided for convenience only. They
form no part of this Agreement and shall not affect its construction or
interpretation. All references to articles and sections in this Agreement refer
to the corresponding articles and sections of this Agreement. All words used
herein shall be construed to be of such gender or number as the circumstances
require. Unless otherwise specifically noted, the words "herein," "hereof,"
"hereby," "hereinabove," "hereinbelow," "hereunder," and words of similar
import, refer to this Agreement as a whole and not to any particular section,
subsection, paragraph, clause or other subdivision hereof.
12.8 Time of Essence. With regard to all time periods set forth or
---------------
referred to in this Agreement, time is of the essence.
12.9 Governing Law. This Agreement shall be governed by, and construed
-------------
under, the laws of the State of Delaware without regard to conflicts of laws,
all rights and remedies being governed by such laws.
-69-
12.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original copy of this
Agreement, and all of which, when taken together, shall be deemed to constitute
but one and the same agreement.
-70-
IN WITNESS WHEREOF, WMT, the Stockholders and the Company, by their
duly authorized officers, have each caused this Agreement to be executed as of
the date first written above.
COMPANY
-------
STAR MANAGEMENT SERVICES, INC.
-----------------------------------------
By /s/ XXXXXX X. XXXXX
--------------------------------------
Xxxxxx X. Xxxxx
Its President and Chief Executive Officer
-------------------------------------
/s/ XXXXXX X. XXXXX
-----------------------------------------
Xxxxxx X. Xxxxx
/s/ CARLTON XXXXXX XXXXXXX XX
-----------------------------------------
Carlton Xxxxxx Xxxxxxx XX
WMT
---
WESTERN MICRO TECHNOLOGY, INC.
By /s/ P. XXXXX XXXXX
--------------------------------------
P. Xxxxx Xxxxx
Its President and Chief Executive Officer
-------------------------------------
-71-
EXHIBIT C-1
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
_____________, 1997
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
00 Xxxxxxxxx Xxx
Xxx Xxxxxxx, XX 00000
Dear Xx. Xxxxxxx:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. ("Company").
In consideration of the mutual covenants and promises made in this letter
agreement, you and the Company agree as follows:
1. Employment as President and CEO of IBM Sub and Service as a Director.
--------------------------------------------------------------------
(a) Commencing as of __________, 1997 (the "Effective Date"), you will
serve as the President and Chief Executive Officer of the Distribution Business
(as hereinafter defined) of the Company ("IBM Sub"). You will be given such
duties, responsibilities and authority as are appropriate to such position.
Throughout the term of your employment, you will devote such business time and
energies to the business and affairs of the Company as are reasonably needed to
carry out your duties and responsibilities as President and Chief Executive
Officer of IBM Sub, subject to the overall supervision and direction of the
President and Chief Executive Officer of the Company (who shall act as Chairman
of the Board of Directors of IBM Sub (the "IBM Sub Board")) and the IBM Sub
Board. During the term of your employment, you shall be based in the principal
offices of IBM Sub in San Antonio, Texas, and shall not be required to be based
anywhere other than IBM Sub's headquarters in San Antonio, Texas ("IBM Sub
Headquarters") except for travel as reasonably required in the performance of
your duties and responsibilities hereunder. The term "Distribution Business"
shall mean the distribution of Products by IBM Sub and in some cases, the
Company and its affiliates, to end-users or resellers. The term "Products" shall
mean the (i) AS/400, RS/6000 and S/390 and any other IBM systems replacing or
designed to service or target the same markets as such systems whether sold by
IBM Sub or the Company and its affiliates, provided, that in
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 2
no event shall products purchased from the IBM PC company be included in this
clause (i); (ii) peripherals (other than disk drives) of International Business
Machines, Inc. ("IBM") or non-IBM manufacturers (including, without limitation,
Telxon and Motorola) designed to attach to the systems described in clause (i)
sold by IBM Sub or the Company and its affiliates; (iii) any services relating
to the systems and peripherals described in clause (i) or (ii) performed by IBM
Sub or the Company and its affiliates; (iv) any other non-IBM systems which are
sold by IBM Sub and which replace or are designed to service or target the same
markets as the systems described in clause (i); (v) any peripherals which are
sold by IBM Sub and are designed to attach to the systems described in clause
(iv), and (vi) any services which are performed by IBM Sub relating to the
systems and peripherals described in clauses (iv) and (v).
(b) This will also confirm that you have been elected as a member of the
Board of Directors of the Company and a member of the IBM Sub Board of
Directors. The members of the Company Board (as hereinafter defined) serve, in
accordance with the Company's bylaws and applicable corporate law and may be
removed by the shareholders or fail to be elected by the shareholders at the
annual meeting or any meeting called for the purpose of electing directors.
Therefore, we cannot give you any absolute assurance that you will continue to
serve on the Company Board during the entire term of your employment hereunder.
The Company will undertake best efforts, however, to include you on its slate of
directors presented to its shareholders for election in conjunction with any
proxy statement presented to its shareholders during the term of your employment
hereunder. During the term of your employment hereunder, you will be maintained
as a member of the IBM Sub Board. Should, after payment in full of the
Installment Payments, Earn-Out Payments and Promissory Notes (as defined in the
Stock Purchase Agreement, dated June __, 1997, by and among the Company, Star
Management Services, Inc., Xxxxxx X. Xxxxx and Carlton Xxxxxx Xxxxxxx XX (the
"Stock Purchase Agreement")), your employment be terminated for Cause (as
defined below) or you resign your employment for any reason, you shall and
hereby agree to immediately resign from the Company Board and IBM Sub Board and
shall be deemed, by execution of this Agreement, to have irrevocably tendered
your resignation from the Company Board and IBM Sub Board conditioned, and
effective, upon the occurrence of either such event.
2. Term. Your employment with the Company will be "at will." Either you or
----
the Company may terminate your employment at any time and for any reason, with
or without cause and with or without notice, in each case subject to the terms
and provisions of paragraph 7 below.
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 3
3. Salary. For your services to the Company as the President and Chief
------
Executive Officer of IBM Sub, you will be paid a base salary, payable
semi-monthly during each month of employment, at an annualized rate of Two
Hundred Seventy Thousand Dollars ($270,000) per year.
4. Incentive Payment. The Company shall pay you a quarterly incentive
-----------------
payment of Thirty Two Thousand Five Hundred Dollars ($32,500) conditioned upon
the attainment of certain quarterly performance criteria related to return on
assets of the IBM Sub, as specified by the Board of Directors of the Company.
Such payments shall be based on your performance during each calendar quarter
and shall be paid within thirty (30) days of the end of each such quarter.
5. Employee Benefit Programs. During the term of your employment, you will
-------------------------
be entitled to participate in all employee benefit programs of the Company at
the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company. The Company shall lease a car for you, suitable to your position
and shall reimburse you for the reasonable expenses of maintaining the car. The
monthly expenses for leasing said vehicle shall not exceed $850.00, without the
consent of the Company. The Company shall reimburse you for the monthly dues
paid by you with respect to your membership in the Sonterra Country Club, in the
approximate amount of $275 per month. The Company shall reimburse you, in
accordance with the Company's policy in effect from time to time, for all
travel, entertainment and other business expenses incurred by you in the
performance of your duties and responsibilities hereunder.
6. Options. On the Effective Date, the Company will grant and issue to you
-------
options to purchase ("Options"), at an exercise bid price equal to the closing
price of the Company's Common Stock as reported by the Nasdaq National Market on
the business day immediately preceding the Effective Date ("Closing Price"):
(a) 40,000 shares of the Company's Common Stock or, if the Closing
Price is in excess of $10 per share,
(b) that number of shares of the Company's Common Stock equal to:
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 4
10 x 40,000
------
20 - P
where "P" equals the lesser of $13.34 or the Closing Price,
provided, that the Company shall not grant you options to purchase more than
60,000 shares of the Company's Common Stock. The Options shall be subject to the
terms and conditions contained in the Company's standard form of nonstatutory
stock option agreement attached hereto as Exhibit A, to be executed by and
between you and the Company (each, an "Option Agreement"). Notwithstanding the
vesting schedule set forth in any such Option Agreement (which shall provide for
vesting over four (4) years), your Options will become fully vested and
immediately exercisable in the event a Change in Control of the Company occurs
(as such term is defined in the Option Agreement) while you are serving as an
employee of the Company. Notwithstanding anything to the contrary herein, no
option shall be exercisable for a fractional share and the number of shares for
which an Option Agreement is exercisable shall in all cases be rounded off to
the nearest whole integer.
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate your
---------
employment for "Cause," subject to the notice requirement and right to cure set
forth below. "Cause" will exist in the event you are convicted of a felony or,
in carrying out your duties, you are guilty of gross negligence or gross
misconduct resulting, in either case, in material harm to the Company, IBM Sub
or IBM Sub's relationship with IBM. In the event that the Company desires to
terminate your employment for Cause, it shall be required to provide written
notice to you of the act or omission complained of, giving reasonably specific
details and to the extent such act or omission may be cured or corrected within
a period of sixty (60) calendar days, you shall be given a period of sixty (60)
calendar days in which to cure or correct such act or omission, in which case if
you cure or correct the specified act or omission within such sixty (60)
calendar day period, the right to terminate for Cause with respect of such act
or omission shall be extinguished. You may, at the option of the Company and
without the Company or IBM Sub thereby incurring any liability to you, be
suspended with pay during the pendency of such cure period until the earlier of
such time as such act or omission is cured or corrected or the end of such sixty
(60) calendar day period. In the event your employment is properly terminated
for Cause in accordance with this Section 7(a), the Company shall pay you any
unpaid salary and accrued and unpaid bonus due you pursuant to paragraphs 3 and
4
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 5
above through the date of termination and you will be entitled to no other
compensation from the Company pursuant to this Agreement.
(b) Without Cause. Following the Effective Date, the Company may terminate
-------------
your employment without Cause. In such event, (i) the Company shall pay you any
unpaid salary and accrued and unpaid bonus due you pursuant to paragraphs 3 and
4 above through the date of termination, (ii) the Company shall continue to pay
you your base salary for a period of nine (9) months following your termination
of employment, paid to you in accordance with the schedule set forth in
paragraph 3 above, and (iii) subject to any employee contribution applicable to
you on the date of termination, for a nine (9) month period following the date
of termination, you shall be entitled to continue participation, and the Company
shall continue to pay for the cost of your participation, in the Company's group
medical and dental insurance plans, provided that you are entitled to continue
such participation under applicable state and federal law and plan terms. It
shall be a condition precedent of payment to you of such consideration pursuant
to the preceding two sentences that you execute a full and complete release of
the Company, each of its subsidiaries and their respective past, present and
future officers, directors, employees, consultants, attorneys, agents and
shareholders, in form and substance reasonably acceptable to the Company and its
counsel, of any claims you may have against any of them, to the extent such
claims arise from your employment hereunder (the "Release"); provided, however,
in no event shall you be required to release any rights to indemnification under
the charter documents or bylaws of the Company or under any indemnification
agreement to which you are a party.
(c) Good Reason. At any time after the Effective Date, you may, with Good
-----------
Reason (as hereinafter defined) and subject to the notice requirement and right
to cure set forth below, terminate your employment hereunder. In such event, (i)
the Company shall pay you any unpaid salary and accrued and unpaid bonus due you
pursuant to paragraphs 3 and 4 above through the date of termination, (ii) the
Company shall continue to pay you your base salary for a period of nine (9)
months following your termination of employment, paid to you in accordance with
the schedule set forth in paragraph 3 above, and (iii) subject to any employee
contribution applicable to you on the date of termination, for a nine (9) month
period following the date of termination, you shall be entitled to continue
participation, and the Company shall continue to pay for the cost of your
participation, in the Company's group medical and dental insurance plans,
provided that you are entitled to continue such participation under applicable
state and federal law and plan terms. In the event you desire to terminate your
employment for Good Reason, you shall provide written notice to the Company of
the acts or omissions complained of, giving reasonably specific details, and to
the extent such may be cured or corrected, the
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 6
Company shall be given a period of sixty (60) calendar days in which to cure or
correct such act or omission, in which event your right to terminate for Cause
in respect of such acts or omissions shall be stayed during the cure period and
if such acts or omissions are cured during such period, it shall be
extinguished.
The following shall constitute "Good Reason" for termination by you:
(A) The assignment to you by the CEO of the Company with the consent
or acquiescence (explicit or implicit) of the Board of Directors of the Company
(the "Company Board") after written notice by you to them of your objections to
such assignment or alteration, of any duties, responsibilities or obligations
materially inconsistent with your position as the President and Chief Executive
Officer of IBM Sub, or a substantially adverse alteration in the nature or
status of your responsibilities, duties or authority;
(B) The failure of the Company to provide you with salary and
incentive payments in accordance with the terms of paragraphs 3 and 4 hereof;
(C) The relocation of IBM Sub's principal offices to a location
outside San Antonio, Texas or the Company's requiring you to be based anywhere
other than San Antonio, Texas;
(D) An instruction by the CEO of the Company, with the approval or
knowing acquiescence (explicit or implicit) of the Company's Board after notice
by you to them of your objections to such instruction and the basis therefor,
that you knowingly commit any act or omission which would result in a violation
by you of, or failure to comply with, any statute, order, rule, ordinance or
regulation applicable to you.
(d) Voluntary Termination. You may terminate your employment with the
---------------------
Company of your own volition and without Good Reason. Upon such voluntary
termination of employment (other than for Good Reason), the Company shall pay
you any unpaid salary and accrued and unpaid bonus due you pursuant to
paragraphs 3 and 4 above through the date of termination and you will be
entitled to no other compensation from the Company pursuant to this Agreement.
(e) Death or Disability. If your employment is terminated due to death or
-------------------
disability, the Company shall pay you, or your estate, as the case may be, any
unpaid salary and accrued and unpaid bonus due you pursuant to paragraphs 3 and
4 above through the date of termination.
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 7
8. Indemnification. The Company shall enter into its standard form of
---------------
directors' and officers indemnification agreement with you in the form of
Exhibit B. Such indemnification agreement shall be amended from time to time if,
while you remain an employee or director of the Company, the Company's standard
form of directors' or officers' indemnification agreement is modified in the
future in connection with the reincorporation of the Company into Delaware or
otherwise as necessary to provide for broader indemnity.
9. Assignability; Binding Nature. Commencing on the Effective Date, this
-----------------------------
letter agreement will be binding upon you and the Company and your respective
successors, heirs, and assigns. This letter agreement may not be assigned by you
except that your rights to compensation and benefits hereunder, subject to the
limitations of this letter agreement, may be transferred by will or operation of
law. No rights or obligations of the Company under this letter agreement may be
assigned or transferred except by operation of law in the event of a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation of all or substantially all of the assets of the Company provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and assumes the Company's obligations under this
letter agreement contractually or as a matter of law.
10. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of the State of Delaware applicable to contracts entered into by and
between residents of such state and that are to be performed entirely within
such state. Any controversy or claim relating to this letter agreement or any
breach thereof (including, without limitation, any controversy or claim as to
whether a resignation is for Good Reason or a termination is with or without
Cause), and any claims you may have against the Company or any officer, director
or employee of the Company or arising from or relating to your employment with
the Company, will be settled solely and finally by arbitration in accordance
with the terms and provisions of Section 10 of the Stock Purchase Agreement. The
parties hereby agree that during the pendency of any arbitration proceeding
involving the appropriate characterization of such acts or omissions, the
payment obligations created by such provisions shall be stayed.
11. Withholding. Anything to the contrary notwithstanding, following the
-----------
Effective Date all payments made by the Company hereunder to you or your estate
or beneficiaries will be subject to tax withholding pursuant to any applicable
laws or regulations. In lieu of withholding, the Company may, in its sole
discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 8
all requirements of law affecting its responsibilities to withhold such taxes
have been satisfied.
12. Entire Agreement. Except as otherwise specifically provided herein and
----------------
the Stock Purchase Agreement, this letter agreement contains all of the legally
binding understandings and agreements between you and the Company pertaining to
the subject matter of this letter agreement and supersedes all such agreements,
whether oral or in writing, previously entered into between the parties.
13. Miscellaneous. No provision of this letter agreement may be amended or
-------------
waived unless such amendment or waiver is agreed to by you and the Company Board
in writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
In the event any portion of this letter agreement is determined to be invalid or
unenforceable for any reason, the remaining portions shall be unaffected thereby
and will remain in full force and effect to the fullest extent permitted by law.
This letter agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall constitute
on and the same instrument.
Xx. Xxxxxxx Xxxxxx Xxxxxxx XX
__________________, 1997
Page 9
Please acknowledge your acceptance and understanding of this letter
agreement by signing and returning it to me by 5:00 p.m. on __________,1997. A
copy of the signed letter agreement will be sent to you for your records.
Sincerely,
WESTERN MICRO TECHNOLOGY, INC.
By:_________________________________________
Title:______________________________________
ACKNOWLEDGED AND AGREED:
_________________________________
Carlton Xxxxxx Xxxxxxx XX
Dated: _____________, 1997
EXHIBIT A
---------
FORM OF NONSTATUTORY STOCK OPTION AGREEMENT
-------------------------------------------
A-1
EXHIBIT B
---------
FORM OF INDEMNIFICATION AGREEMENT
---------------------------------
B-1
EXHIBIT A
WESTERN MICRO TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Western Micro Technology, Inc., a California corporation (the "Company"),
hereby grants an option to purchase Shares of its common stock to the optionee
named below. The terms and conditions of the option are set forth in this
Nonstatutory Stock Option Agreement and in the Company's 1994 Stock Option Plan,
as amended and restated effective as of August 15, 1996 (the "Plan"). Any rights
optionee may have are subject to the terms of this Nonstatutory Stock Option
Agreement and the terms of the Plan, a copy of which is attached.
Date of Option Grant:
Name of Optionee:
Optionee's Social Security Number: - -
--------------------------------------------
Number of Shares:
Exercise Price Per Share: $
----------------------------------------------------
* * * * *
By signing this cover sheet, you agree to all of the terms and conditions
described in the attached Agreement and in the Plan.
WESTERN MICRO TECHNOLOGY, INC.
-----------------------------------
Signature
-----------------------------------
Date
OPTIONEE:
--------
-----------------------------------
Signature
-----------------------------------
Date
-1-
WESTERN MICRO TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Nonstatutory Stock This option is not intended to be an incentive stock
Option option under section 422 of the Internal Revenue Code
and will be interpreted accordingly.
Vesting/Exercisability Your right to exercise this option vests at the rate
of twenty-five percent (25%) upon each one (1) year
anniversary of the Date of Option Grant. In addition,
your right to exercise this option shall vest in full
if there is a Change in Control of the Company.
However, no Shares will vest after your Company
Service has terminated for any reason.
Term Your option will expire at the close of business at
Company headquarters on the day before the 10th
anniversary of the Date of Option Grant, as shown on
the cover sheet. (It will expire earlier if your
Company Service terminates, as described below.)
Termination If your Service as an Employee of the Company (or any
subsidiary) terminates for any reason except death or
disability, then your option will expire at the close
of business at Company headquarters on the 90th day
after your termination date.
Death If you die as an Employee of the Company (or any
subsidiary), then your option will expire at the
close of business at Company headquarters on the date
twelve (12) months after the date of death. During
that twelve (12) month period, your estate or heirs
may exercise the vested portion of your option.
Disability If your Service as an Employee of the Company (or any
subsidiary) terminates because of your disability,
then your option will expire at the close of business
at Company headquarters on the date twelve (12)
months after your termination date.
"Disability" means that you are unable to engage in
any substantial gainful activity by reason of any
medically determinable physical or mental impairment
which can be expected to result in death or which has
lasted, or can be expected to last, for a continuous
period of not less than twelve (12) months.
Leaves of Absence For purposes of this option, your Service does not
terminate when you go on a bona fide leave of absence
that was approved by the Company in writing, if the
terms of the leave provide for con-
-2-
tinued service crediting, or when continued service
crediting is required by applicable law. However,
your Service terminates when the approved leave ends
unless you immediately return to active work.
The Company determines which leaves count for this
purpose, and when your Service terminates for all
purposes under the Plan.
Restrictions on The Company will not permit you to exercise this
Exercise option if the issuance of Shares at that time would
violate any law or regulation.
Notice of Exercise When you wish to exercise this option, you must
notify the Company by filing the Company's "Notice of
Exercise" form at the address given on the form. Your
notice must specify how many Shares you wish to
purchase. Your notice must also specify how your
Shares should be registered (whether in your name
only, or in your and your spouse's names as community
property or as joint tenants with right of
survivorship). The notice will be effective when it
is received by the Company.
If someone else wants to exercise this option after
your death, that person must prove to the Company's
satisfaction that he or she is entitled to do so.
Form of Payment When you submit your notice of exercise, you must
include payment of the option price for the Shares
you are purchasing. Payment may be made in one (or a
combination) of the following forms:
o Your personal check, a cashier's check or a money
order.
o Common Shares which have already been owned by you
for more than six (6) months and which are
surrendered to the Company. The value of the
Shares, determined as of the effective date of the
option exercise, will be applied to the option
price.
o By delivery (on a form prescribed by the
Committee) of an irrevocable direction to a
securities broker to sell Shares and to deliver
all or part of the sale proceeds to the Company in
payment of the aggregate Exercise Price.
Withholding Taxes You will not be allowed to exercise this option
unless you make acceptable arrangements to pay any
withholding or other taxes that may be due as a
result of the option exercise or sale of the option
shares.
-3-
Restrictions on You may not sell any option Shares at a time when
Resale applicable laws, regulations or Company or
underwriter trading policies prohibit a sale.
Transfer of Option Prior to your death, only you may exercise this
option. You cannot transfer or assign this option.
For instance, you may not sell this option or use it
as security for a loan. If you attempt to do any of
these things, this option will immediately become
invalid. You may, however, dispose of this option in
your will.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your spouse, nor is the
Company obligated to recognize your spouse's interest
in your option in any other way.
Retention Rights Neither this option nor the Plan gives you the right
to be retained by the Company (or any subsidiaries)
in any capacity. The Company (and any subsidiaries)
reserves the right to terminate your Service at any
time and for any reason.
Shareholder Rights You, your estate and/or your heirs, have no rights as
a shareholder of the Company until a certificate for
your option Shares has been issued. No adjustments
are made for dividends or other rights if the
applicable record date occurs before your stock
certificate is issued, except as described in the
Plan.
Adjustments In the event of a stock split, a stock dividend or a
similar change in the Company stock, the number of
Shares covered by this option and the exercise price
per share may be adjusted pursuant to the Plan. Your
option shall be subject to the terms of the agreement
of merger, liquidation or reorganization in the event
the Company is subject to such corporate activity.
Any fractional number of shares available under the
option shall be rounded to the nearest whole number.
Applicable Law This option will be interpreted and enforced under
the laws of the State of California.
The Plan and Other The text of the Plan is incorporated in this option
Agreements by reference. Certain capitalized terms used in this
option are defined in the Plan.
This Nonstatutory Stock Option Agreement and the Plan
constitute the entire understanding between you and
the Company regarding this option. Any prior
agreements, commitments or negotiations concerning
this option are superseded.
-4-
EXHIBIT B
---------
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this _____
day of ___________ 199_ by and between WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation (the "Company"), and ___________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
-----------------------
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval
-1-
shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful. The termination of any action or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself, create a presumption that (i) Indemnitee
did not act in good faith and in a manner which Indemnitee reasonably believed
to be in the best interests of the Company, or (ii) with respect to any criminal
action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings by or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement, in each case to the extent actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the best interests of the Company and
its shareholders.
Provided, however, that no indemnification shall be made for any of the
following:
(i) In respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Company in the
performance of Indemnitee's duty to the Company and its shareholders,
unless and only to the extent that the court in which such proceeding
is or was pending shall determine upon application that, in view of all
the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent the
court shall determine;
(ii) Of amounts paid in settling or otherwise
disposing of a pending action without court approval;
or
-2-
(iii) Of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits in defense of any proceeding referred to in
Subsections (a) and (b) of this Section 2 or in the defense of any claim, issue
or matter therein, Indemnitee shall be indemnified against expenses actually and
reasonably incurred by Indemnitee in connection therewith.
(d) Determination of Conduct. Except as provided in Subsection (c) of
------------------------
this Section 1, any indemnification under this Agreement shall be made by the
Company only if authorized in the specific case, upon a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct set forth in Subsections (a) and (b)
of this Section 1, by any of the following:
(i) A majority vote of a quorum consisting of
directors who are not parties to such proceeding;
(ii) If such quorum of directors is not obtain-
able, by independent legal counsel in a written
opinion;
(iii) Approval by the shareholders with the
shares owned by Indemnitee not being entitled to vote
thereon; or
(iv) The court in which such proceeding is or was pending upon
application made by the Company or Indemnitee or the attorney or other
person rendering services in connection with the defense, whether or
not such application by Indemnitee, attorney, or other person is
opposed by the Company.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company. Notwithstanding the foregoing, the
Company may, but shall not be required to, advance expenses to Indemnitee in
connection with the investigation, defense, settlement or appeal of any civil or
criminal
-3-
action or proceeding described in Section 8. For purposes of this Section 2(a),
the Company shall determine whether any expenses are incurred in connection with
an investigation, defense, settlement or appeal of any civil or criminal action
or proceeding described in Section 8 by using the methods set forth in Section
1(d).
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
--------------------------------
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to Indemnitee). Notice shall
be deemed received three business days after the date postmarked if sent by
domestic certified or registered mail, properly addressed; otherwise notice
shall be deemed received when such notice shall actually be received by the
Company. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification provided for in Section 1 shall be
---------
made no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's Articles of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not at any time thereafter, bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company, and Indemnitee shall be entitled to receive interim payments of
expenses pursuant to Subsection 2(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) to have made
a determination that indemnification of Indemnitee is proper in the circum-
-4-
stances because Indemnitee has met the applicable standard of conduct required
by applicable law, nor an actual determination by the Company (including its
Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its shareholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of a
------------------
claim pursuant to Section 2(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 2(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written notice
of its election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company has
not, in fact, employed counsel to assume the defense of such proceeding, then
the fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically authorized by
the other provisions of this Agreement, the Company's Articles of Incorporation,
the Company's Bylaws or by statute. In the event of any change, after the date
of this Agreement, in any applicable law, statute or rule which expands the
right of a California corporation to indemnify a member of its Board of
Directors or an officer, such changes shall be, ipso facto, within the purview
----------
of Indemnitee's rights and Company's obligations, under this
-5-
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a California corporation to indemnify a member of its
Board of Directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested directors, the California General
Corporation Law, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action or
other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. Directors' and Officers' Liability Insurance. The Company shall,
--------------------------------------------
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to
-6-
provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
7. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify or advance expenses to Indemnitee
-------------
for any acts or omissions or transactions from which a director may not
be relieved of liability under the California General Corporation Law;
or
(b) Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to Indemnitee with respect to proceedings or claims initiated
or brought voluntarily by Indemnitee and not by way of defense, except
with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required under Section 317 of the California General
Corporation Law, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect
-7-
to any proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that each of
the material assertions made by Indemnitee in such proceeding was not
made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to Indemnitee by an insurance
carrier under a policy of directors' and officers' liability insurance
maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
--------------------------
expenses and the payment of profits arising from the purchase and sale
by Indemnitee of securities in violation of Section 16(b) of the
Securities and Exchange Act of 1934, as amended, or any similar
successor statute.
9. Effectiveness of Agreement. To the extent that the indemnification
--------------------------
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the California General Corporation
Law, such provisions shall not be effective unless and until the Company's
Articles of Incorporation authorize such additional rights of indemnification.
In all other respects, the balance of this Agreement shall be effective as of
the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee or other agent of the Company, or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, at the time such act or
omission occurred.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
also include any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that if Indemnitee is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with
-8-
respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, reference to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given (a) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (b) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection
-9-
with any action or proceeding which arises out of or relates to this Agreement
and agree that any action instituted under this Agreement shall be brought only
in the state courts of the State of California.
16. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed in accordance with the laws of the State of California as
applied to contracts between California residents entered into and to be
performed entirely within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WESTERN MICRO TECHNOLOGY, INC.
By: ____________________________________
President
Address: 000 X. Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx
AGREED TO AND ACCEPTED:
INDEMNITEE:
______________________________
Name
______________________________
______________________________
(address)
-10-
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT C-2
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
__________, 1997
Xx. Xxxxx X. Xxxxxxx
Star Management Services, Inc.
000 Xxxx Xxxx
Xxx Xxxxxxx, XX 00000-0000
Dear Xx. Xxxxxxx:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. (the "Company").
In consideration of the mutual covenants and promises made in this
letter agreement, you and the Company agree as follows:
1. Employment. Commencing as of the "Effective Date" (as hereinafter
----------
defined), you will serve as the Vice President and Chief Financial Officer of
the midrange IBM business of the Company ("IBM Sub"). You will be given such
duties, responsibilities and authority as are appropriate to such position.
Throughout the term of your employment, you will devote such business time and
energies to the business and affairs of the Company as needed to carry out your
duties and responsibilities as Vice President and Chief Financial Officer of IBM
Sub, subject to the overall supervision and direction of the President and Chief
Executive Officer of IBM Sub, the Chief Financial Officer of the Company and the
board of directors of the Company (the "Board").
The term "Effective Date" shall mean the date of the consummation of
the transactions contemplated by the Stock Purchase Agreement, of even date
herewith, by and among the Company, Star Management Services, Inc., Xxxxxx X.
Xxxxx and Carlton Xxxxxx Xxxxxxx XX (the "Stock Purchase Agreement"). In the
event that the transactions contemplated by the Stock Purchase Agreement are not
consummated, this letter agreement shall be null and void and of no further
effect, with neither party hereto having any obligation or responsibility
hereunder.
2. Term. [***************************************************
----
**********************************************************************
**********************************************************************
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxxxx
[Date]
Page 2
***********************************************************************
********************************]
3. Salary. For your services to the Company as the Vice President and
------
Chief Financial Officer of IBM Sub, you will be paid a base salary, payable
semi-monthly during each month of employment, at an annualized rate of
[******************************] ($[*******]) per year.
4. Incentive Payment. You will be eligible to receive an incentive
-----------------
payment, payable quarterly, equal to [***************************] ([****]%) of
the [**************************************************************************
*********************************] (as defined in the Stock Purchase Agreement)
for the period commencing on the Effective Date and continuing until December
31, 1997. The incentive payment shall be computed at the end of each calendar
quarter with respect to the net operating income for the quarter then ended, and
shall be paid to you within 30 days of the end of the calendar quarter;
provided, however, that any incentive payment owed to you under this Agreement
(in the event the Effective Date is prior to June 30, 1997) with respect to the
period ending June 30, 1997 shall be paid at the same time as the incentive
payment for the quarter ending September 30, 1997. Notwithstanding the
foregoing, you shall be guaranteed a minimum quarterly incentive payment of
$[******] and you shall be entitled to receive a maximum quarterly incentive
payment of $[******], each of which shall be prorated for any shorter period for
which the incentive payment is computed.
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of the Company
at the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company.
6. Options. On the Effective Date, the Company will grant and issue to
-------
you options to purchase (the "Options"), at an exercise price equal to the
closing price of the Company's Common Stock as reported by the Nasdaq National
Market on the business day immediately preceding the Effective Date (the
"Closing Price"):
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxxxx
[Date]
Page 3
(i) [******] shares of the Company's Common Stock or, if the Closing
Price is in excess of $[*****] per share,
(ii) that number of shares of the Company's Common Stock equal to:
[****************
*******]
where "P" equals the lesser of $[*****] or the Closing Price,
provided, that the Company shall not grant you options to purchase more than
[******] shares of the Company's Common Stock. The Options shall be subject to
the terms and conditions contained in the Company's standard form of
nonstatutory stock option agreement to be executed by and between you and the
Company (the "Option Agreement"). Notwithstanding the vesting schedule set forth
in the Option Agreement, your Options will become fully vested and immediately
exercisable in the event of a "change in control" of the Company (as such term
is defined in the Option Agreement).
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate
---------
your employment for "Cause." "Cause" will exist in the event you are convicted
of a felony or, in carrying out your duties, you are guilty of gross negligence
or gross misconduct resulting, in either case, in material harm to the Company.
In the event your employment is terminated for Cause you will receive any unpaid
salary and incentive payment due you pursuant to paragraphs 3 and 4 above
through the date of termination and you will be entitled to no other
compensation from the Company.
(b) Without Cause. Following the Effective Date, the Company may
-------------
terminate your employment without Cause. In such event, (i) you will continue to
receive your base salary for a period of six (6) months following your
termination of employment, paid to you in accordance with the schedule set forth
in paragraph 3 above, (ii) within thirty (30) days of such termination of
employment and in lieu of any incentive payment, you will receive an additional
lump-sum amount of $[******], and (iii) subject to payment (and continued
payment) of any employee contribution applicable to you on the date of
termination, for a six (6) month period following the date of termination, you
will
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxxxx
[Date]
Page 4
be entitled to continue participation, and the Company will continue to pay for
the cost of your participation, in the Company's group medical and dental
insurance plans, provided that you are entitled to continue such participation
under the terms of the respective plans and under applicable federal and state
law. It shall be a condition precedent to payment to you of such consideration
pursuant to the preceding sentence that you execute a full and complete release
of the Company, each of its subsidiaries, any predecessor companies, and their
respective past, present and future officers, directors, employees, consultants,
attorneys, agents and shareholders, in form and substance reasonably acceptable
to the Company and its counsel, of any and all claims you may have as a
consequence of your employment and the termination thereof by the Company.
(c) Voluntary Termination. In the event you terminate your employment
---------------------
with the Company of your own volition, such termination will have the same
consequences as a termination for Cause under subparagraph (a) above.
8. Assignability; Binding Nature. Commencing on the Effective Date,
-----------------------------
this letter agreement will be binding upon you and the Company and your
respective successors, heirs, and assigns. This letter agreement may not be
assigned by you except that your rights to compensation and benefits hereunder,
subject to the limitations of this letter agreement, may be transferred by will
or operation of law. No rights or obligations of the Company under this letter
agreement may be assigned or transferred except by operation of law in the event
of a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and assumes the Company's
obligations under this letter agreement contractually or as a matter of law.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of the State of Texas applicable to contracts entered into by and
between residents of such state and that are to be performed entirely within
such state. Any controversy or claim relating to this letter agreement or any
breach thereof, and any claims you may have against the Company or any officer,
director or employee of the Company or arising from or relating to your
employment with the Company, will be settled solely and finally by arbitration
in accordance with the rules of the American Arbitration Association ("AAA")
then in effect in the State of Texas, and judgment upon such
Xx. Xxxxx X. Xxxxxxx
[Date]
Page 5
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitrator may provide that the cost of the
arbitration (including reasonable legal fees) incurred by you or the Company
will be borne by the non-prevailing party.
10. Withholding. Anything to the contrary notwithstanding, following
-----------
the Effective Date all payments made by the Company hereunder to you or your
estate or beneficiaries will be subject to tax withholding pursuant to any
applicable laws or regulations. In lieu of withholding, the Company may, in its
sole discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided herein,
----------------
this letter agreement contains all of the legally binding understandings and
agreements between you and the Company pertaining to the subject matter of this
letter agreement and supersedes all such agreements, whether oral or in writing,
previously entered into between the parties.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the Board in
writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
In the event any portion of this letter agreement is determined to be invalid or
unenforceable for any reason, the remaining portions shall be unaffected thereby
and will remain in full force and effect to the fullest extent permitted by law.
Please acknowledge your acceptance and understanding of
this letter agreement by signing and returning it to me by
Xx. Xxxxx X. Xxxxxxx
[Date]
Page 6
5:00 p.m. on __________, 1997. A copy of the signed letter
agreement will be sent to you for your records.
Sincerely,
______________________________________________
ACKNOWLEDGED AND AGREED:
_______________________________
Xxxxx X. Xxxxxxx
Dated: _____________, 1997
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT C-3
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
__________, 1997
Xx. Xxxxx X. Xxxxx
Star Management Services, Inc.
000 Xxxx Xxxx
Xxx Xxxxxxx, XX 00000-0000
Dear Xx. Xxxxx:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. (the "Company").
In consideration of the mutual covenants and promises made in this
letter agreement, you and the Company agree as follows:
1. Employment. Commencing as of the "Effective Date" (as hereinafter
----------
defined), you will serve as the Vice President of Marketing of the midrange IBM
business of the Company ("IBM Sub"). You will be given such duties,
responsibilities and authority as are appropriate to such position. Throughout
the term of your employment, you will devote such business time and energies to
the business and affairs of the Company as needed to carry out your duties and
responsibilities as Vice President of Marketing of IBM Sub, subject to the
overall supervision and direction of the President and Chief Executive Officer
of IBM Sub, the President and Chief Executive Officer of the Company and the
board of directors of the Company (the "Board").
The term "Effective Date" shall mean the date of the consummation of
the transactions contemplated by the Stock Purchase Agreement, of even date
herewith, by and among the Company, Star Management Services, Inc., Xxxxxx X.
Xxxxx and Carlton Xxxxxx Xxxxxxx XX (the "Stock Purchase Agreement"). In the
event that the transactions contemplated by the Stock Purchase Agreement are not
consummated, this letter agreement shall be null and void and of no further
effect, with neither party hereto having any obligation or responsibility
hereunder.
2. Term. [********************************************
----
***************************************************************
**************************************************************
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxx
[Date]
Page 2
**************************************************************
*********************]
3. Salary. For your services to the Company as the Vice President of
------
Marketing of IBM Sub, you will be paid a base salary, payable semi-monthly
during each month of employment, at an annualized rate of
[************************] ($[******]) per year.
4. Incentive Payments. You will be eligible to receive an incentive
------------------
payment equal to [********************] ([***]%) of the [**********************
*****************], as defined below, attributable solely to the current
distribution business of Star Data Systems DBA Sirius Computer Solutions, Inc.
("Sirius") for the period commencing at the Effective Date until December 31,
1997, payable monthly. For purposes of this letter agreement, "[***************
****************************]" are defined as [********************************
*******************************************************************************
************]. "[***************]" shall mean [********************************
*******************************************************************************
************************************************************]. For purposes of
the foregoing, [*********] or [***] funds shall not qualify as [************].
In addition, you will receive a bonus payment of $[******] upon
attainment of each of the following [******************************************
*********] targets for [***********************************************]
generated during the period from November 1, 1996 through October 31, 1997,
exclusive of any [**************************] attributable to Xxxxxx X. Xxxxx'x
XXX:
(a) $[*********];
(b) $[*********]; and
(c) $[*********].
In addition, you will receive a bonus payment of $[*****] upon
achievement of each of the following during the period from November 1, 1996
through December 31, 1997:
(a) sales of [*****] or more Model 9401-150 AS/400s; and
(b) recruitment of [**] existing IRs and [**] existing IRAs.
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxx
[Date]
Page 3
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of the Company
at the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company.
6. Options. On the Effective Date, the Company will grant and issue to
-------
you options to purchase (the "Options"), at an exercise price equal to the
closing price of the Company's Common Stock as reported by the Nasdaq National
Market on the business day immediately preceding the Effective Date (the
"Closing Price"):
(i) [******] shares of the Company's Common Stock or, if the Closing
Price is in excess of $[****] per share,
(ii) that number of shares of the Company's Common Stock equal to:
[******************
**********]
where "P" equals the lesser of $[*****] or the Closing Price,
provided, that the Company shall not grant you options to purchase more than
[*****] shares of the Company's Common Stock. The Options shall be subject to
the terms and conditions contained in the Company's standard form of
nonstatutory stock option agreement to be executed by and between you and the
Company (the "Option Agreement"). Notwithstanding the vesting schedule set forth
in the Option Agreement, your Options will become fully vested and immediately
exercisable in the event of a "change in control" of the Company (as such term
is defined in the Option Agreement).
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate
---------
your employment for "Cause." "Cause" will exist in the event you are convicted
of a felony or, in carrying out
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxx
[Date]
Page 4
your duties, you are guilty of gross negligence or gross misconduct resulting,
in either case, in material harm to the Company. In the event your employment is
terminated for Cause you will receive any unpaid salary and incentive payment
due you pursuant to paragraphs 3 and 4 above through the date of termination and
you will be entitled to no other compensation from the Company.
(b) Without Cause. Following the Effective Date, the Company may
-------------
terminate your employment without Cause. In such event, you will continue to
receive your base salary for a period of six (6) months following your
termination of employment, paid to you in accordance with the schedule set forth
in paragraph 3 above, within thirty (30) days of such termination of employment
and in lieu of any incentive payment, you will receive an additional lump-sum
amount of $[******], and subject to payment (and continued payment) of any
employee contribution applicable to you on the date of termination, for a
six-month (6) period following the date of termination, you will be entitled to
continue participation, and the Company will continue to pay for the cost of
your participation, in the Company's group medical and dental insurance plans,
provided that you are entitled to continue such participation under the terms of
the respective plans and under applicable federal and state law. It shall be a
condition precedent to payment to you of such consideration pursuant to the
preceding sentence that you execute a full and complete release of the Company,
each of its subsidiaries, any predecessor companies, and their respective past,
present and future officers, directors, employees, consultants, attorneys,
agents and shareholders, in form and substance reasonably acceptable to the
Company and its counsel, of any and all claims you may have as a consequence of
your employment and the termination thereof by the Company.
(c) Voluntary Termination. In the event you terminate your employment
---------------------
with the Company of your own volition, such termination will have the same
consequences as a termination for Cause under subparagraph (a) above.
8. Assignability; Binding Nature. Commencing on the Effective Date,
-----------------------------
this letter agreement will be binding upon you and the Company and your
respective successors, heirs, and assigns. This letter agreement may not be
assigned by you except that your rights to compensation and benefits hereunder,
subject to the limitations of this letter agreement, may be transferred by will
or operation of law. No rights or obligations of the Company under this letter
agreement may be assigned or transferred except by operation of law in the event
of a
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxx X. Xxxxx
[Date]
Page 5
merger or consolidation in which the Company is not the continuing entity, or
the sale or liquidation of all or substantially all of the assets of the Company
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and assumes the Company's
obligations under this letter agreement contractually or as a matter of law.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of the State of Texas applicable to contracts entered into by and
between residents of such state and that are to be performed entirely within
such state. Any controversy or claim relating to this letter agreement or any
breach thereof, and any claims you may have against the Company or any officer,
director or employee of the Company or arising from or relating to your
employment with the Company, will be settled solely and finally by arbitration
in accordance with the rules of the American Arbitration Association ("AAA")
then in effect in the State of Texas, and judgment upon such award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitrator may provide that the cost of the arbitration (including reasonable
legal fees) incurred by you or the Company will be borne by the non-prevailing
party.
10. Withholding. Anything to the contrary notwithstanding, following
-----------
the Effective Date all payments made by the Company hereunder to you or your
estate or beneficiaries will be subject to tax withholding pursuant to any
applicable laws or regulations. In lieu of withholding, the Company may, in its
sole discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided herein,
----------------
this letter agreement contains all of the legally binding understandings and
agreements between you and the Company pertaining to the subject matter of this
letter agreement and supersedes all such agreements, whether oral or in writing,
previously entered into between the parties.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the Board in
writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or
Xx. Xxxxx X. Xxxxx
[Date]
Page 6
subsequent time. In the event any portion of this letter agreement is determined
to be invalid or unenforceable for any reason, the remaining portions shall be
unaffected thereby and will remain in full force and effect to the fullest
extent permitted by law.
Please acknowledge your acceptance and understanding of this letter
agreement by signing and returning it to me by 5:00 p.m. on ______________,
1997. A copy of the signed letter agreement will be sent to you for your
records.
Sincerely,
__________________________________________
ACKNOWLEDGED AND AGREED:
___________________________________
Xxxxx X. Xxxxx
Dated: _____________, 1997
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT C-4
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
__________, 1997
Xx. Xxxxxxx X.X. Xxxxxx
Star Management Services, Inc.
000 Xxxx Xxxx
Xxx Xxxxxxx, XX 00000-0000
Dear Xx. Xxxxxx:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. (the "Company").
In consideration of the mutual covenants and promises made in this
letter agreement, you and the Company agree as follows:
1. Employment. Commencing as of the "Effective Date" (as hereinafter
----------
defined), you will serve as the Vice President, Operations of the midrange IBM
business of the Company ("IBM Sub"). You will be given such duties,
responsibilities and authority as are appropriate to such position. Throughout
the term of your employment, you will devote such business time and energies to
the business and affairs of the Company as needed to carry out your duties and
responsibilities as Vice President, Operations of IBM Sub, subject to the
overall supervision and direction of the President and Chief Executive Officer
of IBM Sub, the Company's executive officers and the board of directors of the
Company (the "Board").
The term "Effective Date" shall mean the date of the consummation of
the transactions contemplated by the Stock Purchase Agreement, of even date
herewith, by and among the Company, Star Management Services, Inc., Xxxxxx X.
Xxxxx and Xxxxxxx Xxxxxx Xxxxxxx XX (the "Stock Purchase Agreement"). In the
event that the transactions contemplated by the Stock Purchase Agreement are not
consummated, this letter agreement shall be null and void and of no further
effect, with neither party hereto having any obligation or responsibility
hereunder.
2. Term. [*******************************************
----
***************************************************************
**************************************************************
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxxxx X.X. Xxxxxx
[Date]
Page 2
**************************************************************
*********************************]
3. Salary. For your services to the Company as the Vice President,
------
Operations of IBM Sub, you will be paid a base salary, payable semi-monthly
during each month of employment, at an annualized rate of [********************
***************] ($[*******]) per year.
4. Incentive Payment. You will be eligible to receive an incentive
-----------------
payment, payable quarterly, equal to [***************************] ([****]%) of
[******************************************************************************
***********************************] (as defined in the Stock Purchase
Agreement) for the period commencing on the Effective Date and continuing until
December 31, 1997. The incentive payment shall be computed at the end of each
calendar quarter with respect to the net operating income for the quarter then
ended, and shall be paid to you within thirty (30) days of the end of the
calendar quarter; provided, however, that any incentive payment owed to you
under this Agreement (in the event the Effective Date is prior to June 30, 1997)
with respect to the period ending June 30, 1997 shall be paid at the same time
as the incentive payment for the quarter ending September 30, 1997.
Notwithstanding the foregoing, you shall be guaranteed a minimum quarterly
incentive payment of $[******] and you shall be entitled to receive a maximum
quarterly incentive payment of $[******], each of which shall be prorated for
any shorter period for which the incentive payment is computed.
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of the Company
at the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company.
6. Options. On the Effective Date, the Company will grant and issue to
-------
you options to purchase (the "Options"), at an exercise price equal to the
closing price of the Company's Common Stock as reported by the Nasdaq National
Market on the business day immediately preceding the Effective Date (the
"Closing Price"):
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxxxx X.X. Xxxxxx
[Date]
Page 3
(i) [******] shares of the Company's Common Stock or, if the Closing
Price is in excess of $[****] per share,
(ii) that number of shares of the Company's Common Stock equal to:
[*******************
*********]
where "P" equals the lesser of $[*****] or the Closing Price,
provided, that the Company shall not grant you options to purchase more than
[******] shares of the Company's Common Stock. The Options shall be subject to
the terms and conditions contained in the Company's standard form of
nonstatutory stock option agreement to be executed by and between you and the
Company (the "Option Agreement"). Notwithstanding the vesting schedule set forth
in the Option Agreement, your Options will become fully vested and immediately
exercisable in the event of a "change in control" of the Company (as such term
is defined in the Option Agreement).
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate
---------
your employment for "Cause." "Cause" will exist in the event you are convicted
of a felony or, in carrying out your duties, you are guilty of gross negligence
or gross misconduct resulting, in either case, in material harm to the Company.
In the event your employment is terminated for Cause you will receive any unpaid
salary and incentive payment due you pursuant to paragraphs 3 and 4 above
through the date of termination and you will be entitled to no other
compensation from the Company.
(b) Without Cause. Following the Effective Date, the Company may
-------------
terminate your employment without Cause. In such event, (i) you will continue to
receive your base salary for a period of six (6) months following your
termination of employment, paid to you in accordance with the schedule set forth
in paragraph 3 above, (ii) within thirty (30) days of such termination of
employment and in lieu of any incentive payment, you will receive an additional
lump-sum amount of $[******], and (iii) subject to payment (and continued
payment) of any employee contribution applicable to you on the date of
termination, for a six (6) month period following the date of termination, you
will
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Xx. Xxxxxxx X.X. Xxxxxx
[Date]
Page 4
be entitled to continue participation, and the Company will continue to pay for
the cost of your participation, in the Company's group medical and dental
insurance plans, provided that you are entitled to continue such participation
under the terms of the respective plans and under applicable federal and state
law. It shall be a condition precedent to payment to you of such consideration
pursuant to the preceding sentence that you execute a full and complete release
of the Company, each of its subsidiaries, any predecessor companies, and their
respective past, present and future officers, directors, employees, consultants,
attorneys, agents and shareholders, in form and substance reasonably acceptable
to the Company and its counsel, of any and all claims you may have as a
consequence of your employment and the termination thereof by the Company.
(c) Voluntary Termination. In the event you terminate your employment
---------------------
with the Company of your own volition, such termination will have the same
consequences as a termination for Cause under subparagraph (a) above.
8. Assignability; Binding Nature. Commencing on the Effective Date,
-----------------------------
this letter agreement will be binding upon you and the Company and your
respective successors, heirs, and assigns. This letter agreement may not be
assigned by you except that your rights to compensation and benefits hereunder,
subject to the limitations of this letter agreement, may be transferred by will
or operation of law. No rights or obligations of the Company under this letter
agreement may be assigned or transferred except by operation of law in the event
of a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and assumes the Company's
obligations under this letter agreement contractually or as a matter of law.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of the State of Texas applicable to contracts entered into by and
between residents of such state and that are to be performed entirely within
such state. Any controversy or claim relating to this letter agreement or any
breach thereof, and any claims you may have against the Company or any officer,
director or employee of the Company or arising from or relating to your
employment with the Company, will be settled solely and finally by arbitration
in accordance with the rules of the American Arbitration Association ("AAA")
then in effect in the State of Texas, and judgment upon such
Xx. Xxxxxxx X.X. Xxxxxx
[Date]
Page 5
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitrator may provide that the cost of the
arbitration (including reasonable legal fees) incurred by you or the Company
will be borne by the non-prevailing party.
10. Withholding. Anything to the contrary notwithstanding, following
-----------
the Effective Date all payments made by the Company hereunder to you or your
estate or beneficiaries will be subject to tax withholding pursuant to any
applicable laws or regulations. In lieu of withholding, the Company may, in its
sole discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided herein,
----------------
this letter agreement contains all of the legally binding understandings and
agreements between you and the Company pertaining to the subject matter of this
letter agreement and supersedes all such agreements, whether oral or in writing,
previously entered into between the parties.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the Board in
writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
In the event any portion of this letter agreement is determined to be invalid or
unenforceable for any reason, the remaining portions shall be unaffected thereby
and will remain in full force and effect to the fullest extent permitted by law.
Please acknowledge your acceptance and understanding of this letter
agreement by signing and returning it to me by
Xx. Xxxxxxx X.X. Xxxxxx
[Date]
Page 6
5:00 p.m. on ______________, 1997. A copy of the signed letter agreement will
be sent to you for your records.
Sincerely,
_______________________________________
ACKNOWLEDGED AND AGREED:
______________________________________
Xxxxxxx X.X. Xxxxxx
Dated: _____________, 1997
EXHIBIT D
FORM OF AGREEMENT NOT TO COMPETE
--------------------------------
THIS AGREEMENT NOT TO COMPETE (the "Non-Compete"), made and entered
into as of __________, 1997 by and between WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation ("WMT"), and each of _________________ ("XXX") and XXXXXX
------
X. XXXXX ("Stockholder 1"),
--------
W I T N E S S E T H:
WHEREAS, Stockholder 1 is a shareholder of XXX; and
WHEREAS, pursuant to the terms of that certain Stock Purchase
Agreement, dated as of June __, 1997 (the "Agreement") by and between WMT, Star
Management Services, Inc., a Delaware corporation ("SMSI") and Stockholder 1 and
Carlton Xxxxxx Xxxxxxx XX (together, Stockholder 1 and Carlton Xxxxxx Xxxxxxx XX
are referred to herein as the "Stockholders") intend to sell, convey, transfer,
assign and deliver all of the issued and outstanding capital stock of SMSI (the
"Shares"), to WMT in exchange for certain consideration; and
WHEREAS, this Non-Compete is a condition precedent to the transaction
contemplated in the Agreement and WMT would not consummate the transactions
contemplated by the Agreement absent the execution by XXX and Stockholder 1 of
this Non-Compete:
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained in this Non-Compete and for other and further valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
1. Definitions. Capitalized terms not otherwise defined in this
-----------
Agreement shall have the meanings set forth in the Agreement.
2. Term.
----
(a) Subject to subparagraph (b) below, WMT and each of XXX and
Stockholder 1 hereby enter into this Non-Compete for a term of two (2) years
after Closing.
(b) Notwithstanding subparagraph (a) above, this Non- Compete will be
terminated if, after compliance with the notice requirement and option to cure
set forth in Section 2.8(b) of the Agreement, Stockholder 1 is entitled to
accelerate payment of certain obligations under Section 2.8(a)(v) of the
Agreement due to WMT's failure to timely pay accrued interest, when due, on any
Promissory Note (as defined in the Agreement) issued pursuant to Section
2.7(a)(i) of the Agreement.
-1-
3. Consideration for Covenant Not to Compete. The sole consideration
-----------------------------------------
for the faithful performance of the obligations specified in Section 4 hereof by
Stockholder 1 and XXX shall be the consideration received by Stockholder 1 under
the Agreement.
4. Agreement Not to Compete. The Parties hereto agree that for the term
------------------------
of this Non-Compete, each of XXX and Stockholder 1 will not, in any of the
jurisdictions set forth in Exhibit A hereto, directly or indirectly, or through
any affiliate: (a) sell computer hardware or software to value-added resellers,
resellers or systems integrators or (b) approach, contact or solicit any
employee of WMT or any affiliate of WMT to leave the employ of WMT or any of its
affiliates except through general employment advertising.
5. Interpretation.
--------------
(a) Each of XXX and Stockholder 1 recognize that the foregoing covenant
in Section 4, and the territorial, time and other limitations with respect
thereto, are reasonable and properly required for the adequate protection of the
acquisition of the Shares by WMT, and agrees that such limitations are
reasonable with respect to the business activities of SMSI and Stockholder 1.
(b) The Parties recognize that the laws and public policies of the
various states of the United States and Delaware may differ as to the validity
and enforceability of covenants similar to those contained in Section 4. It is
the intention of the parties that the provisions of Section 4 shall be enforced
to the fullest extent permissible under the laws and public policies of the
State of Delaware and of any other jurisdiction in which enforcement may be
sought, but that the unenforceability (or the modification to conform with such
laws or public policies) of any provisions hereof shall not render unenforceable
or impair the remainder of Section 4. To the extent that Section 4 shall be
declared unenforceable in any one or more of such jurisdictions, such
declaration shall not affect Section 4 with respect to each other jurisdiction,
as Section 4 shall be construed to be severable and independent. If any
provision of Section 4 shall be determined to be invalid or unenforceable,
either in whole or in part, Section 4 shall be deemed amended to delete or
modify, as necessary, the offending provisions and to alter the balance of
Section 4 in order to render the same valid and enforceable to the fullest
extent permissible as aforesaid.
6. Remedies. In the event of a breach or a threatened breach of any of
--------
the covenants contained in Section 4, WMT shall, in addition to the remedies
provided by law and in addition to seeking damages through the arbitration
proceeding as provided in Section 13 hereof, have the right and remedy to have
such covenants specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any
-2-
material breach of any of the covenants will cause irreparable injury to WMT and
that money damages will not provide an adequate remedy to WMT.
7. Successors and Assigns. This Non-Compete shall inure to the benefit
----------------------
of the successors and assigns of WMT. Neither XXX nor Stockholder 1 may assign
its or their individual obligations hereunder, and any such proposed assignment
shall be void. Subject to the foregoing, this Non-Compete shall inure to the
benefit of, and bind the successors and assigns of XXX and Stockholder 1.
8. Waiver. The failure of any party to insist, in any instance, upon
------
performance of any of the terms or conditions of this Non-Compete shall not be
construed as a waiver of future performance of any such term or condition, and
the obligations of any party with respect thereto shall continue in full force
and effect.
9. Effectiveness. The effectiveness of this Non-Compete is expressly
-------------
conditioned on the closing of the transaction specified in the Agreement.
10. Entire Agreement. This Non-Compete and the Agreement set forth the
----------------
entire agreement between the Parties with respect to the subject matter hereof
and may be amended only by an agreement in writing signed by the party against
whom enforcement of any amendment is sought.
11. Notices. All notices and demands provided for by this Non-Compete
-------
shall be in writing and (unless otherwise specifically provided herein) shall be
deemed to have been given when mailed by first class mail enclosed in a
registered or certified post-paid envelope addressed to the addresses of the
parties in accordance with Section 12.1 of the Agreement or to such changed
address as any such party may have fixed by notice; provided, however, that any
notice of change of address shall be effective only upon receipt.
12. Governing Law. This Non-Compete and its validity, construction and
-------------
performance shall be governed in all respects by the internal laws of the State
of Delaware without giving effect to principles of conflict of laws.
13. Arbitration. All disputes arising out of or relating to this
-----------
Non-Compete shall be determined by binding arbitration in accordance with the
then current Commercial Arbitration Rules of the American Arbitration
Association. If the amount in controversy in the arbitration exceeds Two Hundred
Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys' fees and
costs, the arbitration shall be conducted by a panel of three (3) neutral
arbitrators. The parties shall endeavor to select neutral arbitrators by mutual
agreement. If such agreement cannot be reached within thirty (30) calendar days
-3-
after a dispute has arisen which is to be decided by arbitration, any party or
the parties jointly shall request the American Arbitration Association to submit
to each party an identical panel of fifteen (15) persons. Alternate strikes
shall be made to the panel, commencing with the party bringing the claim, until
the name of three (3) persons remain, or one person if the case is to be heard
by a single arbitrator. The parties may, however, by mutual agreement request
the American Arbitration Association to submit additional panels of possible
arbitrators. The person(s) thus remaining shall be the arbitrator(s) for such
arbitration. If three (3) arbitrators are selected, the arbitrators shall elect
a chairperson to preside at all meetings and hearings. If a dispute is to be
resolved by a sole arbitrator in accordance with the terms hereof, or if the
dispute is to be resolved by a panel of three (3) arbitrators, as provided
hereinabove, then such sole arbitrator or the chairperson of such panel, as the
case may be, shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
arbitrators in the case of a panel of arbitrators, shall be in writing and
reasoned, shall be based on the evidence admitted and the substantive law of the
state of Delaware and shall contain an award for each issue and counterclaim.
The award shall be made within thirty (30) days following the close of the final
hearing and the filing of any post-hearing briefs authorized by the
arbitrator(s). The award of the arbitrator(s) shall be final and binding on the
parties hereto and the subject matter. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1-16, and judgment upon the award
rendered by the arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Denver, Colorado. Each party shall be
entitled to inspect and obtain a copy of relevant documents in the possession or
control of the other party and to take depositions of the other party's
employees, agents, representatives and witnesses (including expert witnesses).
All such discovery shall be in accordance with procedures approved by the
arbitrator(s). Unless otherwise provided in the award, each party shall bear its
own costs of discovery. No party shall be entitled to submit interrogatories to
the other parties. All discovery shall be expedited, consistent with the nature
and complexity of the claim or dispute and consistent with fairness and justice.
The arbitrator(s) shall have the power to compel any party to comply with
discovery requests of the other parties and to issue binding orders relating to
any discovery dispute which shall be enforceable in the same manner as awards.
The arbitrator(s) also shall have the power to impose sanctions for abuse or
frustration of the arbitration process, including without limitation, the
refusal to comply with orders of the arbitrator(s) relating to discovery and
compliance with subpoenas. The arbitrator(s) are not empowered to award damages
in excess of actual damages and each
-4-
party hereby irrevocably waives any right to recover such damages with respect
to any dispute resolved by arbitration.
14. Attorneys. Pillsbury Madison & Sutro LLP has only represented WMT
---------
in connection with this transaction. XXX and Stockholder 1 have had an
opportunity to consult with its/their counsel regarding the terms of this
Non-Compete.
15. Counterparts. This Non-Compete may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the date first written above.
WESTERN MICRO TECHNOLOGY, INC.
By ______________________________________
Name ____________________________________
Title ___________________________________
XXX
By ______________________________________
Name ____________________________________
Title ___________________________________
_________________________________________
Xxxxxx X. Xxxxx
-5-
EXHIBIT A
---------
I. California Counties:
-------------------
1. Alameda 22. Riverside
2. Alpine 23. Sacramento
3. Calaveras 24. San Xxxxxx
4. Xxxxxx Xxxxx 00. Xxx Xxxxxxxxxx
0. Xx Xxxxxx 00. San Diego
6. Fresno 27. San Francisco
7. Xxxxx 28. San Xxxxxxx
8. Xxxx 29. San Xxxx Obispo
9. Kings 30. San Mateo
10. Lake 31. Santa Xxxxxxx
11. Los Angeles 32. Santa Xxxxx
12. Madera 33. Santa Xxxx
13. Xxxxx 34. Sierra
14. Mariposa 35. Siskiyou
15. Mendocino 36. Xxxxxx
16. Merced 37. Sonoma
17. Monterey 38. Stanislaus
18. Napa 39. Sutter
19. Nevada 40. Ventura
20. Orange 41. Yolo
21. Placer 42. Yuba
II. United States
-------------
1. All of the States of the United States other than California.
2. Washington, D.C.
III. Canada, Mexico and Puerto Rico.
------------------------------
A-1
EXHIBIT E
FORM OF AGREEMENT NOT TO COMPETE
--------------------------------
THIS AGREEMENT NOT TO COMPETE (the "Non-Compete"), made and entered
into as of ___________, 1997 by and between WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation ("WMT"), and CARLTON XXXXXX XXXXXXX XX ("Stockholder 2"),
-------------------------
W I T N E S S E T H:
WHEREAS, Stockholder 2 is a shareholder and officer of Star
Management Services, Inc., a Delaware corporation ("SMSI"); and
WHEREAS, pursuant to the terms of that certain Stock Purchase
Agreement, dated as of June __, 1997 (the "Agreement") by and between WMT, SMSI
and Xxxxxx X. Xxxxx and Stockholder 2 (together, Stockholder 1 and Carlton
Xxxxxx Xxxxxxx XX are referred to herein as the "Stockholders"), the
Stockholders intend to sell, convey, transfer, assign and deliver all of the
issued and outstanding capital stock of SMSI (the "Shares"), to WMT in exchange
for certain consideration; and
WHEREAS, this Non-Compete is a condition precedent to the transaction
contemplated in the Agreement and WMT would not consummate the transactions
contemplated by the Agreement absent the execution by Stockholder 2 of this
Non-Compete;
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained in this Non-Compete and for other and further valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
1. Definitions. Capitalized terms not otherwise defined in this
-----------
Agreement shall have the meanings set forth in the Agreement.
2. Term.
----
(a) Subject to subparagraph (b) below, WMT and Stockholder 2 hereby
enter into this Non-Compete for a term of two (2) years after Closing, or until
such time when final payment is made of any salary due, whichever term is
shorter.
(b) Notwithstanding subparagraph (a) above, this Non- Compete will be
terminated if, after compliance with the notice requirement and option to cure
set forth in Section 2.8(b) of the Agreement, Stockholder 2 is entitled to
accelerate payment of certain obligations under Section 2.8(a)(v) of the
Agreement due to WMT's failure to timely pay accrued interest, when due, on any
Promissory Note (as defined in the Agreement) issued pursuant to Section
2.7(a)(i) of the Agreement.
-1-
3. Consideration for Covenant Not to Compete. The sole consideration
-----------------------------------------
for the faithful performance of the obligations specified in Section 4 hereof by
Stockholder 2 shall be the consideration received by Stockholder 2 under the
Agreement.
4. Agreement Not to Compete. The Parties hereto agree that for the term
------------------------
of this Non-Compete and except with respect to Stockholder 2's duties and
responsibilities, as an officer and director of WMT, Stockholder 2 will not, in
any of the jurisdictions set forth in Exhibit A hereto, directly or indirectly:
(a) sell computer hardware, software or services to value-added resellers,
resellers or systems integrators or (b) approach, contact or solicit any
employee of WMT or any affiliate of WMT to leave the employ of WMT or any of its
affiliates except through general employment advertising.
5. Interpretation.
--------------
(a) Stockholder 2 recognizes that the foregoing covenant in Section 4,
and the territorial, time and other limitations with respect thereto, are
reasonable and properly required for the adequate protection of the acquisition
of the Shares by WMT, and agrees that such limitations are reasonable with
respect to the business activities of SMSI and Stockholder 2.
(b) The Parties recognize that the laws and public policies of the
various states of the United States and Delaware may differ as to the validity
and enforceability of covenants similar to those contained in Section 4. It is
the intention of the parties that the provisions of Section 4 shall be enforced
to the fullest extent permissible under the laws and public policies of the
State of Delaware and of any other jurisdiction in which enforcement may be
sought, but that the unenforceability (or the modification to conform with such
laws or public policies) of any provisions hereof shall not render unenforceable
or impair the remainder of Section 4. To the extent that Section 4 shall be
declared unenforceable in any one or more of such jurisdictions, such
declaration shall not affect Section 4 with respect to each other jurisdiction,
as Section 4 shall be construed to be severable and independent. If any
provision of Section 4 shall be determined to be invalid or unenforceable,
either in whole or in part, Section 4 shall be deemed amended to delete or
modify, as necessary, the offending provisions and to alter the balance of
Section 4 in order to render the same valid and enforceable to the fullest
extent permissible as aforesaid.
6. Remedies. In the event of a breach or a threatened breach of any of
--------
the covenants contained in Section 4, WMT shall, in addition to the remedies
provided by law and in addition to seeking damages through the arbitration
proceeding as provided in Section 13 hereof, have the right and remedy to have
such covenants specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any material breach of any of the covenants
will cause irreparable
-2-
injury to WMT and that money damages will not provide an adequate remedy to WMT.
7. Successors and Assigns. This Non-Compete shall inure to the benefit
----------------------
of the successors and assigns of WMT. Stockholder 2 may not assign his
individual obligations hereunder, and any such proposed assignment shall be
void. Subject to the foregoing, this Non-Compete shall inure to the benefit of,
and bind the successors and assigns of Stockholder 2.
8. Waiver. The failure of any party to insist, in any instance, upon
------
performance of any of the terms or conditions of this Non-Compete shall not be
construed as a waiver of future performance of any such term or condition, and
the obligations of any party with respect thereto shall continue in full force
and effect.
9. Effectiveness. The effectiveness of this Non-Compete is expressly
-------------
conditioned on the closing of the transaction specified in the Agreement.
10. Entire Agreement. This Non-Compete and the Agreement set forth the
----------------
entire agreement between the Parties with respect to the subject matter hereof
and may be amended only by an agreement in writing signed by the party against
whom enforcement of any amendment is sought.
11. Notices. All notices and demands provided for by this Non-Compete
-------
shall be in writing and (unless otherwise specifically provided herein) shall be
deemed to have been given when mailed by first class mail enclosed in a
registered or certified post-paid envelope addressed to the addresses of the
parties in accordance with Section 12.1 of the Agreement or to such changed
address as any such party may have fixed by notice; provided, however, that any
notice of change of address shall be effective only upon receipt.
12. Governing Law. This Non-Compete and its validity, construction and
-------------
performance shall be governed in all respects by the internal laws of the State
of Delaware without giving effect to principles of conflict of laws.
13. Arbitration. All disputes arising out of or relating to this
-----------
Non-Compete shall be determined by binding arbitration in accordance with the
then current Commercial Arbitration Rules of the American Arbitration
Association. If the amount in controversy in the arbitration exceeds Two Hundred
Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys' fees and
costs, the arbitration shall be conducted by a panel of three (3) neutral
arbitrators. The parties shall endeavor to select neutral arbitrators by mutual
agreement. If such agreement cannot be reached within thirty (30) calendar days
after a dispute has arisen which is to be decided by arbitration, any party or
the parties jointly shall request the
-3-
American Arbitration Association to submit to each party an identical panel of
fifteen (15) persons. Alternate strikes shall be made to the panel, commencing
with the party bringing the claim, until the name of three (3) persons remain,
or one person if the case is to be heard by a single arbitrator. The parties
may, however, by mutual agreement request the American Arbitration Association
to submit additional panels of possible arbitrators. The person(s) thus
remaining shall be the arbitrator(s) for such arbitration. If three (3)
arbitrators are selected, the arbitrators shall elect a chairperson to preside
at all meetings and hearings. If a dispute is to be resolved by a sole
arbitrator in accordance with the terms hereof, or if the dispute is to be
resolved by a panel of three (3) arbitrators, as provided hereinabove, then such
sole arbitrator or the chairperson of such panel, as the case may be, shall be a
member of a state bar engaged in the practice of law in the United States or a
retired member of a state or the federal judiciary in the United States. The
award of the arbitrator(s) shall require a majority of the arbitrators in the
case of a panel of arbitrators, shall be in writing and reasoned, shall be based
on the evidence admitted and the substantive law of the state of Delaware and
shall contain an award for each issue and counterclaim. The award shall be made
within thirty (30) days following the close of the final hearing and the filing
of any post-hearing briefs authorized by the arbitrator(s). The award of the
arbitrator(s) shall be final and binding on the parties hereto and the subject
matter. The arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. ss. 1-16, and judgment upon the award rendered by the arbitrator(s) may
be entered by any court having jurisdiction thereof. The place of arbitration
shall be Denver, Colorado. Each party shall be entitled to inspect and obtain a
copy of relevant documents in the possession or control of the other party and
to take depositions of the other party's employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. No
party shall be entitled to submit interrogatories to the other parties. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the
arbitration process, including without limitation, the refusal to comply with
orders of the arbitrator(s) relating to discovery and compliance with subpoenas.
The arbitrator(s) are not empowered to award damages in excess of actual damages
and each party hereby irrevocably waives any right to recover such damages with
respect to any dispute resolved by arbitration.
-4-
14. Attorneys. Pillsbury Madison & Sutro LLP has only represented WMT
---------
in connection with this transaction. Stockholder 2 has had an opportunity to
consult with his counsel regarding the terms of this Non-Compete.
15. Counterparts. This Non-Compete may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the date first written above.
WESTERN MICRO TECHNOLOGY, INC.
By _____________________________________
Name ___________________________________
Title __________________________________
_________________________________________
Carlton Xxxxxx Xxxxxxx XX
-5-
EXHIBIT A
I. California Counties:
-------------------
1. Alameda 22. Riverside
2. Alpine 23. Sacramento
3. Calaveras 24. San Xxxxxx
4. Xxxxxx Xxxxx 00. Xxx Xxxxxxxxxx
0. Xx Xxxxxx 00. San Diego
6. Fresno 27. San Francisco
7. Xxxxx 28. San Xxxxxxx
8. Xxxx 29. San Xxxx Obispo
9. Kings 30. San Mateo
10. Lake 31. Santa Xxxxxxx
11. Los Angeles 32. Santa Xxxxx
12. Madera 33. Santa Xxxx
13. Xxxxx 34. Sierra
14. Mariposa 35. Siskiyou
15. Mendocino 36. Xxxxxx
16. Merced 37. Sonoma
17. Monterey 38. Stanislaus
18. Napa 39. Sutter
19. Nevada 40. Ventura
20. Orange 41. Yolo
21. Placer 42. Yuba
II. United States.
-------------
1. All of the States of the United States other than California.
2. Washington, D.C.
III. Canada, Mexico and Puerto Rico.
------------------------------
A-1
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT F
INDUSTRY REMARKETER AFFILIATE AGREEMENT
---------------------------------------
THIS INDUSTRY REMARKETER AFFILIATE AGREEMENT (this "Agreement"), dated
as of _________, 1997, is made by and between WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation ("Western") having offices at 000 Xxxx Xxxxxxxx Xxxxxx,
Xxxxxxxx, Xxxxxxxxxx 00000 and STAR DATA SYSTEMS, INC. or its successor in
-----------------------
interest, a Texas corporation ("SDS"), having offices at 000 Xxxx Xxxx, Xxx
Xxxxxxx, Xxxxx 00000 (Western and SDS are together referred to as "WMT"), and
___________________, a _____________________________ having offices at
______________________________________________________ ("XXX").
RECITALS:
A. WMT is authorized to market and distribute certain Products,
including IBM Products, to resellers; WMT is authorized and wishes to appoint
XXX as a solution provider affiliate to sell to End-Users the IBM Products it
acquires exclusively from WMT and to engage XXX to sell other non-IBM Products
it acquires from WMT to End-Users; and XXX is willing to serve in such
capacities.
B. For the consideration and mutual promises set forth in this
Agreement, the parties agree as follows:
1. Definitions. The terms used in this Agreement have the following
-----------
meanings:
1.1 "End User" means anyone, unaffiliated with XXX, who acquires
Products for its own use and not for resale.
1.2 "IBM" means International Business Machines, Inc. and its
subsidiaries.
1.3 "Machine" means an IBM or non-IBM machine, its features,
conversions, upgrades, elements, accessories, cables or any combination of them
(provided by IBM or another OEM to WMT) approved by IBM or another OEM to be
provided to XXX.
1.4 "Original Equipment Manufacturer" or "OEM" means an original
equipment manufacturer, including without limitation IBM.
1.5 "Product" means a Machine, Program or Service which WMT has been
authorized to distribute to XXX.
1.6 "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental Body.
1.7 "Program" means an IBM or non-IBM licensed program (provided by IBM
or another OEM to WMT) approved by IBM or the other OEM to be provided to XXX.
Program does not include an OEM's licensed internal code.
1.8 "Service" means assistance performed or marketed by WMT, including
without limitation use of a resource (such as a network) approved by IBM to be
provided to XXX.
1.9 "Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
1.10 "Stock Purchase Agreement" means the Stock Purchase Agreement
dated June __, 1997, by and among Western, Star Management Services, Inc.,
Xxxxxx X. Xxxxx and Xxxxxxx Xxxxxx Xxxxxxx XX.
1.11 "Value Added Enhancement" or "VAE" means the industry specific IBM
approved Application Software Program.
2. Appointment of Industry Remarketer Affiliate. WMT hereby appoints
--------------------------------------------
XXX as one of its industry remarketer affiliates (also referred to as solution
provider affiliates) of IBM Products for marketing and sale to End Users in the
United States and Puerto Rico with IRA's VAEs. This appointment is not exclusive
with respect to WMT and WMT has entered into and reserves the right to enter
into similar agreements with others for the purpose of marketing and
distributing Products. This appointment is exclusive with respect to providing
IBM Products to XXX for resell and XXX agrees to not enter into any similar
arrangement with any others for the purpose of selling IBM Products to End
Users.
3. XXX Obligations.
---------------
3.1 IBM Requirements. XXX shall be subject to any obligations or
----------------
restrictions imposed by IBM under the terms of any applicable agreement between
WMT and IBM, as such terms may change from time to time, or between XXX and IBM,
as such terms may change from time to time, and XXX agrees to be bound by and
comply with any such obligations or restrictions. In particular, and without
limitation, XXX will comply with all IBM requirements set forth in IRA's
agreement with IBM, as amended from time to time.
-2-
3.2 Transition Period. During the [***] ([*]) month period immediately
-----------------
following the consummation of the transaction contemplated by the Stock Purchase
Agreement (the "Transition Period"), WMT and XXX will share certain employees
and miscellaneous expenses in accordance with the allocation set forth in the
Schedule that is attached as Exhibit A to this Agreement (the "Cost Sharing
Schedule"). Either party may elect to extend the Transition Period for up to
[*****] ([**]) days upon [*****] ([**]) days prior written notice to the other
party of such extension. Every [*****] ([**]) days during the Transition Period,
the parties will discuss and decide, in good faith, whether any adjustments
should be made to the Cost Sharing Schedule. Each party will pay within [***]
([**]) days of the end of each month the net monthly cost attributable to such
party as shown on the Cost Sharing Schedule.
4. WMT Obligations.
---------------
4.1 Support. WMT will provide telephone support at no charge to up to
-------
[***] ([*]) identified IRA employees. Such employees shall be technical
personnel rather than sales personnel. At the request of XXX, WMT will provide
support to End Users at [******************************], which, as of the date
of this Agreement, is $[***] per hour. At the direction of XXX, WMT will either
invoice XXX or such End User for WMT's services with respect to such End Users.
If XXX decides to offer monthly support contracts to End Users, then WMT agrees
to provide the services under the contracts entered into by XXX, or enter into
contracts directly with such End Users, as may be elected by XXX. The applicable
charge by WMT to XXX or such End Users, as the case may be, shall be as follows:
Monthly Support Monthly Support
Charge for Service Charge for 24-Hour
From 8-5 CST on Service,
IBM Product Business Days Only 7 Days a Week
---------- ------------------ ------------------
9402's $[***] $[***]
9406's $[***] $[***]
XXX shall be entitled to all proceeds received from End Users in excess of the
above described WMT service charges.
4.2 Personnel Rebate. WMT shall pay to XXX a personnel rebate at a rate
----------------
of $[*****] for each $[*******] of Product purchased by XXX from WMT under this
Agreement as more specifically set forth below. The value of the Products
purchased by XXX (the "Actual Dollar Value") shall be calculated based upon
WMT's [**************************]. For purposes of this Agreement, "Net Sales"
means [************************************************************************
*******************************************************************************
**********************
-3-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
*******************************************************************************
*******************************************************************************
***********************************************************************] Within
[***] ([**]) days after the end of each calendar quarter or the termination of
this Agreement pursuant to Section 9 hereof, WMT will calculate the Actual
Dollar Value of Products purchased by XXX from WMT during the preceding calendar
quarter (or the Current Calendar quarter in the case of termination) and will
pay to XXX the personnel rebate due for such period based upon such Actual
Dollar Value calculated as follows:
[****************************
**************]
For example, if XXX purchased $[********] of Product during a calendar
quarter, then WMT would pay XXX a $[******] personnel rebate for such quarter.
If XXX purchased an aggregate of $[**********] in Product, then personnel
rebates with respect to such purchases would total $[*******].
5. Delivery and Title.
------------------
5.1 Delivery. Upon receipt of each purchase order by WMT, if the
--------
Product is not then in WMT's inventory, WMT will, as soon as reasonably possible
but in no event later than two (2) days following receipt of such purchase
order, place the order with IBM or other applicable OEM. With respect to
Products in WMT's inventory or after receipt of such products from the
applicable OEM, WMT shall ship such Products, as soon as reasonably possible,
F.O.B. WMT's or IBM's or the other OEM's facility in the continental United
States. Such Products shall be insured by WMT at IRA's cost; provided, however,
XXX shall not be obligated to pay any shipping or insurance charges to the
extent such charges are paid by IBM or other OEM. All Products shall be packaged
for shipment in accordance with WMT's usual and customary practices which shall
be reasonably calculated to provide adequate protection for its Products. The
method of shipment and common carrier shall be selected by XXX.
5.2 Passing of Title. Title to the IBM or other Machines will pass from
----------------
WMT to XXX. XXX shall pass title to the Machines directly to the End User or, if
applicable, to a third party financing institution on behalf of the End User.
IBM and other OEMs do not transfer title to Programs.
6. Price; Payment.
--------------
6.1 Product Costs; Payment Terms.
----------------------------
(a) XXX shall acquire the Products from WMT at the prices of each such
Product as per Exhibit B to this Agreement (the "Price Schedule"). The prices
set forth on the Price Schedule
-4-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
shall be increased or decreased, as the case may be, from time to time for the
following reasons: (i) to comply with Section 6.1(b) below; and (ii) to reflect
increases or decreases, as the case may be, in the OEM's price to WMT.
(b) [****************************************************
***************************************************************
***************************************************************
***************************************************************
***************************************************************
****]
(c) For Products which do not have a price set forth on the Price
Schedule, the cost to XXX shall be based upon a [***] percent ([**]%) gross
margin to WMT.
(d) WMT shall not be responsible for any applicable taxes resulting
exclusively from IRA's purchases of Products under this Agreement, other than
taxes based on WMT's sales or income. Payment of WMT's invoice shall be due
forty-five (45) days after the invoice date.
(e) Any price decrease for a Product as contemplated by Section 6.1(a)
above shall be effective on the effective date of the OEM's corresponding price
reduction with respect to such Product. XXX shall receive the benefit of any
such OEM price reduction with respect to any Product covered by such price
reduction that (i) as of the effective date of such OEM price reduction, has
been ordered by XXX and has not been shipped, or has been shipped but not
installed with the End User (and WMT receives the price decrease with respect to
such Product), or (ii) is ordered by XXX subsequent to the effective date of
such OEM price reduction. Any price increase for a Product as contemplated by
Section 6.1(a) above shall be effective on the effective date of the OEM's price
increase with respect to such Product.
6.2 Delinquent Payments. If IRA's account becomes delinquent, and the
-------------------
amount of such account is not in dispute, WMT may do one or more of the
following: (a) impose a finance charge, up to the maximum permitted by law, on
the delinquent portion of the balance due; or (b) pursue any other remedy
available at law to collect such delinquent amount.
7. Arbitration. Any unresolved dispute arising out of or relating to
-----------
this Agreement, any schedule, certificate or other document delivered by any
party in connection with this Agreement or incident to the transactions
contemplated hereby or the breach, inaccuracy, termination or validity hereof or
thereof or otherwise arising out of or relating to the transactions contemplated
hereby and thereby, or any other agreement among them or between any of them,
whether entered into prior to, on or subsequent to the date of this Agreement or
those arising under any federal, state or local law, regulation
-5-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
or ordinance, shall be determined by binding arbitration in accordance with
certain aspects of the then current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys'
fees and costs or if the controversy relates to the termination of this
Agreement pursuant to Section 9.2 below, the arbitration shall be conducted by a
panel of three (3) neutral arbitrators. Otherwise, the arbitration shall be
conducted by a single neutral arbitrator. The parties shall endeavor to select
neutral arbitrators by mutual agreement. If such agreement cannot be reached
within ten (10) business days after a dispute has arisen which is to be decided
by arbitration, any party or the parties jointly shall request the American
Arbitration Association to submit to each party an identical panel of fifteen
(15) persons. Alternate strikes shall be made to the panel, commencing with the
party bringing the claim, until the name of three (3) persons remain, or one (1)
person if the case is to be heard by a single arbitrator. The parties may,
however, by mutual agreement request the American Arbitration Association to
submit additional panels of possible arbitrators. The person(s) thus remaining
shall be the arbitrator(s) for such arbitration. If three (3) arbitrators are
selected, the arbitrators shall elect a chairperson to preside at all meetings
and hearings. If a dispute is to be resolved by a sole arbitrator in accordance
with the terms hereof, or if the dispute is to be resolved by a panel of three
(3) arbitrators as provided hereinabove, then such sole arbitrator or the
chairperson of such panel, as the case may be, shall be a member of a state bar
engaged in the practice of law in the United States or a retired member of a
state or the federal judiciary in the United States. The award of the
arbitrator(s) shall require a majority of the arbitrators in the case of a panel
of arbitrators, shall be in writing and reasoned, shall be based on the evidence
admitted and the substantive law of the State of Delaware and shall contain an
award for each issue and counterclaim. The award shall be made within thirty
(30) days following the close of the final hearing and the filing of any
post-hearing briefs authorized by the arbitrator(s). The award of the
arbitrator(s) shall be final and binding on the parties hereto and the subject
matter. The arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. ss. 1--16, and judgment upon the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof. The place of
arbitration shall be Denver, Colorado. Each party shall be entitled to inspect
and obtain a copy of relevant documents in the possession or control of the
other party and to take depositions of the other party's employees, agents,
representatives and witnesses (including expert witnesses). All such discovery
shall be in accordance with procedures approved by the arbitrator(s). Unless
otherwise provided in the award, each party shall bear its own costs of
discovery. No party shall be entitled to submit interrogatories to the other
parties. All discovery shall be expedited, consistent with the nature and
-6-
complexity of the claim or dispute and consistent with fairness and justice. The
arbitrator(s) shall have the power to compel any party to comply with discovery
requests of the other parties and to issue binding orders relating to any
discovery dispute which shall be enforceable in the same manner as awards. The
arbitrator(s) also shall have the power to impose sanctions for abuse or
frustration of the arbitration process, including without limitation, the
refusal to comply with orders of the arbitrator(s) relating to discovery and
compliance with subpoenas. The arbitrator(s) are not empowered to award damages
in excess of actual damages and the XXX and WMT hereby irrevocably waive any
right to recover such damages with respect to any dispute resolved by
arbitration. Each of the parties agrees to participate in good faith in the
arbitration process and take all reasonable actions to conclude such arbitration
as soon as possible.
8. Term. Subject to earlier termination in accordance with Section 9 of
----
this Agreement, the term of this Agreement shall commence on the date set forth
above and continue for a period of thirty-six (36) months thereafter at which
time this Agreement will terminate unless otherwise mutually agreed to by the
Parties hereto.
9. Termination.
-----------
9.1 Termination by WMT; Expiration. WMT shall have the right to (a)
------------------------------
terminate this Agreement immediately upon written notice to XXX if WMT is
notified by IBM that XXX no longer meets IBM's guidelines and (b) terminate its
obligation with respect to providing any other OEM's Products to XXX if XXX no
longer meets such OEM's guidelines.
9.2 Termination by XXX. XXX reserves the right to terminate this
------------------
Agreement, upon written notice to WMT if:
(a) [****************************************************
***************************************************************
**************]
(b) [****************************************************
***************************************************************
***************************************************************
***************************************************************
***************************]
(c) if, after a Change of Control (as defined in Section 2.8(e) of the
Stock Purchase Agreement) of WMT, [**************] gives XXX notice of its
intent to terminate its distributor agreement with XXX and such notice is not
withdrawn within fifteen (15) business days, or
(d) WMT's contractual relationship with IBM is terminated
or expires and is not renewed, or
-7-
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
(e) if WMT's contractual relationship with IBM is materially modified
or amended with respect to discounts WMT receives as a distributor and such
modification or amendment adversely puts IRA's business at a material
competitive disadvantage (a "Material Modification").
For purposes of this Agreement, a "Material Breach" shall mean a
material breach of this Agreement including, without limitation, (i) WMT's
failure to pass on material rebates, discounts, etc., provided for in Exhibit B
to this Agreement; (ii) WMT unreasonably refusing to accept or process a
material or service order under this Agreement; and (iii) WMT not providing the
personnel rebate set forth in Section 4.2 of this Agreement, in each case in
material breach of the terms of this Agreement and having a material adverse
effect on XXX.
Each party recognizes that the provisions regarding termination of this
Agreement set forth in Section 9.2 can impose a severe and unexpected burden on
WMT and that a bona fide dispute can arise as to (i) the proper characterization
for these purposes of acts or omissions constituting a Material Breach of this
Agreement or (ii) whether a Material Modification has occurred. If XXX believes
a Material Breach of this Agreement or a Material Modification has occurred, XXX
shall give WMT written notice (the "Breach Notice") that a Material Breach or
Material Modification has occurred, describing the acts or omissions complained
of and providing a reasonable description of the action it requires of WMT to
correct and cure such Material Breach (e.g., any actual damages incurred as a
result of such Material Breach) or such Material Modification. Within five (5)
business days of IRA's delivery of such notice, WMT shall deliver a written
notice to XXX of any objections to the matters contained in such Breach Notice
(the "Objection Notice"). Such Objection Notice may relate to whether a Material
Breach or Material Modification has occurred, the description of the matter
giving rise to the claim of Material Breach or Material Modification or the
actions required of WMT to cure and correct such Material Breach or Material
Modification. The failure of WMT to deliver the Objection Notice within the
required time will constitute WMT's acceptance of all of the matters described
in the Breach Notice and the failure of WMT to object to any matter stated in
such Objection Notice will constitute WMT's acceptance of the matters not
objected to therein. If WMT timely objects to the matters set forth in such
Breach Notice, XXX and WMT shall endeavor for the ten (10) business day period
following receipt of such objection to resolve such dispute. If at the end of
such ten (10) business day period, WMT and XXX are unable to resolve the
disagreements set forth in the Objection Notice, such dispute shall be resolved
by arbitration in accordance with Section 7 hereof and that during the pendency
of any such arbitration proceeding, the termination rights created by such
provisions shall be stayed. The arbitrator shall be instructed to resolve the
following matters, and only these matters, to the extent
-8-
objected to or raised in the Objection Notice, all of such matters to be
resolved in one proceeding: (i) whether a Material Breach or a Material
Modification has occurred, (ii) with respect to a Material Breach, the validity
of IRA's claim with respect to the acts or omissions complained of in the Breach
Notice; (iii) if the acts or omissions which were the subject of the Breach
Notice have occurred and to the extent such Material Breach or Material
Modification can be cured or corrected, the actions necessary to cure or correct
such Material Breach or Material Modification; (iv) the actual damages incurred
by XXX, if any, with respect to the acts or omissions which were the subject of
the Breach Notice; and (v) the validity and actual damages incurred by WMT with
respect to the claims, if any, properly made by WMT against XXX in the Objection
Notice. WMT shall have a thirty (30) day cure period (five (5) business day cure
period with respect to cash payment or the cure or correction of a Material
Modification) after the matters set forth in the Breach Notice are finally
resolved (whether upon the failure to timely object, mutual agreement by the
parties, or pursuant to the finding of the arbitrator), and to the extent such
Material Modification or other act or omission giving rise to a Material Breach
may be cured or corrected, to take such actions finally determined pursuant to
this section to be necessary to cure or correct such Material Breach or Material
Modification. Whether or not the arbitrator concludes that a Material Breach of
this Agreement can be cured or corrected, the arbitrators as part of the
arbitrators' decision, shall determine the actual damages (which shall not
include any incidental, consequential or special damages) suffered by the XXX
(with respect to terminations under clause (a) of Section 9.2) and shall offset
against such amount, any actual damages suffered by WMT as a consequence of a
Material Breach of this Agreement by the XXX; provided, however, WMT shall not
be entitled to an offset for such actual damages suffered by WMT unless such
claims are set forth in the Objection Notice and submitted to arbitration
concurrently with all of the matters set forth in the Objection Notice. In
addition to the action finally determined to be necessary to cure or correct
such Material Breach, but without duplication, WMT shall pay, within ten (10)
business days of such final arbitration decision, to XXX the amount of actual
damages, if any, incurred by XXX, net of the offsets described in the preceding
sentence. In the event that WMT fails to take the actions finally determined
hereunder to be necessary to cure or correct the acts or omissions complained of
within the applicable cure period, a Material Breach or Material Modification,
as the case may be, shall be deemed to have occurred and XXX shall be entitled
to terminate this Agreement pursuant to the foregoing sentence without any
further notices (other than the notice of termination), cure periods or
arbitration proceedings set forth in this Section 9.2 with respect to whether
WMT properly cured or corrected such Material Breach or Material Modification,
as the case may be, or paid the actual damages as finally determined. If a
Material Breach is determined to have occurred
-9-
and WMT properly cures or corrects the Material Breach as permitted hereunder,
and thereafter the act or omission of WMT which gave rise to the claim of
Material Breach continues to occur, then, notwithstanding any provision in this
Section 9.2 to the contrary, XXX may terminate this Agreement pursuant to clause
(a) of this Section 9.2 without complying with the notice, cure and arbitration
provisions of this Section 9.2.
9.3 Effect of Termination or Expiration. Upon the expiration or
-----------------------------------
termination of this Agreement, XXX will (a) continue to fulfill its obligations
to End Users and in such a way as not to reflect adversely on WMT or the
Products; (b) pay to WMT when due all outstanding amounts including, but not
limited to, any amounts owing under Section 6 hereof within forty-five (45) days
of the invoice date. Upon the expiration or termination of this Agreement, WMT
will (a) continue to fulfill its obligations to End Users and in such a way as
not to reflect adversely on XXX, or the Products and (b) pay XXX all due and
outstanding amounts including, without limitation, any amounts due and owing to
XXX under Section 4.2 hereof.
10. Confidentiality. WMT acknowledges and agrees that this Agreement is
---------------
being executed in connection with the consummation of the transactions
contemplated by the Stock Purchase Agreement, including the Spin-off (as defined
therein) of the End User Business (as defined therein) of SDS into XXX. Western
and SDS, jointly and severally, agree to use commercially reasonable efforts to
assist XXX to maintain its present business relationship with the End User
customers of SDS prior to the Spin-off for the benefit of XXX. Western and SDS
jointly and severally agree that they will (and will cause each person under
their control to) keep confidential and not use any confidential information or
make available to any others any documents, files, customer lists, price lists,
or other papers or information concerning such End User Business except if
required pursuant to an order of any court or administrative agency or otherwise
required by law.
11. Miscellaneous Provisions.
------------------------
11.1 Independent Contractor. WMT and XXX are independent contractors.
----------------------
Neither party will have any right or authority to act on behalf of the other and
neither party shall represent that it has such right or authority.
11.2 Assignment. XXX agrees not to assign, or otherwise transfer, this
----------
Agreement or its rights under it or delegate its obligations or appoint another
reseller (including a related company) or agent to represent it, without the
consent of WMT which shall not be unreasonably withheld. Any attempt to do
either is void. A transfer of all or part of the ownership interest in XXX by
Xxxxxx X. Xxxxx shall not be deemed an assignment prohibited hereunder. WMT
agrees not to (a) assign, or otherwise transfer, this Agreement or its rights
under it or
-10-
(b) delegate its obligations or appoint another distributor (including a related
company) or agent to represent it without the consent of XXX, which shall not be
unreasonably withheld; provided, however, with respect to a Change in Control
(as defined in the Stock Purchase Agreement) such consent may be withheld in
IRA's sole discretion. Any attempt to do either is void. A Change in Control of
WMT shall be deemed an assignment and prohibited hereunder, provided, however,
XXX shall be deemed to have consented to such assignment if all of the
Installment Payments and Earn-out Payments or Promissory Notes related thereto
due upon a Change in Control have been paid in accordance with Section 2.8(f) of
the Stock Purchase Agreement.
11.3 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement, and (if appropriate) such
provision to other persons or circumstances, shall remain in full force and
effect and be interpreted so as best to reasonably effect the intent of the
parties hereto.
11.4 Waiver, Amendment, Modification. Any waiver, amendment or other
-------------------------------
modification of this Agreement will not be effective unless in writing and
signed by the party against whom enforcement is sought. The failure by either
party to exercise any of its rights hereunder will not be deemed a waiver of
such rights in the future or a waiver of any other rights under this Agreement.
11.5 Notices. Any notice, approval or other communication required or
-------
permitted under this Agreement between the parties will be given in writing and
will be sent by facsimile, electronic mail or airmail, postage prepaid, to the
address specified above or to any other address that may be designated by prior
notice. Any notice, approval or other communication delivered by facsimile or
electronic mail will be deemed to have been received the day it is sent, as
confirmed by transmission receipt. Any notice, approval or other communication
sent by airmail will be deemed to have been received on the seventh business day
after its date of posting.
11.6 Governing Law. This Agreement will be governed by and interpreted
-------------
in accordance with the laws of the State of Delaware, excluding its conflict of
law principles.
-11-
11.7 Entire Agreement. This Agreement constitutes the complete and
----------------
entire statement of all terms, conditions and representations of agreement
between WMT and XXX with respect to the subject matter contained herein and
supersedes all prior oral or written agreements or understandings.
___________________________________ WESTERN MICRO TECHNOLOGY, INC.
By ________________________________ By _____________________________________
Title _____________________________ Title __________________________________
STAR DATA SYSTEMS, INC.
By _____________________________________
Title __________________________________
-12-
EXHIBIT A
---------
SCHEDULE OF SIRIUS/X.X. COST SHARING ARRANGEMENT
------------------------------------------------
WM EMPLOYEES
Accounting
----------------------------------------------------------------------------------------------------------------------
[**********] [*******] [****] [****] [**] [*****]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
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[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
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[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [******] [******]
----------------------------------------------------------------------------------------------------------------------
MIS
----------------------------------------------------------------------------------------------------------------------
[**********] [*******] [****] [****] [**] [*****]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [******] [******]
----------------------------------------------------------------------------------------------------------------------
A-1
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Miscellaneous
-----------------------------------------------------------------------------------------------------------------------
[*****]
-----------------------------------------------------------------------------------------------------------------------
[**********] [******]
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[**********] [******]
-----------------------------------------------------------------------------------------------------------------------
[**********] [******]
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
[********************] [******]
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
[********************] [******]
-----------------------------------------------------------------------------------------------------------------------
SIRIUS COMPUTER SOLUTIONS EMPLOYEES
Human Resources
---------------------------------------------------------------------------------------------------------------------
[*********] [*******] [****] [****] [**] [*****]
---------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
---------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
---------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [******] [******]
---------------------------------------------------------------------------------------------------------------------
Travel
----------------------------------------------------------------------------------------------------------------------
[**********] [*******] [****] [**** ] [**] [*****]
----------------------------------------------------------------------------------------------------------------------
[**********] [******] [*****] [******] [****] [******] [******]
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
[********************] [******]
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
[********************] [******]
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
[********************] [******]
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
[********************] [******]
----------------------------------------------------------------------------------------------------------------------
[**** ******************************************************
******************************]
[**** ******************************************************
******************************]
A-2
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT B
---------
Discount Schedule for Sirius Computer Solutions
-----------------------------------------------
[*****************************************]
[*******
[**********] **************]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[******** [***]
********]
[******** [***]
********]
[********] [***]
[********
***** [***]
*****] [***]
[********] [***]
[********] [************]
[********] [************]
[***************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*********** [*************]
**********]
B-1
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
Non-IBM Products:
----------------
Current Distributor Cost
------------------------
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[*******************************************************************************
********************************************************************************
********************************************************************************
********.
B-2
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), entered into as
of June ___, 1997 by and between WESTERN MICRO TECHNOLOGY, INC., a California
------------------------------
corporation (the "Company"), and Carlton Xxxxxx Xxxxxxx XX ("Shareholder"),
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into that certain Stock
Purchase Agreement, dated as of June __, 1997, by and among the Company, Star
Management Services, Inc., a Delaware corporation ("Star"), Xxxxxx X. Xxxxx and
Shareholder (the "Stock Purchase Agreement"), in which in partial consideration
for the sale of Shareholder's capital stock of Star to the Company, Shareholder
is to receive unregistered shares of Common Stock, without par value, of the
Company (the "Common Stock"); and
WHEREAS, the parties hereto wish to enter into this Agreement to
provide for the registration of such shares of Common Stock,
NOW, THEREFORE, in consideration for the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Shareholder hereby
agree as follows:
Article 1. Registration.
--------- ------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following meanings:
(a) "Advice": See the last paragraph of Section 1.4 hereof.
------
(b) "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
(c) "Effectiveness Period": See paragraph 1.2(a) hereof.
--------------------
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(e) "Holder" shall mean Shareholder or any other holder of the
------
Registrable Securities with respect to whom registration rights have been
properly assigned pursuant to the terms hereof.
(f) "Prospectus" shall mean the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
(g) "Register," "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(h) "Registrable Securities" shall mean shares of Common Stock issued
----------------------
to Shareholder pursuant to the Stock Purchase Agreement (other than Common Stock
to be received upon exercise of any stock options received by Shareholder (which
will be registered on a Form S-8 independent of this Agreement) in connection
with the transaction contemplated by the Stock Purchase Agreement); provided,
however, that Registrable Securities shall not include any such shares of Common
Stock which have previously been registered or which have been sold by
Shareholder.
(i) "Registration Expenses": See Section 1.5 hereof.
---------------------
(j) "Registration Statement" shall mean any registration statement of
----------------------
the Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
(k) "Rule 144" shall mean Rule 144 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(l) "Rule 145" shall mean Rule 145 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(m) "Rule 415" shall mean Rule 415 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
-2-
(n) "Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(o) "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of the Registrable Securities.
(p) "Shelf Registration" shall mean either the Initial Shelf
------------------
Registration or a Subsequent Shelf Registration, as appropriate.
1.2 Demand Registration.
-------------------
(a) If the Company shall receive from the Holder at any time after six
(6) months have elapsed from the Closing Date (as defined in the Stock Purchase
Agreement) a written request that the Company effect a registration with respect
to all or any part of the Registrable Securities, the Company will, as soon as
practicable thereafter, use all reasonable efforts to prepare and file with the
Commission a Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering the resale from time to time by the Holder
of all of the Registrable Securities (the "Initial Shelf Registration"). The
Initial Shelf Registration shall be on Form S-3 or another appropriate form
permitting registration of such Registrable Securities for resale by the Holder.
The Company shall use all reasonable efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act, and to keep the
Initial Shelf Registration continuously effective under the Securities Act until
the date that is two years (or for such other time period as shall be specified
in Rule 144(k) as the holding period required for termination of certain
restrictions on sales of restricted securities by persons other than affiliates)
from the Closing Date, or such shorter period ending when (i) all Registrable
Securities covered by the Initial Shelf Registration have been sold, or (ii) a
subsequent Shelf Registration covering all of the Registrable Securities has
been declared effective under the Securities Act or (iii) there cease to be
outstanding any Registrable Securities (the "Effectiveness Period").
The Company shall file a registration statement as soon as practicable
after receipt of the request of the Holder under this Section 1.2, but in any
event within ninety (90) days of receipt of such request; provided, however,
that if the Company shall furnish to the Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company that (i) such offering would materially interfere with,
or adversely affect, a pending or contemplated financing, merger, sale of
assets, recapitalization, corporate reorganization or other significant
transaction or (ii) the disclosures required in connection with such
registration could reasonably be expected to materially
-3-
adversely affect the business or prospects of the Company, and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing to a date not later than one hundred eighty
(180) days after receipt of such request; provided, further that the Company may
not defer more than one such filing in any twelve (12) month period.
(b) If the Initial Shelf Registration or any subsequent Shelf
Registration ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the sale of all of the securities
registered thereunder), the Company shall use all reasonable efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof, and in
any event shall within 30 days of such cessation of effectiveness amend the
Shelf Registration in a manner reasonably expected to obtain the withdrawal of
the order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use all reasonable efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period. The Effectiveness Period shall be
extended by the period of time which elapsed between such cessation of
effectiveness and the withdrawal of the order suspending the effectiveness or
the effective date of the subsequent shelf registration, as the case may be.
(c) The Company shall supplement and amend the Shelf Registration or
Subsequent Shelf Registration, as the case may be, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the holders of a majority of the securities included in
such Registration Statement.
(d) Notwithstanding the foregoing, the Company shall not be obligated
to take any action to effect any such registration, qualification or compliance
pursuant to this Section 1.2:
(i) if, during the six (6) month period following the Closing
Date, the Company has initiated a registration pursuant to Section 1.3
hereof and the Holder has distributed his Registrable Securities
pursuant to such registration (counting for these purposes only
registrations which have been declared or ordered effective and
pursuant to which securities have been sold and registrations which
have been withdrawn by the Holder unless the Holder has elected to bear
all Registration Expenses incurred by the Company pursuant to Section
1.5 hereof and related to the Holder and its withdrawal, and which
expenses
-4-
would, absent such election, have been borne by the
Company);
(ii) at any time before the date six (6) months
after the Closing Date; or
(iii) if the Company shall have previously initiated any
registration pursuant to this Section 1.2 (counting for these purposes
only a registration which has been declared or ordered effective and
pursuant to which securities have been sold and any registration which
has been withdrawn by the Holder unless the Holder has elected to bear
all Registration Expenses incurred by the Company pursuant to Section
1.5 hereof and related to the Holder and its withdrawal, and which
expenses would, absent such election, have been borne by the Company).
(e) The registration statement filed in accordance with Section 1.2
pursuant to the request of the Holder may include other securities of the
Company with respect to which registration rights have been granted, and may
include securities of the Company being sold for the account of the Company.
1.3 Piggyback Registration.
----------------------
(a) If the Company shall determine to register any of its securities
either for its own account for cash or for the account of a securityholder or
holders exercising their respective demand registration rights (other than (1)
pursuant to Section 1.2 hereof, (2) a registration relating solely to employee
benefit plans on Form X-0, Xxxx X-0, or similar forms which may be promulgated
in the future, or (3) a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar form which may be promulgated in the future),
the Company will:
(i) promptly give to the Holder written notice
of the proposed registration; and
(ii) include in such registration (and in any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, the Registrable Securities (which may be
all or part of the Registrable Securities) specified for inclusion in
such registration in a written request made by the Holder within thirty
(30) days after the Holder receives such written notice from the
Company, except as set forth in paragraph 1.3(b).
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to paragraph
1.3(a)(i). In such event the
-5-
right of the Holder to registration pursuant to this Section 1.3 shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and the
other securityholders, if any, distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.3, if the
underwriters determine that marketing factors require a limitation of the number
of securities to be underwritten and that the number of securities requested to
be included by the Company and holders of securities entitled to be included in
the registration exceeds the amount of securities compatible with the success of
the offering, and so advise the Company in writing, the Company may limit, to
the extent so advised by the underwriters, the amount of securities to be
included in the registration by the Company's securityholders (including the
Holder). The Company shall advise the Holder of such limitation, and the number
of Registrable Securities and other securities held by other securityholders of
the Company that may be included in the registration shall be allocated among
the Holder and other securityholders requesting inclusion, in accordance with
paragraph 1.3(c) hereof.
If the Holder disapproves of the terms of any such underwriting,
including any reduction by the underwriter for market reasons, he may elect not
to be included in the registration by delivering written notice to the Company
at least three (3) days prior to the effective date of the registration
statement (unless otherwise mutually agreed by the Company and the Holder).
(c) In any circumstance in which all of the Registrable Securities and
other securities (including shares of Common Stock issued or issuable upon
conversion of shares of any currently unissued series of Preferred Stock of the
Company) with registration rights (the "Other Securities") requested to be
included in a registration on behalf of the Holder or other selling
securityholders cannot be so included as a result of limitations imposed by the
underwriters on the aggregate number of shares of Registrable Securities and
Other Securities which may be so included, the number of Registrable Securities
and Other Securities which may be so included shall be allocated among the
Holder and other selling securityholders requesting inclusion of securities pro
rata on the basis of the number of Registrable Securities and Other Securities
which would be held by such Holder and other selling securityholders, assuming
conversion; provided, however, that, so that such allocation shall not operate
to reduce the aggregate number of Registrable Securities and Other Securities to
be included in such registration, if the Holder or other selling securityholder
does not request inclusion of the maximum number of Registrable
-6-
Securities and Other Securities allocated to him pursuant to the above-described
procedure, the remaining portion of his allocation shall be reallocated among
those other selling securityholders whose allocations did not satisfy their
requests pro rata on the basis of the number of Other Securities which would be
held by such other selling securityholders, assuming conversion, and this
procedure shall be repeated until all of the Other Securities which may be
included in the registration on behalf of the Holder and other selling
securityholders have been so allocated. The Company shall not limit the number
of Registrable Securities to be included in a registration pursuant to this
Agreement in order to include securities held by securityholders with no
registration rights.
(d) The Company shall use all reasonable efforts to keep such
registration pursuant to this Section 1.3, and any qualification or compliance
under state securities laws which the Company determines to obtain, effective
for a period of one hundred eighty (180) days from the date of effectiveness or
for such shorter period that will terminate when all the Registrable Securities
covered by the registration statement have been sold pursuant thereto or may be
sold pursuant to Rule 144 or there cease to outstanding any Registrable
Securities, whichever first occurs, provided that the Company shall be deemed
not to have used all reasonable efforts to keep such registration, qualification
or compliance effective during the requisite period if it voluntarily takes any
action that would result in the Holder not being able to offer and sell his
Registrable Securities during that period unless such action is required by
applicable law.
1.4 Registration Procedures. In connection with the Company's
-----------------------
registration obligations under Sections 1.2 and 1.3 hereof, the Company shall
effect such registrations to permit the sale of the Registrable Securities in
accordance with the method or methods of disposition thereof intended by the
Holder (except that the Company shall not be required to effect any registration
pursuant to Section 1.2 involving an underwriting), and pursuant thereto the
Company shall as expeditiously as practicable:
(a) Prepare and file with the Commission a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof in
accordance with the intended method or methods of distribution thereof, and
cause each such Registration Statement to become effective and remain effective
as provided herein; provided, that before filing any such Registration Statement
or Prospectus or any amendments or supplements thereto (other than documents
that would be incorporated or deemed to be incorporated therein by reference and
that the Company is required by applicable securities laws or stock exchange
requirements to file) the Company shall furnish to the Holder copies of all such
documents proposed to be filed, which documents will be subject to the
-7-
review of the Holder and its counsel, if any, and the Company shall not file any
such Registration Statement or amendment thereto or any Prospectus or any
supplement thereto (other than such documents which, upon filing, would be
incorporated or deemed to be incorporated by reference therein and that the
Company is required by applicable securities laws or stock exchange requirements
to file) to which the holders of a majority of the securities covered by such
Registration Statement shall reasonably object on a timely basis.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Sections 1.2 and 1.3; cause the related Prospectus to be
amended or supplemented by any required Prospectus amendment or supplement, and
as so amended or supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the methods of disposition intended by the holders thereof
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented.
(c) Notify the Holder promptly, and (if requested by the Holder)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to a Registration Statement or related
Prospectus or for additional information, (iii) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or the happening of any event which
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make
-8-
the statements therein, in the light of the circumstances under which they were
made, not misleading, and (vi) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If reasonably requested by the holders of a majority of the
securities being sold, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the Company or the holders of a
majority of such securities agree should be included therein as required by
applicable law, (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to any Registration Statement consistent with clause (i) or (ii) above;
provided, that the Company shall not be required to take any actions under this
paragraph 1.4(e) that are not, in the opinion of outside counsel for the
Company, in compliance with applicable law.
(f) Furnish to the Holder and its counsel, if any, upon request and
without charge, at least one conformed copy of the Registration Statement or
Statements and any post-effective amendment thereto, including financial
statements (but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits, unless requested in writing
by such holder or counsel).
(g) Deliver to the Holder and its counsel, if any, without charge, as
many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus or each amendment or supplement
thereto by the Holder in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Securities, to register
or qualify or cooperate with the Holder and its counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
the Holder reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
-9-
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified or (ii) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of the Holder, in which case the
Company will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals, as may be necessary
to enable the Holder to consummate the disposition of such Registrable
Securities.
(j) Upon the occurrence of any event contemplated by paragraphs
1.4(c)(v) or 1.4(c)(vi) above, prepare a supplement or post-effective amendment
to each Registration Statement or an amendment or supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document (such as Current Report on Form 8-K) so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) If necessary in connection with a disposition of Registrable
Securities, make available for inspection, at the offices where normally kept
during reasonable business hours, by a representative of the Holder and any
attorney or accountant retained by the Holder, financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
as they may reasonably request, and cause the officers, directors and employees
of the Company and its subsidiaries to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such disposition; provided, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents shall be kept confidential by such
Persons, and such Persons shall so agree in writing, unless (i) such records,
information or documents are in the public domain or otherwise publicly
available, (ii) disclosure of such records, information or documents is required
by court or administrative order or is necessary to respond to inquiries of
regulatory authorities or (iii) disclosure of such records, information or
documents is otherwise required by law
-10-
(including, without limitation, pursuant to the requirements of the Securities
Act).
(l) Comply with all applicable rules and regulations of the Commission
and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company, after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(m) Enter into such agreements and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of such
Registrable Securities.
(n) Unless any Registrable Securities shall be in book-entry only form,
cooperate with the Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the Holder may request.
(o) Provide the transfer agent for the Common Stock with printed
certificates for the Registrable Securities which are in a form eligible for
deposit with The Depository Trust Company.
(p) Cause the Common Stock to be listed on each securities exchange or
quotation system on which the Company's Common Stock is then listed no later
than the date the Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make such filings under the
Exchange Act and to have such filings declared effective thereunder.
The Company may require the Holder, and the Holder agrees, to furnish
to the Company such information regarding the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request in writing
and the Company may exclude from such registration the Registrable Securities if
the Holder unreasonably fails to furnish such information within a reasonable
time after receiving such request. The Holder agrees promptly to furnish to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by the Holder not misleading.
Any sale of any Registrable Securities by the Holder shall constitute a
representation and warranty by the Holder that the information relating to the
Holder and its plan of distribution is as set forth in the Prospectus delivered
by the Holder in connection with such disposition, that such Prospectus does not
as of the time of such sale contain any untrue statement of a material fact
relating to the Holder or its plan of distribution and that such Prospectus does
not as of
-11-
the time of such sale omit to state any material fact relating to the Holder or
its plan of distribution necessary to make the statements in such Prospectus, in
the light of the circumstances under which they were made, not misleading.
The Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in paragraphs 1.4(c)(ii),
1.4(c)(iii), 1.4(c)(iv), 1.4(c)(v) or 1.4(c)(vi) hereof, the Holder will
forthwith discontinue disposition of such Registrable Securities covered by the
applicable Registration Statement or Prospectus until the Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by paragraph
1.4(j) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus. The Company agrees to give
the Advice promptly after it determines that the use of the applicable
Prospectus may be resumed.
1.5 Registration Expenses. All fees and expenses incident to the
---------------------
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any of the Registration Statements become
effective and whether or not any of the Registrable Securities are transferred
pursuant to the Registration Statement. Such fees and expenses shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to designation of the Registrable
Securities as eligible for trading on The Nasdaq Stock Market's National Market,
and (B) of compliance with securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and of printing Prospectuses), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company and the counsel
for the Holder in connection with the Shelf Registration (provided that the
Company shall not be liable for the reasonable fees and expenses of more than
one separate firm for all parties other than the Company participating in any
transaction hereunder), (v) reasonable fees and disbursements of all independent
certified public accountants, (vi) Securities Act liability insurance if the
Company so desires such insurance, and (vii) fees and expenses of all other
Persons retained by the Company. In addition, the Company will, in any event,
bear its own internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange on
which similar securities issued by the Company are then listed and the fees and
expenses of any Person, including special experts, retained by the Company.
-12-
1.6 Delay of Registration. The Holder shall not have any right to take
---------------------
any action to restrain, enjoin or otherwise delay any registration as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement, unless such registration pertains solely to
Registrable Securities.
1.7 Indemnification.
---------------
(a) The Company will indemnify the Holder, his legal counsel and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions or proceedings in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or arising out of or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse the Holder and each person controlling the Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing, defending or settling any such claim, loss, damage, liability or
action, provided that the Company will not be liable to indemnify the Holder or
underwriter in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by or on behalf of the Holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this paragraph 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) The Holder will, if Registrable Securities held by the Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, his legal counsel and each
person
-13-
controlling the Company within the meaning of Section 15 of the Securities Act,
and each underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls any underwriter within the
meaning of Section 15 of the Securities Act against all claims, losses, damages
and liabilities (or actions or proceedings in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or arising out of or based upon any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse the
Company, such directors, officers, partners, legal counsel, accountants,
persons, underwriters or control persons for any legal and any other expenses
reasonably incurred in connection with investigating, preparing, defending or
settling any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that it is judicially determined that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
was made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by or on behalf of the Holder and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this paragraph 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent has not
been unreasonably withheld) and the obligations of Holder hereunder shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
(or actions or proceedings in respect thereof) if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld). The Holder's liability under this Paragraph 1.7(b) shall not exceed
the proceeds received by the Holder from the sale of Registrable Securities held
by the Holder included in such registration, qualification or compliance.
(c) Each party entitled to indemnification under this Section 1.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Without limiting the generality of the foregoing, the Indemnified
Party may withhold its consent to any such counsel who also acts as counsel to
the Indemnifying Party (with
-14-
respect to such claim or otherwise) and the Indemnified Party reasonably
believes that there exists a conflict of interest between the Indemnified Party
and the Indemnifying Party, with respect to such claim or litigation. In such
event, the Indemnifying Party shall bear the expense of another counsel who
shall represent the Indemnified Party and any other persons or entities who have
indemnification rights from the Indemnifying Party hereunder, with respect to
such claim or litigation, and shall be selected as provided in the first
sentence of this paragraph 1.7(c). The Indemnified Party may participate in such
defense at such party's expense (except to the extent that the Indemnifying
Party is required to pay the expense of such counsel pursuant to this paragraph
1.7(c)), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure is materially prejudicial
to the Indemnifying Party in defending such claim or litigation. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability with respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.7 is held to
be unavailable to an Indemnified Party with respect to any loss, liability,
claim, damage or expense referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
1.8 Lockup Agreement. In consideration for the Company agreeing to its
----------------
obligations under this Article 1, the Holder
-15-
agrees, upon the request of the underwriters managing an underwritten offering
of the Company's securities, not to publicly (including pursuant to Rule 144(k)
promulgated under the Securities Act) sell, make any short sale of, pledge,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed ninety (90) days) as the underwriters
may specify from the effective date of the registration statement pertaining to
such offering.
The obligation of the Holder to enter into the agreement described
herein shall terminate when the Holder's registration rights have terminated
pursuant to paragraph 1.2(a) or Section 1.3 hereof. The obligations described in
this Section 1.8 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.9 Information Requirements
------------------------
(a) The Company shall file in a timely manner the reports required to
be filed by it under the Securities Act and the Exchange Act, and if at any time
the Company is not required to file such reports, it will, upon the request of
the Holder, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 under the Securities Act. The Company further
covenants that it will cooperate with the Holder and take such further action as
the Holder may reasonably request (including without limitation making such
representations as any such holder may reasonably request), all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act. Upon the request of
the Holder, the Company shall deliver to the Holder a written statement as to
whether it has complied with such filing requirements.
(b) The Company shall file in a timely manner the reports required to
be filed by it under the Exchange Act and shall comply with all other
requirements set forth in the instructions to Form S-3 in order to allow the
Company to be eligible to file registration statements on Form S-3.
Article 2. Miscellaneous.
--------- -------------
2.1 No Inconsistent Agreements. The Company has not entered, as of the
--------------------------
date hereof, and shall not enter, on or after the date of this Agreement, any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holder in this Agreement.
-16-
2.2 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the Holder.
2.3 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telefax or
(iii) one business day after being deposited with a reputable next-day courier,
charges prepaid, to the parties as follows:
(x) if to the Holder, at the most current address given by
the Holder to the Company in accordance with the provisions of this
Section 2.3, with a copy to Xxx & Xxxxx Incorporated, Suite 1800, 000
X. Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxx 00000-0000, Attention: Xxxxx X.
Xxxxxxxx, Esq.; and
(y) if to the Company, to Western Micro Technology, Inc., 000
Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, Attention: Chief
Financial Officer, with a copy to Pillsbury Madison & Sutro LLP, 0000
Xxxx Xxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx 00000, Attention: Xxxxx del
Xxxxx, Esq.
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
2.4 Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties. The registration rights of the Holder under this Agreement are personal
to the Holder and may not be transferred or assigned; provided, however, Holder
may assign his registration rights hereunder to any relative or spouse of Holder
(such relative being related to the Holder in the second degree), or to a trust,
corporation, partnership or other entity in which all of the beneficial interest
is held by or for such person, persons or the Holder. Except as set forth in the
preceding sentence, the Holder's registration rights hereunder are not
transferable or assignable other than by will or pursuant to the laws of descent
and distribution. The Company may not assign its rights or obligations hereunder
without the prior written consent of the Holder.
2.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
-17-
2.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
2.8 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such which may be hereafter declared invalid, void or
unenforceable.
2.9 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Common Stock issued to Shareholder
pursuant to the Stock Purchase Agreement. Except as provided in the Stock
Purchase Agreement, there are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the Common Stock.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such registration rights.
2.10 Arbitration. Any dispute arising out of or relating to this
-----------
Agreement shall be determined by binding arbitration in accordance with certain
aspects of the then-current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys'
fees and costs, the arbitration shall be conducted by a panel of three (3)
neutral arbitrators. Otherwise, the arbitration shall be conducted by a single
neutral arbitrator. The parties shall endeavor to select neutral arbitrators by
mutual agreement. If such agreement cannot be reached within thirty (30)
calendar days after a dispute has arisen which is to be decided by arbitration,
any party or the parties jointly shall request the American Arbitration
Association to submit to each party an identical panel of fifteen (15) persons.
Alternate strikes shall be made to the panel, commencing with the party bringing
the claim, until the names of three (3) persons remain, or one (1) person if the
case is to be heard by a single arbitrator. The parties may, however, by mutual
agreement request the American Arbitration Association to submit addi-
-18-
tional panels of possible arbitrators. The person(s) thus remaining shall be the
arbitrator(s) for such arbitration. If three (3) arbitrators are selected, the
arbitrators shall elect a chairperson to preside at all meetings and hearings.
If a dispute is to be resolved by a sole arbitrator in accordance with the terms
hereof, or if the dispute is to be resolved by a panel of three (3) arbitrators
as provided hereinabove, then such sole arbitrator or the chairperson of such
panel, as the case may be, shall be a member of a state bar engaged in the
practice of law in the United States or a retired member of a state or the
federal judiciary in the United States. The award of the arbitrator(s) shall
require a majority of the arbitrators in the case of a panel of arbitrators,
shall be in writing and reasoned, shall be based on the evidence admitted and
the substantive law of the State of Delaware and shall contain an award for each
issue and counterclaim. The award shall be made within thirty (30) days
following the close of the final hearing and the filing of any post-hearing
briefs authorized by the arbitrator(s). The award of the arbitrator(s) shall be
final and binding on the parties hereto and the subject matter. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. ss. 1-16, and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court having jurisdiction thereof. The place of arbitration shall be Denver,
Colorado. Each party shall be entitled to inspect and obtain a copy of relevant
documents in the possession or control of the other party and to take
depositions of the other party's employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. No
party shall be entitled to submit interrogatories to the other parties. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the
arbitration process including, without limitation, the refusal to comply with
orders of the arbitrator(s) relating to discovery and compliance with subpoenas.
The arbitrator(s) are not empowered to award damages in excess of actual damages
and the Holder and the Company, for themselves and on behalf of each Indemnified
Party, hereby irrevocably waive any right to recover such damages with respect
to any dispute resolved by arbitration.
2.11 Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the arbitrator(s)
in accordance with Section 2.10 above, shall be entitled to recover
-19-
reasonable attorneys' fees in addition to any other available remedy.
2.12 Further Assurances. Each of the parties hereto shall use all
------------------
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
2.13 Termination. This Agreement and the obligations of the parties
-----------
hereunder shall terminate at the end of the Effectiveness Period, except for any
liabilities or obligations under Sections 1.5 or 1.7 or the proviso of paragraph
1.4(k) above, which shall remain in effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WESTERN MICRO TECHNOLOGY, INC.
By _____________________________________
P. Xxxxx Xxxxx
President and
Chief Executive Officer
SHAREHOLDER
_________________________________________
Carlton Xxxxxx Xxxxxxx XX
-20-
EXHIBIT H
FORM OF OPINION OF PILLSBURY MADISON & SUTRO LLP
------------------------------------------------
June __, 1997
Xxxxxx X. Xxxxx
Xxxxxxx Xxxxxx Xxxxxxx XX
Re: Western Micro Technology, Inc. - Acquisition of
Common Stock of Star Management Services, Inc.
Dear Sirs:
We have acted as counsel for Western Micro Technology, Inc., a
California corporation ("WMT"), in connection with the transactions contemplated
by the Stock Purchase Agreement dated June ___, 1997 by and among WMT, Star
Management Services, Inc., and you (the "Stock Purchase Agreement"), and the
issuance of common stock, without par value, of WMT (the "Shares") pursuant
thereto. This opinion is rendered pursuant to Section 8.2(d) of the Stock
Purchase Agreement. Terms not specifically defined herein shall have the
definitions ascribed to them in the Stock Purchase Agreement.
We have examined executed copies of the Stock Purchase Agreement and
such other documents and certificates of public officials and representatives of
WMT as we have deemed necessary as a basis for the opinions expressed herein. As
to questions of fact material to such opinions, we have, when relevant facts
were not independently established, relied upon certificates of officers of WMT.
We have assumed the genuineness of all signatures and documents
submitted to us as originals, that all copies submitted to us conform to the
originals, the legal capacity of all natural persons, and, as to documents
executed by entities other than WMT, that each such entity has complied with any
applicable requirement to file returns and pay taxes under the California
Franchise Tax law and had the power to enter into and perform its obligations
thereunder, and that such documents have been duly authorized, executed and
delivered by, and are binding upon and enforceable against, such entities.
We assume that you know of no agreements, understandings or
negotiations between the parties not set forth in the Stock Purchase Agreement
(including all exhibits thereto) that would
Xxxxxx X. Xxxxx
Xxxxxxx Xxxxxx Xxxxxxx XX
June __, 1997
Page 2
modify the terms or rights and obligations of the parties thereunder.
We express no opinion as to the enforceability of the earn-out payment
provision set forth in Section 2.6 of the Stock Purchase Agreement.
We express no opinion as to the effect of the provisions of the Stock
Purchase Agreement, the Registration Rights Agreement, the Registration Rights
Agreement pertaining to Common Stock Warrants issued in connection with
subordinated promissory notes, the Common Stock Purchase Warrant, the XXX
Agreement, and the Employment Agreement for Carlton Xxxxxx Xxxxxxx XX,
specifying that the law of Delaware governs such agreements. Our opinions
regarding such agreements (hereinafter, together with the Promissory Note and
the Employment Agreements for Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxx and Xxxxxxx X. X.
Xxxxxx, sometimes collectively referred to as the "Transaction Agreements"), are
being rendered based on the assumption that the laws of Delaware are the same as
California, and that such agreements are governed by the internal laws of the
State of California.
We express no opinion as to the laws of any jurisdiction other than
California and the United States, nor as to the effect on the transaction of the
antitrust laws of either.
Based upon the foregoing and subject to the qualifications set forth
below, it is our opinion that:
1. WMT is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of California.
2. WMT has full corporate power and authority to execute, deliver and
perform its obligations under the Transaction Agreements, to own its property
and to carry on its business in the manner currently conducted.
3. The Transaction Agreements have each been duly authorized by all
necessary corporate action on the part of WMT, and each of such documents
delivered at or prior to the Closing has been duly executed and delivered by
WMT.
4. The Stock Purchase Agreement, the Registration Rights Agreement, the
Registration Rights Agreement pertaining to Common Stock Warrants issued in
connection with subordinated promissory notes, the Common Stock Purchase
Warrant, the XXX
Xxxxxx E. Xxxxx
Xxxxxxx Xxxxxx Xxxxxxx XX
June __, 1997
Page 3
Agreement and the Employment Agreement for Carlton Xxxxxx Xxxxxxx XX are each a
valid and binding obligation of WMT enforceable in accordance with their
respective terms.
5. The Shares have been duly and validly authorized and upon delivery
thereof and upon receipt by WMT of the consideration therefor as contemplated in
the Stock Purchase Agreement, will have been duly and validly issued and will be
fully paid and nonassessable. The Warrant Shares (as defined in the Common Stock
Purchase Warrant) have been duly and validly authorized, have been duly reserved
for issuance upon the exercise of the Common Stock Purchase Warrant, and upon
delivery thereof upon exercise of the Common Stock Purchase Warrant and upon
receipt by WMT of the consideration therefor as contemplated in the Common Stock
Purchase Warrant, will have been validly issued and will be fully paid and
nonassessable. The sale, issuance and delivery of the Shares and the Warrant
Shares are not subject to any preemptive or similar rights.
6. Execution and delivery of the Transaction Agreements, and
performance by WMT of its obligations thereunder do not conflict with or violate
WMT's Articles of Incorporation or Bylaws, or any applicable law or regulation
(other than ordinances and regulations of counties and political subdivisions
thereof), or any order of court or arbitrator known to us, and do not conflict
with and will not constitute a material breach of, or default under, the
provisions of any material contract known to us by which WMT is bound.
7. No approval, authorization or other action by any governmental
authority or filing (other than filings solely for information purposes or to
obtain action which is not the subject of governmental discretion) with any such
authority which has not been obtained or accomplished is required in connection
with the execution, delivery and performance by WMT of the Transaction
Agreements.
8. Based in part upon the investment representations of Carlton Xxxxxx
Xxxxxxx XX in the Stock Purchase Agreement, the offering, issuance and sale of
the Shares under the circumstances contemplated by the Stock Purchase Agreement
constitute an exempt transaction under the Securities Act of 1933, as amended.
9. To our knowledge, there is no action, suit or proceeding pending or
overtly threatened against WMT before any
Xxxxxx X. Xxxxx
Xxxxxxx Xxxxxx Xxxxxxx XX
June __, 1997
Page 4
court or administrative agency, except as set forth on Schedule A hereto.
----------
The opinions set forth above are subject to the following
qualifications:
(a) Our opinion in paragraph 4 above is subject to and limited by:
(i) the effect of bankruptcy, insolvency, reorganization, receivership,
conservatorship, arrangement, moratorium or other laws affecting or
relating to the rights of creditors generally; (ii) the rules governing
the availability of specific performance, injunctive relief or other
equitable remedies and general principles of equity, regardless of
whether considered in a proceeding in equity or at law; (iii) the
effect of applicable court decisions, invoking statutes or principles
of equity, which have held that certain covenants and provisions of
agreements are unenforceable where the breach of such covenants or
provisions imposes restrictions or burdens upon a borrower, and it
cannot be demonstrated that the enforcement of such restrictions or
burdens is necessary for the protection of the creditor, or which have
held that the creditor's enforcement of such covenants or provisions
under the circumstances would violate the creditor's covenants of good
faith and fair dealing implied under California law; (iv) the effect of
California statutes and rules of law which cannot be waived
prospectively by a borrower; and (v) the effect of any provision for
indemnification against claims arising under provisions of applicable
securities laws.
(b) We express no opinion in paragraph 7 as to the effect of
applicable federal or state securities laws.
(c) Whenever a statement herein is qualified by "known to us," "to
our knowledge" or similar phrase, it indicates that in the course of
our representation of WMT no information that would give us current
actual knowledge of the inaccuracy of such statement has come to the
attention of the attorneys in this firm who have rendered legal
services in connection with this transaction. We have not made any
independent investigation to determine the accuracy of such statement,
except as expressly described herein.
Xxxxxx X. Xxxxx
Xxxxxxx Xxxxxx Xxxxxxx XX
June __, 1997
Page 5
No inference as to our knowledge of any matters bearing on the accuracy
of such statement should be drawn from the fact of our representation
of WMT in other matters in which such attorneys are not involved.
This opinion is rendered solely for your information in connection with
the transaction described above and may not be relied upon by any other person
for any purpose without our prior written consent.
Very truly yours,
E-01788
EXHIBIT I
---------
FORM OF OPINION OF XXX & XXXXX INCORPORATED
-------------------------------------------
__________, 1997
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: P. Xxxxx Xxxxx, President
Re: Sale of Star Management Services, Inc.
Dear Gentlemen:
We have acted as special counsel to Xxxxxx X. Xxxxx and Xxxxxxx Xxxxxx
Xxxxxxx XX (together, the "Stockholders") in connection with the preparation,
execution and delivery of the Stock Purchase Agreement dated June __, 1997 (the
"Stock Purchase Agreement"), among Western Micro Technology, Inc., a California
corporation ("WMT"), Star Management Services, Inc., a Delaware corporation (the
"Company"), and the Stockholders. Capitalized terms used and not otherwise
defined herein have the meanings set forth in the Stock Purchase Agreement. In
connection with our representation of the Stockholders, we have had access to
the Company's records as we have deemed necessary to render the opinions set
forth herein.
This opinion is furnished to you pursuant to Section 8.3(d) of the Stock
Purchase Agreement. In that connection, we have examined executed counterparts
of the Stock Purchase Agreement and the Stockholders' Closing Documents. We have
also examined originals or copies of (i) the Articles of Incorporation and
Bylaws of the Company and its Subsidiaries, and all amendments thereto, (ii) the
records provided to us by the Company and the Stockholders of actions by written
consent and minutes of meetings of the stockholders and Boards of Directors of
the Company and its Subsidiaries and the records provided to us by the Company
and the Stockholders of capital stock and other securities issued by the Company
and its Subsidiaries, (iii) other corporate documents of the Company and its
Subsidiaries and certificates of public officials, officers of the Company and
its Subsiciaries, the Stockholders and others, and (iv) such other documents as
we have deemed necessary or appropriate for purposes of this opinion. As to all
factual matters material to the opinions set forth herein, we have (with your
permission and without any investigation or independent confirmation) relied
upon, and assumed the accuracy of, such certificates, corporate records,
searches and other documents (including certificates of officers of the Company
and the Stockholders as to matters of fact) with respect to the facts stated
therein.
In rendering the opinions expressed below, we have assumed, with your
permission and without independent verification, that:
(a) the signatures of the persons signing all documents in connection with
which this opinion is rendered are genuine and authorized (other than those of
the Stockholders and the Company);
(b) all documents submitted to us as originals or duplicate originals are
authentic;
(c) all documents submitted to us as copies, whether certified or not,
conform to authentic original documents; and
(d) all parties to the documents reviewed by us (other than the
Stockholders and the Company) have full power and authority to execute, to
deliver and to perform their obligations under such documents and
-1-
under the documents required or permitted to be delivered and performed
thereunder, and all such documents have been duly authorized by all necessary
action on the part of parties thereon other than the Stockholders and the
Company, have been duly executed and delivered by such other parties, and are
valid, binding and enforceable obligations of such other parties.
Based upon the foregoing and subject to the qualifications set forth below,
and except as may otherwise be set forth on Exhibit A to the Stock Purchase
Agreement, including any supplement thereto (collectively, "Exhibit A"), we are
of the opinion that:
(a) The Company and each of its Subsidiaries (the Company and each of its
Subsidiaries each an Acquired Company" and, collectively, the "Acquired
Companies") is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to execute, deliver and perform its
obligations under the Stock Purchase Agreement, to carry on its business as it
is now being conducted, to own or hold under lease the properties and assets
which it owns or holds under lease and perform all its obligations under the
agreements and instruments to which it is a party or by which it is bound. Each
Acquired Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state identified in Exhibit A as a
state in which such Acquired Company is authorized to do business.
(b) The Stock Purchase Agreement constitutes the legal, valid and binding
obligation of the Stockholders and the Company, enforceable against the
Stockholders and the Company in accordance with its terms. The Stockholders'
Closing Documents constitute the legal, valid and binding obligations of the
Stockholders enforceable against the Stockholders in accordance with their
respective terms. The Company has the right, power and authority to execute and
deliver the Stock Purchase Agreement and to perform its obligations thereunder.
Neither the execution and delivery of the Stock Purchase Agreement or the
Stockholders' Closing Documents by the Stockholders or the Company nor the
consummation of the transactions contemplated by the Stock Purchase Agreement or
the Stockholders' Closing Documents will:
(i) violate or conflict with (x) any provision of the Organizational
Documents of any Acquired Company or any other charter document of an
Acquired Company, or (y) any resolution adopted by the board of directors
or the stockholders of any Acquired Company;
(ii) to our knowledge, violate or conflict with any provision of any
applicable law, rule, regulation, order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other decision (other
than ordinances and regulations of counties and political subdivisions
thereof) of any court, government, governmental agency or instrumentality,
domestic or foreign, or arbitrator, binding upon any Acquired Company or
any Stockholder except for such violations or conflicts which would not
have a Material Adverse Effect on the Company;
(iii) result in a breach of, or constitute a default under (or with
notice or lapse of time, or both, result in a breach of or constitute a
default under) or otherwise give any person the right to terminate, any
lease, license, contract or other agreement or instrument known to us to
which any Acquired Company is a party or by which it is bound if such
termination would have a Material Adverse Effect on the Company;
(iv) conflict with or result in a breach or violation of any term or
provision of, or (with or without notice or passage of time, or both)
constitute a default under, any indenture, mortgage, deed of trust, trust
(constructive and other), loan agreement or other agreement or instrument
known to us to which a Stockholder is a party or by which a Stockholder or
such Stockholder's Shares are bound which such conflict, breach or
violation would have a Material Adverse Effect.
-2-
(c) The Stock Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of the Company.
(d) Each of the Stockholders has the right, power and capacity to execute
and deliver the Stock Purchase Agreement and the Stockholders' Closing Documents
and to sell, transfer and deliver the Shares pursuant to the Stock Purchase
Agreement and the Stockholders' Closing Documents. The Stock Purchase Agreement
and each of the Stockholders' Closing Documents has been duly authorized,
executed and delivered by or on behalf of each of the Stockholders. Upon
delivery of the certificates representing the Shares on behalf of the
Stockholders pursuant to the terms of the Stock Purchase Agreement and payment
therefor by MSI, assuming that MSI is not aware of any adverse claim with
respect thereto and that MSI is otherwise a protected purchaser of the Shares
subject to and within the meaning of section 8.303 of the Texas Uniform
Commercial Code as in effect on the date hereof (the "Texas U.C.C."), will
transfer all rights and interests in and to the Shares to MSI, free of any
adverse claim.
(e) Neither Stockholder nor any Acquired Company is required to give prior
notice to, or obtain any consent, approval or authorization of, or make any
registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority, creditor or other
person in connection with the execution and delivery of the Stock Purchase
Agreement or the consummation of the transactions contemplated by it, which
notice has not been given and which consent, approval or authorization has not
been obtained, and which registration, qualification, designation, declaration
or filing has not been made except, in all cases, where the failure to do so
would not have a Material Adverse Effect on the Company or WMT is aware of such
failure to do so.
(f) The authorized, issued and outstanding capital stock of each of the
Acquired Companies conforms to the description thereof contained in Section 4.3
and Exhibit A of the Stock Purchase Agreement. All of the issued and outstanding
shares of capital stock of each Acquired Company have been duly authorized,
validly issued and are fully paid and nonassessable, with no preemptive rights,
and are owned of record and, to our knowledge, beneficially by the Stockholders
or Acquired Company in the amounts set forth in Exhibit A of the Stock Purchase
Agreement. Except for or as set forth in the Stock Purchase Agreement and
Exhibit A thereto, to our knowledge, there are no existing agreements, options,
warrants, rights, calls or commitments of any character to which any Acquired
Company is a party or by which it is bound providing for the issuance of any
additional shares, or for the repurchase or redemption of shares of its capital
stock and there are no outstanding securities or other instruments convertible
into or exchangeable for shares of such capital stock and no commitments to
issue such securities or instruments.
(g) To our knowledge, (i) no Acquired Company is subject to any judgment,
award, injunction, rule, order or decree in which relief is sought involving,
affecting or relating to the ownership, operation or use of its assets or the
conduct of its business or which would prevent, delay or make illegal the
transactions contemplated by the Stock Purchase Agreement and (ii) there are no
actions, lawsuits, audits, investigations, claims or proceedings pending or
threatened against, involving, affecting or relating to any Acquired Company or
to its ownership, operation or use of its assets or to the conduct of its
business before any court, arbitrator or federal, state, municipal or other
governmental department, board, agency or instrumentality, which could
reasonably be expected to have a Material Adverse Effect on the Company.
(h) To our knowledge, no consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or body (other
than filing solely for information purposes or to obtain action which is not the
subject of governmental discretion) is required in connection with the
authorization, sale, transfer or delivery of the Shares by or on behalf of the
Stockholders, in connection with the execution, delivery and performance of the
Stock Purchase Agreement and the Stockholders' Closing Documents by or on behalf
of the Stockholders or in connection with the taking by or on behalf of the
Stockholders of any action contemplated thereby.
(i) To our knowledge, there is no pending proceeding that has been
commenced against either Stockholder or any Acquired Company and that
challenges, or may have the effect of preventing, delaying,
-3-
making illegal, or otherwise interfering with, any of the transactions
contemplated by the Stock Purchase Agreement, and, to our knowledge, no such
proceeding has been threatened.
Our opinions are subject in their entirety to the following qualifications:
A. A matter stated above to be "to our knowledge" is intended to indicate
that those attorneys in this Firm who have rendered legal services in connection
with the transactions contemplated by the Stock Purchase Agreement do not have
current actual knowledge of the inaccuracy of such statement. Except as
otherwise expressly indicated, we have not undertaken any independent
investigation to determine the accuracy of any statement contained herein and
any limited inquiry undertaken by us during the preparation of this opinion
letter should not be regarded as such an investigation.
B. The opinion set forth in paragraph (b) above as to enforceability is
subject to the qualification that enforcement may be limited by: (a) bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer, fraudulent
conveyance or other similar laws now or hereinafter in effect relating to or
affecting the rights or remedies of creditors generally; (b) general principles
of equity including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance, injunctive relief or other equitable remedies, regardless
of whether considered in a proceeding in equity or at law; (c) the applicability
of Texas laws concerning the doctrine of election of remedies; and (d) the
unenforceability under certain circumstances under law or court decisions of
provisions providing for (i) indemnification to the extent that such
indemnification provisions may be violative of public policy or (ii) restraints
or limitations on competition.
C. We render no opinion with respect to the effect and compliance or
non-compliance by the Stockholders, the Company or any of the Acquired Companies
with federal or state securities laws or regulations, antitrust laws, the
Federal Tax Lien Act, laws relating to unfair competition, Worker Adjustment and
Retraining Notification Act, environmental laws, or laws relating to choice of
law or conflicts of law or provisions purporting to set evidentiary standards or
waive or establish jurisdiction, venue, service of process, right to a jury
trial, arbitration or statutes of limitation.
D. This opinion is limited to the existing laws of the State of Texas, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America. We disclaim any opinion as to the application or
effect of any statute, rule, regulation, ordinance, order or other promulgation
of any other jurisdiction. The opinions set forth herein are based upon the
assumption that the internal laws of the State of Texas applies to the Stock
Purchase Agreement and the Stockholders' Closing Documents and the transactions
contemplated by such documents. We also call your attention to the fact that
under various reports of the State Bar of Texas or the American Bar Association
certain assumptions, qualifications and exceptions are implicit in opinions of
lawyers. Although we expressly set forth some assumptions, qualifications and
exceptions herein, we are not limiting or omitting any others set forth in the
various reports or otherwise deemed standard for practice by lawyers in Texas.
E. Notwithstanding any provisions of the Stock Purchase Agreement or any of
the Stockholders' Closing Documents to the effect that such document reflects
the entire understanding of the parties with respect to the matters described
therein, a court may consider extrinsic evidence of the circumstances
surrounding the entering into of such document to ascertain the intent of the
parties in using the language employed in such document, regardless of whether
or not the meaning of the language used in such document is plain and
unambiguous on its face, and may determine that additional or supplementary
terms can be incorporated into such document.
F. We express no opinion as to the validity, binding effect or
enforceability of (a) purported waivers of any statutory or other rights, court
rules or defenses to obligations where such waivers (i) are against public
policy, (ii) constitute waivers of broadly or vaguely stated rights or unknown
future rights, or (iii) constitute waivers of rights which by law, regulation or
judicial decision may not otherwise be waived, (b) provisions indemnifying any
person against, or relieving any person of liability for, its own negligent or
wrongful acts or
-4-
in any other circumstances where enforcement of such provisions would be against
public policy or limited or prohibited by applicable law, (c) any provisions
which purport to authorize or permit any person to act in a manner which is
determined not to be in good faith, diligent or commercially reasonable or any
provisions which waive any rights in respect of such acts, (d) powers of
attorney to the extent that the same may be varied by course of dealing or
performance, and (e) provisions pertaining to cumulative remedies.
G. As to the opinion set forth in paragraph (f) above that all of the
outstanding shares of the capital stock of each of the Acquired Companies is
fully paid and nonassessable, we have relied solely on a certificate of an
officer of the Company which states that the stated consideration, in both form
and amount, has been received by such Acquired Company.
H. As to the opinion rendered in paragraphs (b), (g) and (i) above, we have
examined the laws, regulations, ordinances, decrees, other governmental
requirements, documents, contracts, instrument and agreements and the
descriptions of actions, suits, investigations, litigation and proceedings set
forth in Exhibit A and our opinion with regard to non-contravention is limited
to the laws, regulations, ordinances, decrees, other governmental requirements,
documents, contracts, instrument and agreements set forth thereon.
I. In connection with the opinions set forth in paragraphs (b) and (h)
above, we wish to advise you that we have reviewed only those federal or state
constitutions, statutes, regulations, rules, orders, decrees, laws or similar
governmental requirements that, in our experience, are applicable to
transactions of the type contemplated by the Stock Purchase Agreement and the
Stockholders' Closing Documents, but without our having made any special
investigation concerning any other constitutions, statutes, regulations, rules,
orders or laws.
J. As to the opinion set forth in paragraph (b)(iii) and (b)(iv) above, we
have assumed that the consummation of the transactions contemplated by the Stock
Purchase Agreement (except with respect to the Spin-off) will not result in the
assignment of the rights, title and interest to the properties, agreements,
other assets, liabilities and obligations of the Company and the merger of the
Company into Acquisition Sub will result in all of the rights, title and
interest to all real estate, properties, agreements, other assets, liabilities
and obligations of the Company becoming the real estate, properties, agreements,
other assets, liabilities and obligations of Acquisition Sub, without reversion
or impairment, without further act or deed, and without any transfer or
assignment having occurred, but subject to any existing lien or encumbrances
thereon. Under Texas law, an assignment is "the act by which one transfers to
another, or causes to vest in another, his right of property." Highland Park
-------------
State Bank x. Xxxxxxx, 555 S.W.2d 484, 487 (Tex. Civ. App. -- San Antonio 1977,
---------------------
writ ref'd n.r.e.). As a general rule, contract rights are assignable in the
absence of an express provision to the contrary. Xxxxxxx v. Safeway Stores,
--------------------------
Inc., 368 X.0x 000, 000 (0xx Xxx. 0000). Exceptions to the general rule
----
regarding assignments include, among others, (i) where the contract involves
personal services; (ii) where the contract contemplates an extension of credit;
(iii) where specifically prohibited by statute; and (iv) leases, where the
general rule has been modified by statute. Both the general rule and the
exceptions may be modified by the express agreement of the parties. There is
little authority regarding the effect of the sale of stock or a merger or
consolidation of a corporate entity on a nonassignment clause. For example, one
court has held that a merger causes an assignment by operation of law, but that
such a transfer by operation of law is not a breach of a covenant not to assign.
Xxxxxx Realty & Inv. Co. v. St. Louis Nat'l Baseball Club, Inc., 238 S.W.2d 321
---------------------------------------------------------------
(Mo. 1951). Other courts, as well as commentators, have indicated that a
corporate merger transfers contract rights by operation of law, not assignment.
See e.g., Xxxxxxxxxx x. Xxxxx Indus., Inc., 623 F.2d 13 (6th Cir. 1980);
--- ---- --------------------------------
Xxxxxxxx, "Assignments" State Bar of Texas 3rd Annual Advanced Real Estate
--------
Drafting Course (1992). Article 5.06(A) of the Texas Business Corporation Act
provides that "When a merger takes effect . . . (2) all rights, title and
interest to all real estate and other property owned by each domestic or foreign
corporation and by each other entity that is a party to the merger shall be
allocated to and vested in one or more of the surviving or new domestic or
foreign corporations and other entities as provided in the plan of merger
without reversion or impairment, without further act or deed, and without any
transfer or assignment having occurred, but subject to any existing liens or
other encumbrances thereon . . ." [emphasis added] No Texas cases have directly
addressed the provision quoted in the immediately preceding sentence.
-5-
Our opinions are limited to the specific issues addressed herein and are
limited in all respects to laws and facts existing on the date hereof by
rendering our opinions, we do not undertake to advise you of any changes in such
laws or facts which may occur after the date hereof.
Further, consistent with the policy of this Firm with regard to legal
opinions, if you reasonably believe this opinion or any assurance contained
herein is inaccurate in any material respect, then you shall notify us regarding
such inaccuracy and provide us, prior to your acceptance of this opinion, with
an opportunity to cure or correct such item to your satisfaction.
This letter is furnished to you pursuant to the Stock Purchase Agreement
and is not to be used, circulated, quoted or otherwise relied upon by any other
person or entity or for any other purpose without our prior written consent.
Very truly yours,
XXX & XXXXX INCORPORATED
By ________________________________________
For the Firm
-6-
EXHIBIT J
PROMISSORY NOTE
---------------
$__________ San Antonio, Texas
____________, 19__
FOR VALUE RECEIVED, the undersigned __________ (herein called "Maker"),
promises to pay to the order of __________ (herein together with all subsequent
holders hereof called "Holder") at __________, San Antonio, Texas 782__, in
lawful money of the United States of America, the principal sum of __________
($__________), together with interest on the principal balance at the rate
hereinafter provided.
1. From the date of this Promissory Note (this "Note") until the Maturity
Date (as may be extended as provided herein) interest on the principal balance
hereof from time to time remaining unpaid prior to maturity shall accrue at the
lower of (i) a fixed rate per annum equal to __________ percent (__%) [Insert
rate as determined pursuant to the Stock Purchase Agreement] or (ii) the Maximum
Rate, calculated on the basis of actual days elapsed over a year composed of
three hundred sixty-five (365) days, provided, however, that if at any time the
rate of interest specified shall exceed the Maximum Rate, the interest rate
hereunder is automatically limited to the Maximum Rate. As used herein, the term
"Maximum Rate" means the greatest of the rates of interest from time to time
permitted under applicable federal or Texas law. To the extent of the
applicability of Article 5069-1.04, Texas Revised Civil Statutes, as amended,
the Maximum Rate shall be the highest permitted rate based upon the "indicated
(weekly) rate ceiling," but to the extent now or hereafter permitted by Texas
law, Holder may from time to time implement, withdraw and reinstate any ceiling
as an alternative to the indicated rate ceiling, including the right to
reinstate the indicated rate ceiling. Interest on past-due principal and, to the
extent permitted by law, on past-due interest, shall accrue at the lower of the
rates referenced in clauses (i) and (ii) above.
2. Principal and interest on the unpaid principal balance hereof from time
to time outstanding shall be due and payable as follows:
Principal and accrued interest shall be due and payable in full on
__________ ("Maturity Date") [Insert Maturity Date = 6 Months from the date
of this Note].
Automatic Extension of Maturity Date. In the event Maker fails to pay this
------------------------------------
Note in full on the Maturity Date and after using reasonable and good faith
efforts to do so as provided in Section 2.10 of the Stock
-1-
Purchase Agreement (as hereinafter defined), Maker shall, on or before the
Maturity Date, provide Holder with written notice of its inability to pay,
and upon delivery of such notice, the Maturity Date shall be automatically
extended for one (1) successive six (6) month period (such new Maturity
Date being __________) [Insert date which is twelve (12) months from the
date of this Note]; provided, however, that for such extension of the
Maturity Date to be effective, Maker shall pay, on the Maturity Date, all
accrued and unpaid interest then outstanding and payable under this Note.
If the Maturity Date is extended as provided for in this paragraph, all
principal, and accrued and unpaid interest shall be due and payable in full
on __________ [Insert date which is twelve (12) months from the date of
this Note]. If on __________ [Insert date which is twelve (12) months from
the date of this Note], Maker fails to pay this Note, after using
reasonable and good faith efforts to do so as provided in Section 2.10 of
the Stock Purchase Agreement, Maker shall, on or before ______________
[Insert date which is twelve (12) months from the date of this Note],
provide Holder with written notice of its inability to pay, and upon
delivery of such notice, the Maturity Date shall be automatically extended
for successive six (6) month periods until the earlier to occur of (i) the
date that Holder makes written demand to Maker for payment in full of this
Note or (ii) an Acceleration Notice is delivered pursuant to Section 5(a)
hereof, or (iii) if no demand is made under subsection (i) or (ii)
immediately above, on __________ ("Final Maturity Date"); [Insert date
which is 4 years from the date of this Note] provided, however, that for
each such automatic extension of the Maturity Date to be effective, Maker
shall pay, on each applicable extended Maturity Date, all accrued and
unpaid interest then outstanding and payable under this Note. Unless
earlier written demand is made as set forth above or this Note becomes due
and payable prior to the Final Maturity Date pursuant to Section 5(a)
hereof, all principal, and accrued but unpaid interest due on this Note,
shall be due and payable in full on the Final Maturity Date.
Payment of this Note is secured by the terms, conditions and obligations
contained in that certain Stock Purchase Agreement (the "Stock Purchase
Agreement") dated June __, 1997, executed by and among Maker, Holder, Star
Management Services, Inc. and _____________.
3. Subject to Section 9 hereof, this Note shall be governed by and
construed in accordance with Texas law and
-2-
applicable federal law. The parties hereto intend to conform strictly to the
applicable usury laws. In no event, whether by reason of acceleration of the
maturity hereof or otherwise, shall the amount paid or agreed to be paid to
Holder for the use, forbearance or detention of money hereunder or otherwise
exceed the maximum amount permissible under applicable law. If fulfillment of
any provision hereof or of any other document pertaining to the indebtedness
evidenced hereby, at the time performance of such provision shall be due, would
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled shall be reduced automatically to the limit of such
validity. If Holder shall ever receive anything of value deemed interest under
applicable law which would exceed interest at the highest lawful rate, an amount
equal to any amount which would have been excessive interest shall be applied to
the reduction of the principal amount owing hereunder in the inverse order of
its maturity and not to the payment of interest, or if such amount which would
have been excessive interest exceeds the unpaid balance of principal hereof,
such excess shall be refunded to Maker. All sums paid or agreed to be paid to
Holder for the use, forbearance or detention of the indebtedness of Maker to
Holder shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of such indebtedness so
that the amount of interest on account of such indebtedness does not exceed the
maximum permitted by applicable law. The provisions of this paragraph shall
control all existing and future agreements between Maker and Holder.
4. Right and Obligation to Prepay. Maker may at any time prepay the
------------------------------
principal sum of this Note, or any part thereof, together with accrued and
unpaid interest thereon, without premium or penalty. In the event that Maker at
any time obtains sufficient working capital or is able to obtain alternative
financing (after using reasonable and good faith efforts to do so as provided in
Section 2.10 of the Stock Purchase Agreement) to so repay all or part of this
Note, Maker shall be obligated to prepay such portion of the principal sum
outstanding under this Note, together with accrued and unpaid interest thereon,
as is reasonably possible under the circumstances.
5. (a) If default is made in the payment of either principal or interest
and such default is not cured within the applicable cure period provided in
Section 2.8(c), (d) or (e) of the Stock Purchase Agreement, then Holder shall
have the right and option, without notice or demand, to declare the unpaid
balance of principal and accrued interest, and all other sums owing on this
Note, at once due and payable. If Holder is entitled to deliver an Acceleration
Notice (as defined in the Stock Purchase Agreement) to Maker pursuant to Section
2.8(a) of the Stock Purchase Agreement, Holder shall have the right and option,
without notice or demand (other than delivery of the Acceleration Notice), to
declare the unpaid balance of principal and accrued interest, and all other sums
owing on this Note, at
-3-
once due and payable, such amounts to be paid in accordance with Section 2.8(a)
of the Stock Purchase Agreement; provided, however, such acceleration by Holder
shall not relieve Maker of its obligations to make timely payments of amounts
which are due and owing hereunder prior to the payment period set forth in
Section 2.8(a) of the Stock Purchase Agreement. Notwithstanding any provision in
this Agreement to the contrary, upon a Change in Control (as defined in the
Stock Purchase Agreement), Holder shall have the right and option, without
notice or demand, to declare the unpaid balance of principal and accrued
interest, and all other sums owing on this Note, at once due and payable.
(b) Subject to the notice and cure provisions set forth in Section 2.8 of
the Stock Purchase Agreement, Maker hereby (i) waives demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notice, filing of suit and
diligence in collecting this Note or enforcing any of its remedies, (ii) agrees
that Holder shall not be required first to institute suit or exhaust its
remedies hereon against Maker or others liable or to become liable hereon or to
enforce its rights against them and (iii) consents to any extension or
postponement of time of payment of this Note and to any other indulgence with
respect hereto without notice thereof to Maker.
If Maker defaults in the payment of any principal or interest due
hereunder, to the extent not prohibited by law, Maker will pay, or reimburse
Holder for, all reasonable costs and expenses, of every character, incurred or
expended thereafter (including, but not limited to, the reasonable fees and
expenses of counsel for Holder) in connection with the collection of the debt
represented hereby; and all reasonable costs of negotiation, preparation,
execution and delivery of any and all amendments, modifications, supplements,
consents, waivers or other documents or writings relating to this Note. In
addition, if Maker defaults on any payment of principal or interest due
hereunder, Maker will pay, or reimburse Holder for, all reasonable costs and
expenses, of every character incurred or expended thereafter in connection with
the proper exercise by Holder of any of its rights and remedies hereunder or at
law.
If Holder erroneously declares that Maker has defaulted on its obligations
hereunder, Holder will pay, or reimburse Maker for, all reasonable costs and
expenses of every character incurred or expended thereafter in connection with
the defense by Maker of any of any claims made by Holder hereunder.
6. The Maker warrants and represents to the Holder, and to all other
holders of any debt evidenced by this Note, that each loan, whether one or more,
evidenced by this Note is and shall be for business, commercial, investment or
other similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One of Title 79, Texas
Revised Civil Statutes, 1925, as amended.
-4-
7. At any time after the date of this Note, Holder shall have the right to
sell, transfer or assign his interest in all or part of this Note, or the debt
evidenced by this Note, to any relative or spouse of Holder (such relative being
related to the Holder in the second degree), or to a trust, corporation,
partnership or other entity in which all of the beneficial interest is held by
or for such person, persons or the Holder. Except as set forth in the preceding
or following sentence, this Note and the Holder's interest hereunder are not
transferable or assignable other than by will or pursuant to the laws of descent
and distribution. After the expiration of one (1) year after the date of this
Note, Holder shall have the right, exercisable in Holder's sole discretion and
without notice to Maker or any other person, to sell, assign or transfer his
interest in all or part of this Note, or the debt evidenced by this Note. It
shall be a condition to any such transfer that the assignee agree to be bound by
the provisions of this Note, including, without limitation, Sections 5(a), 8, 9
and 10 hereof.
8. Holder acknowledges and agrees that notwithstanding anything to the
contrary contained in this Note or any other agreement or arrangement now
existing or hereafter existing between Holder and Maker, Holder's rights
relating to the repayment of the obligation represented by this Note are
expressly made subject and subordinate to the rights of the following
individuals, corporations, partnerships, trusts, associations or other entities
or organizations, including any government, political subdivision, agency or
instrumentality thereof (the "Senior Creditors") which have loaned or are
expected to lend money or otherwise extend credit to Maker:
(i) IBM Credit Corp, any successor or assign thereof, and/or any
person or entity which enters into one or more working capital lines of
credit with Maker that replaces or is used to repay, in whole or in part,
the working capital line of credit extended by IBM Credit Corp or any
subsequent replacement lines of credit; and
(ii) any financing raised primarily to finance the transactions
contemplated in the Stock Purchase Agreement or obtained in replacement, or
to repay any part of such financing or any subsequent replacement
financing.
Collectively, the loans and other financings referenced in clauses (i) and (ii)
of this Section 8 are referred to herein as the "Senior Debt".
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to Maker or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding up
-5-
of Maker, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of Maker, then and in any such
event the holders of Senior Debt shall be entitled to receive payment in full of
all amounts due or to become due on or in respect of all Senior Debt in cash
before Holder is entitled to receive any payment on account of principal or
interest on this Note from Maker, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of this Note in any
case, proceeding, dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the provisions of the foregoing
paragraph, Holder shall have received any payment or distribution of assets of
Maker of any kind or character (other than such payment or distribution duly
authorized by the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of the
assets of Maker) upon or after the occurrence of an event described in item (a),
(b) or (c) of the immediately preceding paragraph, whether in cash, property or
securities before all Senior Debt is paid in full or payment therefor provided
for, then, and in such event, such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of Maker for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all Senior Debt in full, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
In the event and during the continuation of any event of default or any
event which, with the giving of notice or the lapse of time, or both, would
constitute an event of default on any Senior Debt, unless and until such event
of default or event which, with the giving of notice or the lapse of time, or
both, would constitute such event of default shall have been cured or waived or
shall have ceased to exist, or in the event any judicial proceeding shall be
pending with respect to any such default, and the holder of such Senior Debt has
given written notice of such default or event of default to Holder, then in each
case no payment shall be made by Maker on account of principal of or interest on
this Note.
In the event that Maker shall make any payment to Holder prohibited by the
provisions of the foregoing paragraph and Holder receives such payment after
receipt by Holder of written notice from the holder of Senior Debt of such
event, then and in such event, such payment shall be paid over and delivered
forthwith to Maker.
-6-
The provisions of this and the immediately five preceding paragraphs are,
and are intended, solely for the purpose of defining the relative rights of
Holder on the one hand and the holders of Senior Debt on the other. Nothing in
this and the immediately five preceding paragraphs or elsewhere in this
Agreement or in this Note is intended to or shall (a) impair, as among Maker,
its creditors other than the holders of Senior Debt and Holder, the obligation
of Maker, which is absolute and unconditional, to pay to Holder the principal of
and interest on this Note as and when the same shall become due and payable in
accordance with its terms; or (b) affect the relative rights against Maker of
Holder and creditors of Maker other than the holders of Senior Debt; or (c)
prevent Holder from exercising all remedies otherwise permitted by applicable
law upon default under this Note, subject to the rights, if any, under this and
the immediately five preceding paragraphs of the holders of Senior Debt to
receive cash, property and securities otherwise payable or deliverable to
Holder. No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of Maker or by any act or
failure to act, in good faith, by any such holder, or by any noncompliance by
Holder or Maker with the terms and provisions of this and the immediately five
preceding paragraphs, regardless of any knowledge thereof any such holder may
have or be otherwise charged with.
Any payee of Senior Debt shall have the right to rely on the subordination
contained in this Section 8, and Holder agrees to execute and deliver such
further documents and instruments as Maker may reasonably request to effect the
intent of this subordination.
9. Arbitration. Subject to the procedures set forth in Section 2.8 of the
-----------
Stock Purchase Agreement, any dispute which is not first resolved by Maker and
Holder arising out of or relating to this Note shall be determined by binding
arbitration in accordance with certain aspects of the then-current Commercial
Arbitration Rules of the American Arbitration Association. If the amount in
controversy in the arbitration exceeds Two Hundred Fifty Thousand Dollars
($250,000), exclusive of interest, attorneys' fees and costs, the arbitration
shall be conducted by a panel of three (3) neutral arbitrators. Otherwise, the
arbitration shall be conducted by a single neutral arbitrator. The Maker and
Holder shall endeavor to select neutral arbitrators by mutual agreement. If such
agreement cannot be reached within thirty (30) calendar days after a dispute has
arisen which is to be decided by arbitration, the Maker or Holder, jointly or
severally, shall request the American Arbitration Association to submit to each
party an identical panel of fifteen (15) persons. Alternate strikes shall be
made to the panel, commencing with the person bringing the claim, until the name
of three (3) persons remain, or one (1) person if the case is to be heard by a
single
-7-
arbitrator. Maker and Holder may, however, by mutual agreement request the
American Arbitration Association to submit additional panels of possible
arbitrators. The person(s) thus remaining shall be the arbitrator(s) for such
arbitration. If three (3) arbitrators are selected, the arbitrators shall elect
a chairperson to preside at all meetings and hearings. If a dispute is to be
resolved by a sole arbitrator in accordance with the terms hereof, or if the
dispute is to be resolved by a panel of three (3) arbitrators as provided
hereinabove, then such sole arbitrator or the chairperson of such panel, as the
case may be, shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
arbitrators in the case of a panel of arbitrators, shall be in writing and
reasoned, shall be based on the evidence admitted and the substantive law of the
State of Delaware (with respect to all issues other than the enforceability of
and the calculation of interest due on this Note) and shall contain an award for
each issue and counterclaim. The award shall be made within thirty (30) days
following the close of the final hearing and the filing of any post-hearing
briefs authorized by the arbitrator(s). The award of the arbitrator(s) shall be
final and binding on the Maker and Holder and the successors and assigns
thereof. The arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. ss. 1-16, and judgment upon the award rendered by the arbitrator(s) may
be entered by any court having jurisdiction thereof. The place of arbitration
shall be Denver, Colorado. Maker and Holder shall be entitled to inspect and
obtain a copy of relevant documents in the possession or control of the other
and to take depositions of the other's employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. No
party shall be entitled to submit interrogatories to the other parties. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the
arbitration process, including without limitation, the refusal to comply with
orders of the arbitrator(s) relating to discovery and compliance with subpoenas.
The arbitrator(s) are not empowered to award damages in excess of actual damages
and the Maker and Holder hereby irrevocably waive any right to recover such
damages with respect to any dispute resolved by arbitration and is empowered to
award attorneys fees and costs to the prevailing party.
-8-
10. Offset Rights. Maker shall have the right to offset against principal
-------------
otherwise due under this Note any amounts which it is permitted to so offset
pursuant to Section 9.3 of the Stock Purchase Agreement. Such rights shall be
unaffected by assignment of this Note.
UNLESS EXTENDED AS PROVIDED FOR HEREIN, THIS NOTE IS PAYABLE IN FULL ON
__________, 19__. ON __________, 19__, YOU MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST THEN DUE. EXCEPT AS SET FORTH HEREIN,
HOLDER IS UNDER NO OBLIGATION TO REFINANCE THIS NOTE AT MATURITY.
THIS PROMISSORY NOTE AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION WITH
THE STOCK PURCHASE AGREEMENT REPRESENT THE FINAL AGREEMENT OF THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date first
above written.
MAKER
-----
_______________________________________
-9-
EXHIBIT K
THIS WARRANT IS NOT TRANSFERABLE EXCEPT AS SET FORTH IN SECTION 2.1 HEREOF. ANY
SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR QUALIFICATION OBTAINED
UNDER SUCH STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR QUALIFICATION UNDER SUCH STATE SECURITIES LAWS.
WESTERN MICRO TECHNOLOGY, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, WESTERN MICRO
TECHNOLOGY, INC., a California corporation (the "Company"), grants to
________________, (the "Warrantholder"), the right to subscribe for and purchase
from the Company _______ validly issued, fully paid and nonassessable shares
(the "Warrant Shares") of the Company's Common Stock, without par value (the
"Common Stock"), at the purchase price per share of $___ (the "Exercise Price"),
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the date hereof and ending on the fifth anniversary of
the date hereof, all subject to the terms, conditions and adjustments herein set
forth.
1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
--------------------------------------------------------------------
Taxes.
-----
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised (in whole or in part)
-------------
by the Warrantholder by (i) the surrender of this Warrant to the Company, with a
duly executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day during the Exercise
Period and (ii) the delivery of payment to the Company, for the account of the
Company, (A) by cash, wire transfer of immediately available funds to a bank
account specified by the Company, or by certified or bank cashier's check, of
the Exercise Price for the number of Warrant Shares specified in the Exercise
Form in lawful money of the United States of America or (B) the authorization
by, and direction of, Warrantholder to set-off such amount (the Exercise Price
for the number of Warrant Shares specified in the Exercise Form) against the
amounts owed by the Company to the Warrantholder under Section 2.2(C), (D) and
(E) or Section 2.6 of the Stock Purchase Agreement, dated June __, 1997 (the
"Stock Purchase Agreement") by and among the Company, Star Management Services,
Inc., Xxxxxx X. Xxxxx and Xxxxxxx Xxxxxx Xxxxxxx XX or the outstanding principal
and interest under the promissory notes payable by the Company
-1-
to Warrantholder delivered pursuant to Section 2.7 of the Stock Purchase
Agreement. The Company agrees that such Warrant Shares shall be deemed to be
issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within 10 days, thereafter. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder (in whole or
in part) by the surrender of this Warrant to the Company, with a duly executed
Exercise Form marked to reflect Net Issue Exercise pursuant to the terms of this
Section 1.1(b) and specifying the number of Warrant Shares to be purchased,
during normal business hours on any Business Day during the Exercise Period. The
Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered as
aforesaid. Upon such exercise, the Warrantholder shall be entitled to receive
shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant to the Company together with notice of
such election in which event the Company shall issue to Warrantholder a number
of shares of the Company's Common Stock computed as of the date of surrender of
this Warrant to the Company using the following formula:
X = Y(A-B)
------
A
Where
X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation);
A = the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation); and
B = the Exercise Price (as adjusted to the date of such
calculation).
-2-
If this Warrant shall have been exercised only in part, the Company
shall at the time of delivery of the stock certificate or certificates, deliver
a new Warrant evidencing the right to purchase the remaining Warrant Shares,
which new Warrant shall in all other respects be identical with this Warrant.
(c) Fair Market Value. For purposes of Sections 1.1(b) and 6, Fair
-----------------
Market Value of one share of Common Stock shall mean the average for the ten
(10) trading days immediately preceding the day such value is to be determined
of the following:
(i) the closing price per share of the Common Stock on the
principal national securities exchange on which the Common Stock is
listed or admitted to trading, or
(ii) if not listed or traded on any such exchange, the last
reported sales price per share on the Nasdaq National Market
("Nasdaq"), or
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked prices per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets").
If such quotations are not available, the fair market value per share
of the Company's Common Stock on the date such notice was received by the
Company as reasonably determined by the Board of Directors of the Company acting
in good faith. If, during such period of calculation of the Fair Market Value,
there is effected a dividend, stock split, reverse stock split, distribution,
recapitalization, reorganization or other similar action with respect to MSI
Common, the Fair Market Value for the days prior thereto shall be adjusted as
appropriate to give effect to such action as if such action had occurred prior
to the commencement of such calculation period.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a
-----------
Warrantholder, the Company agrees to deliver promptly to such Warrantholder a
copy of its current publicly available financial statements and to provide such
other publicly available information concerning the business and operations of
the Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
-3-
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. This
---------------------------------------------------------
Warrant is only assignable or transferable by the Warrantholder to any relative
or spouse of such person (such relative being related to the person in question
within the second degree), or to a trust, corporation, partnership, or other
entity in which all of the beneficial interest is held by or for such person or
persons (or the Warrantholder), and may not be transferred by any such
transferee. Except as set forth in the preceding sentence, the Warrant is not
transferable or assignable other than by will or pursuant to the laws of descent
and distribution. In conjunction with such transfer or assignment, the
Warrantholder and such transferee shall comply with all applicable federal and
state securities laws (including the delivery of investment representation
letters and legal opinions if such are requested by the Company. The Warrant
Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE EXCEPT AS SET FORTH IN
SECTION 2.1 HEREOF. ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR QUALIFICATION OBTAINED UNDER SUCH
STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR QUALIFICATION UNDER SUCH STATE SECURITIES LAWS."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
-4-
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a new stock certificate for Warrant Shares without a legend if
(i) such Warrant or Warrant Shares, as the case may be, have been registered for
resale under the Securities Act or sold pursuant to Rule 144 under the
Securities Act (or a successor rule thereto) and qualified under any applicable
blue-sky law or (ii) the Warrantholder has received an opinion of counsel
reasonably satisfactory to the Company that such registration is not required
with respect to such Warrant Shares and no qualification is required under any
applicable state blue-sky law.
3. Reservation and Registration of Shares, Etc. The Company covenants
--------------------------------------------
and agrees that all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Common Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant. Upon receipt by the
----------------------------------------
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor. The term "Warrant"
as used in this Agreement shall be deemed to include any Warrants issued in
substitution or exchange for this Warrant.
5. Ownership of Warrant; Transfer. The Company will keep at its
------------------------------
principal office a register that will provide for the register and transfer of
the Warrant on the terms set forth in Section 2.1. The Company may deem and
treat the person in whose name this Warrant is registered as the holder and
owner hereof (notwithstanding any notations of ownership or writing hereon made
by anyone other than the Company) for all purposes and shall not be affected by
any notice to the contrary.
-5-
6. Certain Adjustments.
-------------------
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
---------------
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (i).
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (i).
(c) Reorganization, etc. If at any time prior to the exercise of this
--------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Dividends Other than in Common Stock or Cash; Other Distributions.
-----------------------------------------------------------------
If at any time while this Warrant is outstanding the Company shall declare or
make for the benefit of all or substantially all of the holders of its Common
Stock any dividend or distribution upon its Common Stock other than ordinary
cash dividends, or distributions to which Section 6(a)
-6-
or 6(b) apply (whether payable in stock of any class or classes other than its
Common Stock or payable in evidences of indebtedness or assets or in rights,
options, or warrants or convertible or exchangeable securities), then in each
such case the number of shares of Common Stock that may be purchased hereunder
shall be determined by multiplying the number of shares of Common Stock
theretofore comprising the Warrant Shares by a fraction, the numerator of which
shall be the Fair Market Value per share of the Common Stock as of the record
date for such dividend or distribution and the denominator of which shall be the
Fair Market Value per share, as so determined, less the fair value as of such
date, as reasonably determined by the Board of Directors of the Company, of the
portion of such dividend or distribution applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made, and
shall become effective on the date of distribution retroactive to the record
date for the determination of share the Warrantholders entitled to receive the
distribution. In the event the Company determines that the adjustment provided
for above is unduly difficult or expensive to effect because of difficulties of
valuation, the Company may, at its option and as an alternative to the
adjustment, distribute and place in escrow for the Warrantholder that portion of
such dividend or distribution which the Warrantholder would have received had it
exercised this Warrant before the declaration of the dividend or the making of
the distribution. Upon exercise of this Warrant, the Warrantholder shall receive
its portion of the dividend, distribution, or rights.
(e) Issuance of Options, Warrants or Rights. If at any time while this
---------------------------------------
Warrant is outstanding the Company shall grant to all or substantially all of
the holders of its Common Stock for no additional consideration any rights,
options, or warrants (referred to in this Section 6(e) as "Rights") entitling
them to purchase shares of Common Stock at a price per share that is lower at
the record date for such issuance than the Greater Price on such date, the
number of shares of Common Stock that may be purchased hereunder shall be
determined by multiplying the number of Shares of Common Stock theretofore
purchasable upon exercise of each Warrant by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding or subject to issuance
on such record date (the "Existing Stock") plus the number of shares subject to
issuance pursuant to the Rights and of which the denominator shall be the number
of shares of Existing Stock plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered would
purchase at the Greater Price. Such adjustment shall be made whenever such
rights, options, or warrants are issued and shall become effective retroactively
immediately after the record date for the determination of share Warrantholders
entitled to receive such rights options or warrants. In the event the Company
determines that the adjustment provided for above in this Section is unduly
difficult or expensive to effect because of difficulties of valuation, the
Company may, at its option and as an alternative to the adjustment, grant and
convey to the Warrantholder the Rights which the Warrantholder would have
received had it exercised this Warrant before issuance of the Rights.
(f) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional
-7-
interest in an amount equal to that fractional interest of the then current Fair
Market Value per share of Common Stock.
(g) Carryover. Notwithstanding any other provision of this Section 6,
---------
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(h) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(i) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Cash Dividends. No adjustment in respect of any
--------------------------------
cash dividends shall be made during the term of the Warrant or upon the exercise
of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
7. Notices of Corporate Action. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
-8-
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control
(as hereinafter defined), or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior to
the date therein specified, in the case of any date referred to in the foregoing
subdivision (i), and at least 20 days prior to the date therein specified, in
the case of the date referred to in the foregoing subdivision (ii).
8. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close in the City of New York, State of
New York.
Change of Control: shall mean (i) the acquisition of the Company
-----------------
pursuant to a consolidation of the Company with or merger of the Company with or
into any other person in which the Company is not the surviving corporation
(other than a reincorporation), or the Company is the surviving corporation and
the shareholders of the Company immediately prior to such merger or
consolidation own less than 50% of the combined voting power of the surviving
corporation, (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which 50% of the
combined voting power of the Company becomes beneficially owned by one person or
group acting together. For purposes of this definition, "group" shall have the
meaning as such term is used in Section 13(d)(1) under the Exchange Act.
Company: Midrange Solutions, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of
-9-
1934, as amended, shall include a reference to a comparable section, if any, of
any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit
-------------
A.
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency
---
at the time administering the Securities Act or the Exchange Act, whichever is
the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 6.
9. Miscellaneous.
-------------
9.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effect; Benefits. This Warrant shall inure to the benefit
------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
9.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
-10-
9.4 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
9.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
-11-
(a) if to the Company, addressed to:
Western Micro Technology, Inc.
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: P. Xxxxx Xxxxx
Telecopier: (000) 000-0000
with a copy to its counsel:
Pillsbury Madison & Sutro LLP
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx del Xxxxx, Esq.
Telecopier: 415/233-4545
(b) if to the Warrantholder, addressed to:
[Name of Holder]
[Address]
Attention: [Name]
Telecopier: [Number]
with a copy to its counsel:
Xxx & Xxxxx Incorporated
000 X. Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxx
Telecopier: 210/226-8395
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.7 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.8 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of Delaware.
-12-
9.9 No Rights or Liabilities as Shareholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
shareholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or shareholders of the Company or otherwise.
10. Arbitration.
-----------
10.1 Arbitration. Any dispute arising out of or relating to this
-----------
Warrant shall be determined by binding arbitration in accordance with certain
aspects of the then-current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys'
fees and costs, the arbitration shall be conducted by a panel of three (3)
neutral arbitrators. Otherwise, the arbitration shall be conducted by a single
neutral arbitrator. The Company and Warrantholder shall endeavor to select
neutral arbitrators by mutual agreement. If such agreement cannot be reached
within thirty (30) calendar days after a dispute has arisen which is to be
decided by arbitration, the Company or Warrantholder, jointly or severally,
shall request the American Arbitration Association to submit to each party an
identical panel of fifteen (15) persons. Alternate strikes shall be made to the
panel, commencing with the person bringing the claim, until the name of three
(3) persons remain, or one (1) person if the case is to be heard by a single
arbitrator. The Company and Warrantholder may, however, by mutual agreement
request the American Arbitration Association to submit additional panels of
possible arbitrators. The person(s) thus remaining shall be the arbitrator(s)
for such arbitration. If three (3) arbitrators are selected, the arbitrators
shall elect a chairperson to preside at all meetings and hearings. If a dispute
is to be resolved by a sole arbitrator in accordance with the terms hereof, or
if the dispute is to be resolved by a panel of three (3) arbitrators as provided
hereinabove, then such sole arbitrator or the chairperson of such panel, as the
case may be, shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
arbitrators in the case of a panel of arbitrators, shall be in writing and
reasoned, shall be based on the evidence admitted and the substantive law of the
State of Delaware (with respect to all issues other than the enforceability of
this Warrant) and shall contain an award for each issue and counterclaim. The
award shall be made within thirty (30) days following the close of the final
hearing and the filing of any post-hearing briefs authorized by the
arbitrator(s). The award of the arbitrator(s) shall be final and binding on the
Company and Warrantholder and the successors and assigns thereof. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.
1-16, and judgment upon the award rendered by the arbitrator(s) may be entered
by any court having jurisdiction thereof. The place of arbitration shall be
Denver, Colorado. The Company and Warrantholder shall be entitled to inspect and
obtain a copy of relevant documents in the possession or control of the other
and to take depositions of the other's employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. No
party shall be entitled to submit interrogatories to the other parties. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or
-13-
dispute and consistent with fairness and justice. The arbitrator(s) shall have
the power to compel any party to comply with discovery requests of the other
parties and to issue binding orders relating to any discovery dispute which
shall be enforceable in the same manner as awards. The arbitrator(s) also shall
have the power to impose sanctions for abuse or frustration of the arbitration
process, including without limitation, the refusal to comply with orders of the
arbitrator(s) relating to discovery and compliance with subpoenas. The
arbitrator(s) are not empowered to award damages in excess of actual damages and
the Company and Warrantholder hereby irrevocably waive any right to recover such
damages with respect to any dispute resolved by arbitration.
10.2 Stay During Arbitration or Other Proceeding; Cure Period. During
--------------------------------------------------------
the pendency of any such arbitration (or other proceeding in the event Section 9
is found to be unenforceable), the Company's obligations to issue any Warrant
Shares hereunder (other than any amounts not in dispute) shall be stayed and if,
in a final determination pursuant to such arbitration or proceeding, the Company
is found to be in breach of the terms hereof, Company shall have ten (10)
business days after such final determination to cure such breach.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: ________, 199__.
WESTERN MICRO TECHNOLOGY, INC.
By: ____________________________________
Title: _________________________________
-14-
EXHIBIT A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
_ herewith tenders payment for _______ of the Warrant Shares to
the order of WESTERN MICRO TECHNOLOGY, INC. in the amount of
$_________ in accordance with the terms of this Warrant;
_ herewith authorizes and instructs Western Micro Technology, Inc.
to set off $_____ against the [specify Installment Payment or
promissory note] for _________ of the Warrant Shares in
accordance with the terms of this Warrant; or
_ herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b)
of this Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
____________________________________
Signature
____________________________________
(Print Name)
____________________________________
(Xxxxxx Xxxxxxx)
____________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
A-1
EXHIBIT L
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), entered into as
of ______________, 199__ by and between WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
California corporation (the "Company"), and _______________________
("Noteholder"),
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into that certain Stock
Purchase Agreement, dated as of June __, 1997, by and among the Company, Star
Management Services, Inc., a Delaware corporation ("Star"), Xxxxxx X. Xxxxx and
Xxxxxxx Xxxxxx Xxxxxxx XX (the "Stock Purchase Agreement"); and
WHEREAS, pursuant to Section 2.7 of the Stock Purchase Agreement, the
Company has issued a subordinated promissory note to Noteholder and, in
connection therewith, has issued Noteholder one or more warrants (each, a
"Warrant") to purchase unregistered shares of Common Stock, without par value,
of the Company (the "Common Stock"); and
WHEREAS, the parties hereto wish to enter into this Agreement to
provide for the registration of such shares of Common Stock upon exercise of any
Warrant,
NOW, THEREFORE, in consideration for the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Noteholder hereby
agree as follows:
Article 1. Registration.
--------- ------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following meanings:
(a) "Advice": See the last paragraph of Section 1.4 hereof.
------
(b) "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
(c) "Common Stock" shall mean unregistered shares of Common Stock,
------------
without par value, of the Company.
(d) "Effectiveness Period": See paragraph 1.2(a) hereof.
--------------------
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar successor federal statute
and the rules and regulations thereunder, all as the same shall
be in effect at the time.
(f) "Holder" shall mean Noteholder or any other holder of the
------
Registrable Securities with respect to whom registration rights have been
properly assigned pursuant to the terms hereof.
(g) "Prospectus" shall mean the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
(h) "Register," "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(i) "Registrable Securities" shall mean shares of Common Stock issued
----------------------
to Noteholder upon the exercise of any Warrant; provided, however, that
Registrable Securities shall not include any such shares of Common Stock which
have previously been registered or which have been sold by Noteholder.
(j) "Registration Expenses": See Section 1.5 hereof.
---------------------
(k) "Registration Statement" shall mean any registration statement of
----------------------
the Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
(l) "Rule 144" shall mean Rule 144 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(m) "Rule 145" shall mean Rule 145 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(n) "Rule 415" shall mean Rule 415 as promulgated by the Commission
--------
under the Securities Act, as such rule may be amended
-2-
from time to time, or any similar successor rule that may be promulgated by the
Commission.
(o) "Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(p) "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of the Registrable Securities.
(q) "Shelf Registration" shall mean either the Initial Shelf
------------------
Registration or a Subsequent Shelf Registration, as appropriate.
1.2 Demand Registration.
-------------------
(a) If the Company shall receive from the Holder at any time a written
request that the Company effect a registration with respect to all or any part
of the Registrable Securities, the Company will, as soon as practicable
thereafter, use all reasonable efforts to prepare and file with the Commission a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering the resale from time to time by the Holder of all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Securities for resale by the Holder. The
Company shall use all reasonable efforts to cause the Initial Shelf Registration
to be declared effective under the Securities Act, and to keep the Initial Shelf
Registration continuously effective under the Securities Act until the date that
is two years (or for such other time period as shall be specified in Rule 144(k)
as the holding period required for termination of certain restrictions on sales
of restricted securities by persons other than affiliates) from the date the
Noteholder acquired the Registrable Securities, or such shorter period ending
when (i) all Registrable Securities covered by the Initial Shelf Registration
have been sold, or (ii) a subsequent Shelf Registration covering all of the
Registrable Securities has been declared effective under the Securities Act or
(iii) there cease to be outstanding any Registrable Securities (the
"Effectiveness Period").
The Company shall file a registration statement as soon as practicable
after receipt of the request of the Holder under this Section 1.2, but in any
event within ninety (90) days of receipt of such request; provided, however,
that if the Company shall furnish to the Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company that (i) such offering would materially interfere with,
or adversely affect, a pending or contemplated financing, merger, sale of
assets,
-3-
recapitalization, corporate reorganization or other significant transaction or
(ii) the disclosures required in connection with such registration could
reasonably be expected to materially adversely affect the business or prospects
of the Company, and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing to
a date not later than one hundred eighty (180) days after receipt of such
request; provided, further that the Company may not defer more than one such
filing in any twelve (12) month period.
(b) If the Initial Shelf Registration or any subsequent Shelf
Registration ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the sale of all of the securities
registered thereunder), the Company shall use all reasonable efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof, and in
any event shall within 30 days of such cessation of effectiveness amend the
Shelf Registration in a manner reasonably expected to obtain the withdrawal of
the order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use all reasonable efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period. The Effectiveness Period shall be
extended by the period of time which elapsed between such cessation of
effectiveness and the withdrawal of the order suspending the effectiveness, or
the effective date of the Subsequent Shelf Registration, as the case may be.
(c) The Company shall supplement and amend the Shelf Registration or
Subsequent Shelf Registration, as the case may be, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the holders of a majority of the securities included in
such Registration Statement.
(d) Notwithstanding the foregoing, the Company shall not be obligated
to take any action to effect any such registration, qualification or compliance
pursuant to this Section 1.2:
(i) if the Company has initiated a registration pursuant to
Section 1.3 hereof and the Holder has distributed his Registrable
Securities pursuant to such registration (counting for these purposes
only registrations which have been declared or ordered effective and
pursuant to which securities have been sold and registrations which
have been withdrawn by the Holder unless the Holder has elected to bear
all
-4-
Registration Expenses incurred by the Company pursuant to Section 1.5
hereof and related to the Holder and its withdrawal, and which expenses
would, absent such election, have been borne by the Company); or
(ii) if the Company shall have previously initiated any
registration pursuant to this Section 1.2 (counting for these purposes
only a registration which has been declared or ordered effective and
pursuant to which securities have been sold and any registration which
has been withdrawn by the Holder unless the Holder has elected to bear
all Registration Expenses incurred by the Company pursuant to Section
1.5 hereof and related to the Holder and its withdrawal, and which
expenses would, absent such election, have been borne by the Company).
(e) The registration statement filed in accordance with Section 1.2
pursuant to the request of the Holder may include other securities of the
Company with respect to which registration rights have been granted, and may
include securities of the Company being sold for the account of the Company.
1.3 Piggyback Registration.
----------------------
(a) If the Company shall determine to register any of its securities
either for its own account for cash or for the account of a securityholder or
holders exercising their respective demand registration rights (other than (1)
pursuant to Section 1.2 hereof, (2) a registration relating solely to employee
benefit plans on Form X-0, Xxxx X-0, or similar forms which may be promulgated
in the future, or (3) a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar form which may be promulgated in the future),
the Company will:
(i) promptly give to the Holder written notice of the proposed
registration; and
(ii) include in such registration (and in any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, the Registrable Securities (which may be
all or part of the Registrable Securities) specified for inclusion in
such registration in a written request made by the Holder within thirty
(30) days after the Holder receives such written notice from the
Company, except as set forth in paragraph 1.3(b).
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to paragraph
1.3(a)(i). In such event the
-5-
right of the Holder to registration pursuant to this Section 1.3 shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and the
other securityholders, if any, distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.3, if the
underwriters determine that marketing factors require a limitation of the number
of securities to be underwritten and that the number of securities requested to
be included by the Company and holders of securities entitled to be included in
the registration exceeds the amount of securities compatible with the success of
the offering, and so advise the Company in writing, the Company may limit, to
the extent so advised by the underwriters, the amount of securities to be
included in the registration by the Company's securityholders (including the
Holder). The Company shall advise the Holder of such limitation, and the number
of Registrable Securities and other securities held by other securityholders of
the Company that may be included in the registration shall be allocated among
the Holder and other securityholders requesting inclusion, in accordance with
paragraph 1.3(c) hereof.
If the Holder disapproves of the terms of any such underwriting,
including any reduction by the underwriter for market reasons, he may elect not
to be included in the registration by delivering written notice to the Company
at least three (3) days prior to the effective date of the registration
statement (unless otherwise mutually agreed by the Company and the Holder).
(c) In any circumstance in which all of the Registrable Securities and
other securities (including shares of Common Stock issued or issuable upon
conversion of shares of any currently unissued series of Preferred Stock of the
Company) with registration rights (the "Other Securities") requested to be
included in a registration on behalf of the Holder or other selling
securityholders cannot be so included as a result of limitations imposed by the
underwriters on the aggregate number of shares of Registrable Securities and
Other Securities which may be so included, the number of Registrable Securities
and Other Securities which may be so included shall be allocated among the
Holder and other selling securityholders requesting inclusion of securities pro
rata on the basis of the number of Registrable Securities and Other Securities
which would be held by such Holder and other selling securityholders, assuming
conversion; provided, however, that, so that such allocation shall not operate
to reduce the aggregate number of Registrable Securities and Other Securities to
be included in such registration, if the Holder or other selling securityholder
does
-6-
not request inclusion of the maximum number of Registrable Securities and Other
Securities allocated to him pursuant to the above-described procedure, the
remaining portion of his allocation shall be reallocated among those other
selling securityholders whose allocations did not satisfy their requests pro
rata on the basis of the number of Other Securities which would be held by such
other selling securityholders, assuming conversion, and this procedure shall be
repeated until all of the Other Securities which may be included in the
registration on behalf of the Holder and other selling securityholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
securities held by securityholders with no registration rights.
(d) The Company shall use all reasonable efforts to keep such
registration pursuant to this Section 1.3, and any qualification or compliance
under state securities laws which the Company determines to obtain, effective
for a period of one hundred eighty (180) days from the date of effectiveness or
for such shorter period that will terminate when all the Registrable Securities
covered by the registration statement have been sold pursuant thereto or may be
sold pursuant to Rule 144 or there cease to outstanding any Registrable
Securities, whichever first occurs, provided that the Company shall be deemed
not to have used all reasonable efforts to keep such registration, qualification
or compliance effective during the requisite period if it voluntarily takes any
action that would result in the Holder not being able to offer and sell his
Registrable Securities during that period unless such action is required by
applicable law.
1.4 Registration Procedures. In connection with the Company's
-----------------------
registration obligations under Sections 1.2 and 1.3 hereof, the Company shall
effect such registrations to permit the sale of the Registrable Securities in
accordance with the method or methods of disposition thereof intended by the
Holder (except that the Company shall not be required to effect any registration
pursuant to Section 1.2 involving an underwriting), and pursuant thereto the
Company shall as expeditiously as practicable:
(a) Prepare and file with the Commission a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof in
accordance with the intended method or methods of distribution thereof, and
cause each such Registration Statement to become effective and remain effective
as provided herein; provided, that before filing any such Registration Statement
or Prospectus or any amendments or supplements thereto (other than documents
that would be incorporated or deemed to be incorporated therein by reference and
that the Company is required by applicable securities laws or stock exchange
requirements to file) the
-7-
Company shall furnish to the Holder copies of all such documents proposed to be
filed, which documents will be subject to the review of the Holder and its
counsel, if any, and the Company shall not file any such Registration Statement
or amendment thereto or any Prospectus or any supplement thereto (other than
such documents which, upon filing, would be incorporated or deemed to be
incorporated by reference therein and that the Company is required by applicable
securities laws or stock exchange requirements to file) to which the holders of
a majority of the securities covered by such Registration Statement shall
reasonably object on a timely basis.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Sections 1.2 and 1.3; cause the related Prospectus to be
amended or supplemented by any required Prospectus amendment or supplement, and
as so amended or supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the methods of disposition intended by the holders thereof
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented.
(c) Notify the Holder promptly, and (if requested by the Holder)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to a Registration Statement or related
Prospectus or for additional information, (iii) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or the happening of any event which
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
-8-
that in the case of the Prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If reasonably requested by the holders of a majority of the
securities being sold, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the Company or the holders of a
majority of such securities agree should be included therein as required by
applicable law, (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to any Registration Statement consistent with clause (i) or (ii) above;
provided, that the Company shall not be required to take any actions under this
paragraph 1.4(e) that are not, in the opinion of outside counsel for the
Company, in compliance with applicable law.
(f) Furnish to the Holder and its counsel, if any, upon request and
without charge, at least one conformed copy of the Registration Statement or
Statements and any post-effective amendment thereto, including financial
statements (but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits, unless requested in writing
by such holder or counsel).
(g) Deliver to the Holder and its counsel, if any, without charge, as
many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus or each amendment or supplement
thereto by the Holder in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Securities, to register
or qualify or cooperate with the Holder and its counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale
-9-
under the securities or Blue Sky laws of such jurisdictions within the United
States as the Holder reasonably requests in writing; keep each such registration
or qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified or (ii) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of the Holder, in which case the
Company will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals, as may be necessary
to enable the Holder to consummate the disposition of such Registrable
Securities.
(j) Upon the occurrence of any event contemplated by paragraphs
1.4(c)(v) or 1.4(c)(vi) above, prepare a supplement or post-effective amendment
to each Registration Statement or an amendment or supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document (such as Current Report on Form 8-K) so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) If necessary in connection with a disposition of Registrable
Securities, make available for inspection, at the offices where normally kept
during reasonable business hours, by a representative of the Holder and any
attorney or accountant retained by the Holder, financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
as they may reasonably request, and cause the officers, directors and employees
of the Company and its subsidiaries to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such disposition; provided, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents shall be kept confidential by such
Persons, and such Persons shall so agree in writing, unless (i) such records,
information or documents are in the public domain or otherwise publicly
available, (ii) disclosure of such
-10-
records, information or documents is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities or (iii)
disclosure of such records, information or documents is otherwise required by
law (including, without limitation, pursuant to the requirements of the
Securities Act).
(l) Comply with all applicable rules and regulations of the Commission
and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company, after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(m) Enter into such agreements and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of such
Registrable Securities.
(n) Unless any Registrable Securities shall be in book-entry only form,
cooperate with the Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the Holder may request.
(o) Provide the transfer agent for the Common Stock with printed
certificates for the Registrable Securities which are in a form eligible for
deposit with The Depository Trust Company.
(p) Cause the Common Stock to be listed on each securities exchange or
quotation system on which the Company's Common Stock is then listed no later
than the date the Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make such filings under the
Exchange Act and to have such filings declared effective thereunder.
The Company may require the Holder, and the Holder agrees, to furnish
to the Company such information regarding the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request in writing
and the Company may exclude from such registration the Registrable Securities if
the Holder unreasonably fails to furnish such information within a reasonable
time after receiving such request. The Holder agrees promptly to furnish to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by the Holder not misleading.
Any sale of any Registrable Securities by the Holder shall constitute a
representation and warranty by the Holder that the information relating to the
Holder and its plan
-11-
of distribution is as set forth in the Prospectus delivered by the Holder in
connection with such disposition, that such Prospectus does not as of the time
of such sale contain any untrue statement of a material fact relating to the
Holder or its plan of distribution and that such Prospectus does not as of the
time of such sale omit to state any material fact relating to the Holder or its
plan of distribution necessary to make the statements in such Prospectus, in the
light of the circumstances under which they were made, not misleading.
The Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in paragraphs 1.4(c)(ii),
1.4(c)(iii), 1.4(c)(iv), 1.4(c)(v) or 1.4(c)(vi) hereof, the Holder will
forthwith discontinue disposition of such Registrable Securities covered by the
applicable Registration Statement or Prospectus until the Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by paragraph
1.4(j) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus. The Company agrees to give
the Advice promptly after it determines that the use of the applicable
Prospectus may be resumed.
1.5 Registration Expenses. All fees and expenses incident to the
---------------------
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any of the Registration Statements become
effective and whether or not any of the Registrable Securities are transferred
pursuant to the Registration Statement. Such fees and expenses shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to designation of the Registrable
Securities as eligible for trading on The Nasdaq Stock Market's National Market,
and (B) of compliance with securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and of printing Prospectuses), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company and the counsel
for the Holder in connection with the Shelf Registration (provided that the
Company shall not be liable for the reasonable fees and expenses of more than
one separate firm for all parties other than the Company participating in any
transaction hereunder), (v) reasonable fees and disbursements of all independent
certified public accountants, (vi) Securities Act liability insurance if the
Company so desires such insurance, and (vii) fees and expenses of all other
Persons retained by the Company. In addition, the Company will, in any event,
bear its own internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of
-12-
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed and the fees and expenses of
any Person, including special experts, retained by the Company.
1.6 Delay of Registration. The Holder shall not have any right to take
---------------------
any action to restrain, enjoin or otherwise delay any registration as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement, unless such registration pertains solely to
Registrable Securities.
1.7 Indemnification.
---------------
(a) The Company will indemnify the Holder, his legal counsel and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions or proceedings in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or arising out of or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse the Holder and each person controlling the Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing, defending or settling any such claim, loss, damage, liability or
action, provided that the Company will not be liable to indemnify the Holder or
underwriter in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by or on behalf of the Holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this paragraph 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
-13-
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) The Holder will, if Registrable Securities held by the Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, his legal counsel and each
person controlling the Company within the meaning of Section 15 of the
Securities Act, and each underwriter, if any, of the Company's securities
covered by such a registration statement, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act against all
claims, losses, damages and liabilities (or actions or proceedings in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
arising out of or based upon any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse the Company, such directors, officers,
partners, legal counsel, accountants, persons, underwriters or control persons
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing, defending or settling any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that it
is judicially determined that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) was made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by or on behalf of the Holder and stated to be specifically for
use therein. It is agreed that the indemnity agreement contained in this
paragraph 1.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder (which consent has not been unreasonably withheld) and the
obligations of Holder hereunder shall not apply to amounts paid in settlement of
any such loss, claim, damage or liability (or actions or proceedings in respect
thereof) if such settlement is effected without the consent of Holder (which
consent shall not be unreasonably withheld). The Holder's liability under this
Paragraph 1.7(b) shall not exceed the proceeds received by the Holder from the
sale of Registrable Securities held by the Holder included in such registration,
qualification or compliance.
(c) Each party entitled to indemnification under this Section 1.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and
-14-
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Without limiting the generality of the foregoing, the Indemnified
Party may withhold its consent to any such counsel who also acts as counsel to
the Indemnifying Party (with respect to such claim or otherwise) and the
Indemnified Party reasonably believes that there exists a conflict of interest
between the Indemnified Party and the Indemnifying Party, with respect to such
claim or litigation. In such event, the Indemnifying Party shall bear the
expense of another counsel who shall represent the Indemnified Party and any
other persons or entities who have indemnification rights from the Indemnifying
Party hereunder, with respect to such claim or litigation, and shall be selected
as provided in the first sentence of this paragraph 1.7(c). The Indemnified
Party may participate in such defense at such party's expense (except to the
extent that the Indemnifying Party is required to pay the expense of such
counsel pursuant to this paragraph 1.7(c)), and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, unless
such failure is materially prejudicial to the Indemnifying Party in defending
such claim or litigation. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability with respect to such
claim or litigation.
(d) If the indemnification provided for in this Section 1.7 is held to
be unavailable to an Indemnified Party with respect to any loss, liability,
claim, damage or expense referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
-15-
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
1.8 Lockup Agreement. In consideration for the Company agreeing to its
----------------
obligations under this Article 1, the Holder agrees, upon the request of the
underwriters managing an underwritten offering of the Company's securities, not
to publicly (including pursuant to Rule 144(k) promulgated under the Securities
Act) sell, make any short sale of, pledge, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed ninety (90) days) as the underwriters may specify from the effective
date of the registration statement pertaining to such offering.
The obligation of the Holder to enter into the agreement described
herein shall terminate when the Holder's registration rights have terminated
pursuant to paragraph 1.2(a) or Section 1.3 hereof. The obligations described in
this Section 1.8 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.9 Information Requirements
------------------------
(a) The Company shall file in a timely manner the reports required to
be filed by it under the Securities Act and the Exchange Act, and if at any time
the Company is not required to file such reports, it will, upon the request of
the Holder, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 under the Securities Act. The Company further
covenants that it will cooperate with the Holder and take such further action as
the Holder may reasonably request (including without limitation making such
representations as any such holder may reasonably request), all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act. Upon the request of
the Holder, the Company shall deliver to the Holder a written statement as to
whether it has complied with such filing requirements.
(b) The Company shall file in a timely manner the reports required to
be filed by it under the Exchange Act and shall comply with all other
requirements set forth in the instructions
-16-
to Form S-3 in order to allow the Company to be eligible to file registration
statements on Form S-3.
Article 2. Miscellaneous.
--------- -------------
2.1 No Inconsistent Agreements. The Company has not entered, as of the
--------------------------
date hereof, and shall not enter, on or after the date of this Agreement, any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holder in this Agreement.
2.2 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the Holder.
2.3 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telefax or
(iii) one business day after being deposited with a reputable next-day courier,
charges prepaid, to the parties as follows:
(x) if to the Holder, at the most current address given by
the Holder to the Company in accordance with the provisions of this
Section 2.3, with a copy to Xxx & Xxxxx Incorporated, Suite 1800, 000
X. Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxx 00000-0000; and
(y) if to the Company, to Western Micro Technology, Inc., 000
Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, Attention: Chief
Financial Officer, with a copy to Pillsbury Madison & Sutro LLP, 0000
Xxxx Xxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx 00000, Attention: Xxxxx del
Xxxxx, Esq.,
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
2.4 Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties. The registration rights of the Holder under this Agreement are personal
to the Holder and may not be transferred or assigned; provided, however, Holder
may assign his registration rights hereunder to any relative or spouse of Holder
(such relative being related to the Holder in the second degree), or to a trust,
corporation, partnership or other entity in which all of the beneficial interest
is held by or for such person, persons or the Holder. Except as set forth in the
preceding sentence, the Holder's registration rights hereunder are not
transferable or assignable other than by will or pursuant to the laws of descent
and distribution. The
-17-
Company may not assign its rights or obligations hereunder without the prior
written consent of the Holder.
2.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
2.8 Severability. If any term, provision, covenant or restriction of
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this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such which may be hereafter declared invalid, void or
unenforceable.
2.9 Entire Agreement. This Agreement is intended by the parties as a
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final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Common Stock issued to Noteholder
pursuant to the Stock Purchase Agreement. Except as provided in the Stock
Purchase Agreement, there are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the Common Stock.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such registration rights.
2.10 Arbitration. Any dispute arising out of or relating to this
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Agreement shall be determined by binding arbitration in accordance with certain
aspects of the then-current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest,
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attorneys' fees and costs, the arbitration shall be conducted by a panel of
three (3) neutral arbitrators. Otherwise, the arbitration shall be conducted by
a single neutral arbitrator. The parties shall endeavor to select neutral
arbitrators by mutual agreement. If such agreement cannot be reached within
thirty (30) calendar days after a dispute has arisen which is to be decided by
arbitration, any party or the parties jointly shall request the American
Arbitration Association to submit to each party an identical panel of fifteen
(15) persons. Alternate strikes shall be made to the panel, commencing with the
party bringing the claim, until the names of three (3) persons remain, or one
(1) person if the case is to be heard by a single arbitrator. The parties may,
however, by mutual agreement request the American Arbitration Association to
submit additional panels of possible arbitrators. The person(s) thus remaining
shall be the arbitrator(s) for such arbitration. If three (3) arbitrators are
selected, the arbitrators shall elect a chairperson to preside at all meetings
and hearings. If a dispute is to be resolved by a sole arbitrator in accordance
with the terms hereof, or if the dispute is to be resolved by a panel of three
(3) arbitrators as provided hereinabove, then such sole arbitrator or the
chairperson of such panel, as the case may be, shall be a member of a state bar
engaged in the practice of law in the United States or a retired member of a
state or the federal judiciary in the United States. The award of the
arbitrator(s) shall require a majority of the arbitrators in the case of a panel
of arbitrators, shall be in writing and reasoned, shall be based on the evidence
admitted and the substantive law of the State of Delaware and shall contain an
award for each issue and counterclaim. The award shall be made within thirty
(30) days following the close of the final hearing and the filing of any
post-hearing briefs authorized by the arbitrator(s). The award of the
arbitrator(s) shall be final and binding on the parties hereto and the subject
matter. The arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. ss. 1-16, and judgment upon the award rendered by the arbitrator(s) may
be entered by any court having jurisdiction thereof. The place of arbitration
shall be Denver, Colorado. Each party shall be entitled to inspect and obtain a
copy of relevant documents in the possession or control of the other party and
to take depositions of the other party's employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. No
party shall be entitled to submit interrogatories to the other parties. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the arbi-
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tration process including, without limitation, the refusal to comply with orders
of the arbitrator(s) relating to discovery and compliance with subpoenas. The
arbitrator(s) are not empowered to award damages in excess of actual damages and
the Holder and the Company, for themselves and on behalf of each Indemnified
Party, hereby irrevocably waive any right to recover such damages with respect
to any dispute resolved by arbitration.
2.11 Attorneys' Fees. In any action or proceeding brought to enforce
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any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the arbitrator(s)
in accordance with Section 2.10 above, shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
2.12 Further Assurances. Each of the parties hereto shall use all
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reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
2.13 Termination. This Agreement and the obligations of the parties
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hereunder shall terminate at the end of the Effectiveness Period, except for any
liabilities or obligations under Sections 1.5 or 1.7 or the proviso of paragraph
1.4(k) above, which shall remain in effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WESTERN MICRO TECHNOLOGY, INC.
By __________________________________
President and
Chief Executive Officer
NOTEHOLDER
_____________________________________
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