EXECUTION COPY
ASSET PURCHASE AGREEMENT
By and Among
WESTERN MICRO TECHNOLOGY, INC.,
STAR TECHNOLOGIES, INC.
AND THE SHAREHOLDERS OF
STAR TECHNOLOGIES, INC.
November 7, 1996
TABLE OF CONTENTS
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Page
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ARTICLE 1 DEFINITIONS...................................................1
1.1 Certain Definitions...........................................1
1.2 Other Definitions.............................................1
ARTICLE 2 PURCHASE AND SALE; CLOSING....................................2
2.1 Purchase and Sale of Assets...................................2
2.2 Assumption of Liabilities.....................................3
2.3 Purchase Price................................................3
2.4 Purchase Price Adjustment.....................................3
2.5 Escrow for Earn-Out...........................................4
2.6 Earn-Out......................................................4
2.7 Closing Date..................................................7
2.8 Escrow of Shares..............................................7
2.9 Tax Treatment.................................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF STAR AND THE
STAR SHAREHOLDERS.............................................7
3.1 Organization..................................................8
3.2 Capital Structure.............................................8
3.3 Obligations With Respect to Capital Stock.....................8
3.4 Equity Investments............................................8
3.5 Authority.....................................................8
3.6 Financial Statements..........................................9
3.7 Business Changes..............................................9
3.8 Fixed Assets; Properties.................................... 11
3.9 Accounts Receivable; Notes Receivable....................... 12
3.10 Taxes....................................................... 12
3.11 Compensation................................................ 13
3.12 Compliance with Law......................................... 13
3.13 Litigation.................................................. 13
3.14 Contracts................................................... 13
3.15 No Default.................................................. 14
3.16 Business and Customers...................................... 14
3.17 Inventories................................................. 15
3.18 Proprietary Rights.......................................... 15
3.19 Insurance................................................... 16
3.20 Bank Accounts............................................... 16
3.21 Brokers or Finders.......................................... 16
3.22 Related Parties............................................. 16
3.23 Certain Advances............................................ 17
3.24 Union Activities............................................ 17
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3.25 ERISA....................................................... 17
3.26 Underlying Documents........................................ 17
3.27 Full Disclosure............................................. 17
3.28 Accounts Payable............................................ 17
3.29 Liabilities................................................. 17
3.30 Restricted Securities....................................... 18
3.31 Purchase Entirely for Own Account........................... 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF WMT....................... 18
4.1 Organization................................................ 18
4.2 Authority................................................... 19
4.3 Capital Structure........................................... 19
4.4 Financial Statements........................................ 19
4.5 SEC Documents............................................... 20
4.6 No Conflict................................................. 20
4.7 Shares of Common Stock...................................... 21
4.8 Brokers or Finders.......................................... 21
4.9 Business Changes............................................ 21
4.10 Shares of Common Stock...................................... 21
4.11 Rule 144.................................................... 21
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS................... 21
5.1 Conduct of Business in Normal Course........................ 21
5.2 Preservation of Business and Relationships.................. 22
5.3 Maintenance of Insurance.................................... 22
5.4 Employees and Compensation.................................. 22
5.5 Dividends; Changes in Stock................................. 22
5.6 Issuance of Securities...................................... 22
5.7 Governing Documents......................................... 22
5.8 No Other Bids............................................... 22
5.9 No Acquisitions............................................. 23
5.10 No Dispositions............................................. 23
5.11 Indebtedness................................................ 23
ARTICLE 6 ADDITIONAL AGREEMENTS....................................... 23
6.1 Access to Information....................................... 23
6.2 Legal Conditions............................................ 23
6.3 3(a)(10) Fairness Hearing................................... 24
6.4 Good Faith.................................................. 24
6.5 WMT Governing Documents..................................... 24
6.6 Current Available Information............................... 24
6.7 Legend; Stop Transfer Instructions.......................... 24
6.8 Retention and Motivation Program............................ 25
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6.9 Collection of Accounts Receivable; Sale of Inventory........ 25
6.10 Registration Rights......................................... 25
ARTICLE 7 CONDITIONS PRECEDENT........................................ 26
7.1 Conditions to Obligations of WMT and the Star Parties....... 26
(a) Government Approvals................................ 26
(b) Shareholder Approval................................ 26
(c) Third-Party Approvals............................... 26
(d) Legal Action........................................ 26
(e) Securities Laws..................................... 26
(f) Employment Agreements............................... 27
7.2 Conditions to Obligations of WMT............................ 27
(a) Representations and Warranties...................... 27
(b) Due Diligence....................................... 27
(c) Performance of Obligations.......................... 27
(d) Opinion of Star's Counsel........................... 27
(e) Financial Statements................................ 27
(f) No Material Adverse Change.......................... 27
(g) Non-Compete Arrangements............................ 27
(h) Escrow Agreement.................................... 27
7.3 Conditions to Obligations of the Star Parties............... 28
(a) Representations and Warranties...................... 28
(b) Performance of Obligations of WMT................... 28
(c) Opinion of WMT's Counsel............................ 28
(d) No Material Adverse Change.......................... 28
(e) Nasdaq Listing Application.......................... 28
(f) Escrow Agreement.................................... 28
7.4 Best Efforts................................................ 28
ARTICLE 8 INDEMNIFICATION AND ESCROW.................................. 28
8.1 Indemnification by Star and the Star Shareholders........... 28
8.2 Escrow Fund................................................. 29
8.3 Escrow Period............................................... 30
8.4 Protection of Escrow Fund................................... 30
8.5 Distributions; Voting....................................... 30
8.6 Claims Upon Escrow Fund..................................... 30
8.7 Objections to Claims........................................ 30
8.8 Resolution of Conflicts; Arbitration........................ 31
8.9 Distribution upon Termination of Escrow Period.............. 32
8.10 Escrow Agent's Duties....................................... 32
8.11 Indemnification by WMT...................................... 32
8.12 Indemnification Procedure................................... 33
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ARTICLE 9 PAYMENT OF EXPENSES......................................... 34
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER........................... 34
10.1 Termination................................................. 34
10.2 Effect of Termination....................................... 35
10.3 Amendment................................................... 35
10.4 Extension; Waiver........................................... 35
ARTICLE 11 GENERAL..................................................... 35
11.1 Notices..................................................... 35
11.2 Headings.................................................... 36
11.3 Entire Understanding........................................ 36
11.4 Counterparts................................................ 36
11.5 Binding Nature.............................................. 36
11.6 Applicable Law.............................................. 37
11.7 Attorneys' Fees............................................. 37
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Exhibits
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Exhibit A Agreement of Assignment and Assumption
Exhibit B Star's Audited Financial Statements
Exhibit C Disclosure Schedule
Exhibit 2.5 Escrow Agreement for Earn-Out
Exhibit 6.10 Registration Rights Agreement
Exhibit 7.1(f) Designated Employees of Star and Form of Employment
Agreement
Exhibit 7.2(c) Opinion of Star's Counsel
Exhibit 7.2(h) Covenant Not to Compete
Exhibit 7.3(c) Opinion of WMT's Counsel
Exhibit 8.2 Escrow Agreement
Schedules
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Schedule 2.1(a) Inventories
Schedule 2.1(b) Accounts Receivable; Notes Receivable
Schedule 2.1(e) Permits
Schedule 2.1(h) Accounts Payable
Schedule 2.6 Earn Out
Schedule 3.2 Capital Structure
Schedule 3.8 Fixed Assets; Properties
Schedule 3.11 Compensation
Schedule 3.14 Contracts
Schedule 3.16 Customers
Schedule 3.18 Proprietary Rights
Schedule 3.19 Insurance
Schedule 3.20 Bank Accounts
Schedule 3.25 Benefit Plans
Schedule 3.29 Liabilities
Schedule 6.9 Designated Inventory
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ASSET PURCHASE AGREEMENT
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THIS ASSET PURCHASE AGREEMENT, made and entered into as of the 7th day of
November, 1996 by and among WESTERN MICRO TECHNOLOGY, INC., a California
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corporation ("WMT"), STAR TECHNOLOGIES, INC., a California corporation ("Star"),
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and XXXXXXX X. XXXXX, XXXXXXX X. XXXXXXXX, XXXXX X. XXXXXX and XXXXXXX X. XXXXXX
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(collectively, the "Star Shareholders," and when referred to herein together
with Star, the "Star Parties"),
W I T N E S S E T H:
WHEREAS, WMT desires to purchase from Star and Star desires to sell to WMT
all of Star's operating assets, together with the associated goodwill, on the
terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, WMT, Star and the Star
Shareholders agree as follows:
ARTICLE 1
DEFINITIONS
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1.1 Certain Definitions. The terms defined in this Section 1.1 shall, for
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all purposes of this Agreement, have the meanings herein specified, unless the
context expressly or by necessary implication otherwise requires:
(a) "SEC" shall mean the Securities and Exchange Commission.
(b) "Subsidiary" means a corporation whose voting securities are owned
directly or indirectly by the "parent" corporation in such amounts as are
sufficient to elect at least a majority of the Board of Directors.
1.2 Other Definitions. In addition to the terms defined in Section 1.1,
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certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires.
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ARTICLE 2
PURCHASE AND SALE; CLOSING
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2.1 Purchase and Sale of Assets. Subject to the terms and conditions set
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forth in this Agreement, Star agrees to sell, convey, transfer, assign, and
deliver to WMT, and WMT agrees to purchase from Star on the Closing Date (as
defined below), all of the operating assets of Star (collectively, the
"Purchased Assets"), including without limitation:
(a) Inventories. All of Star's inventories relating to Star's business
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which are on hand as of the Closing Date (the "Inventories"). A physical
inventory shall be taken no earlier than the weekend preceding the date of the
Closing (the "Physical Inventory"). A Physical Inventory list shall be prepared
that includes a description of each Inventory item, the number of units of each
item on hand as of the date of the Physical Inventory and the value of said
Inventory on a lower of cost or market basis (the "Listing"). The Listing shall
be attached hereto on the Closing Date as Schedule 2.1(a);
(b) Accounts Receivable. All of Star's trade accounts receivable arising
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out of the operation of Star's business in the ordinary course which are unpaid
as of the Closing Date (the "Accounts Receivable"). Star shall prepare an
Accounts Receivable report as of the end of the business day preceding the
Closing Date (the "Report"). The Report shall be attached hereto as of the
Closing Date as Schedule 2.1(b);
(c) Intangibles. The right to use the corporate name "Star Technologies,"
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and to refer to the business as "formerly Star Technologies, Inc.;"
(d) Books and Records. All papers and records in Star's care, custody, or
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control relating to any or all of the Purchased Assets and the operation
thereof, including, without limitation, all purchasing and sales records,
customer and vendor lists and all accounting and financial records
(collectively, the "Books and Records"), excluding the minute books, corporate
seal and stock records of Star;
(e) Permits. All of Star's rights in, to or under any governmental
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licenses, environmental and other permits, approvals and authorizations which
relate to the Purchased Assets, including, without limitation, all those listed
in Schedule 2.1(e);
(f) Cash, Deposits and Prepaids. All of Star's cash and deposits on hand as
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of the Closing Date and prepaid assets and employee advances existing as of the
Closing Date; and
(g) Equipment, Furniture and Fixtures. All of Star's equipment, furniture
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and fixtures used in the ordinary course of business and on hand as of the
Closing Date.
The Purchased Assets shall be conveyed on the Closing Date to WMT by Star free
and clear of all liabilities, obligations, liens and encumbrances, excepting
only those liens and
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encumbrances set forth on Schedules 3.8 and 3.17 and continuing obligations
consisting of the trade accounts payable arising out of the operation of Star's
business in the ordinary course which are unpaid as of the Closing Date,
including, without limitation, those listed in Schedule 2.1(h) (collectively,
the "Accounts Payable") which shall be assigned by Star to WMT pursuant to the
terms and conditions of an Agreement of Assignment and Assumption, substantially
in the form of Exhibit A attached hereto (the "Agreement of Assignment and
Assumption").
2.2 Assumption of Liabilities. Except for any continuing obligations under
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the Accounts Payable and other liabilities reflected on the Closing Date Balance
Sheet (which liabilities shall be consistent with the past practices of Star),
defined below which WMT is assuming and agrees to pay in the normal course of
business, WMT is not assuming any debt, liability or obligation of Star, whether
known or unknown, fixed or contingent, including, without limitation, any
liabilities or obligations arising out of or connected in any way with any
retirement, medical, life, disability or other employee benefit plan of Star.
Except as expressly noted in this Agreement all liabilities arising from or
related to Star's operations or Star's ownership of the Purchased Assets through
the Closing Date shall remain the responsibility of Star.
2.3 Purchase Price. As consideration for the purchase of the Purchased
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Assets, WMT shall pay the following amounts (collectively, the "Purchase
Price"), which shall be subject to adjustment as set forth in Section 2.4:
(a) To Star, an aggregate of Nine Hundred Fifty Thousand Dollars ($950,000)
worth of newly issued shares of common stock, without par value, of WMT (the
shares of Common Stock, without par value, of WMT being referred to herein
generally as the "Common Stock" and the shares of Common Stock issued at Closing
and pursuant to Section 2.6 being referred to herein as "WMT Common"), less ten
percent (10%) to be held by the escrow agent pursuant to the terms of Article 8
hereto. The price used to determine the number of shares of Common Stock to be
issued at Closing shall be the average closing price of the Common Stock for the
ten (10) trading day period ending two (2) trading days prior to the Closing;
provided, however, that the average price shall not be less than $7.50 or more
than $9.00 per share. No fractional shares shall be issued.
(b) To First Trust of California, N.A., as escrow agent, ten percent (10%)
of the WMT Common to be held in escrow in accordance with the terms of Article 8
hereto.
2.4 Purchase Price Adjustment. The Purchase Price shall be increased or
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decreased, as the case may be, by an amount equal to the difference between the
stockholders' equity of Star on the Closing Date and $950,000. As soon as
possible following the Closing Date, but in no event later than sixty (60) days
after the Closing Date, Star shall (a) conduct a review to determine the
stockholders' equity of Star as of the Closing Date and (b) prepare a balance
sheet as of the Closing Date (the "Closing Date Balance Sheet") in accordance
with generally accepted accounting principles consistently applied utilizing the
same methodology and adjustments as were used in preparing Star's audited
financial statements
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for the year ended June 30, 1996, which are attached hereto as Exhibit B
(the "1996 Financial Statements"). The results of the review and the
determination of stockholders' equity will be subject to verification by WMT's
accountants or other representatives. Any amounts owed as a result of these
adjustments to the Purchase Price will be paid in WMT Common to the appropriate
party within thirty (30) days after the delivery of the Closing Date Balance
Sheet to WMT.
2.5 Escrow for Earn-Out. At the Closing, WMT shall pay to First Trust of
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California, N.A., as escrow agent, Seven Hundred Fifty Thousand Dollars
($750,000) worth of newly issued shares of Common Stock issued as an advance
against the Earn-Out Payments described in Section 2.6 hereof. The form of
Escrow Agreement for the Earn-Out Payments is in the form attached hereto as
Exhibit 2.5. The price used to determine the number of shares of Common Stock to
be issued into escrow at Closing shall be the average closing price of the
Common Stock for the ten (10) trading day period ending two (2) trading days
prior to the Closing; provided, however, that the average price shall not be
less than $7.50 or more than $9.00 per share. No fractional shares shall be
issued.
2.6 Earn-Out.
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(a) Within thirty (30) days after each of the two (2) twelve (12) month
periods ending December 31, 1997 and December 31, 1998, WMT shall calculate, and
deliver notice of such calculation to Star (the "Calculation"), an earn-out
payment to be paid to Star if Star Gross Profit Dollars, as defined below,
during any such twelve (12) month period exceed $2.75 million (together with the
Earn-Out Payment referenced in the paragraph below, the "Earn-Out Payments").
The annual Earn-Out Payment shall equal the following amounts:
Star Gross Profit Dollars/year Earn-Out Payment
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Threshold Levels
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less than $2.75 million $ 0
$2.75 - $2.99 million $ 125,000
$3.00 - $3.24 million $ 250,000
$3.25 - $3.49 million $ 500,000
$3.50 - $3.99 million $ 750,000
greater than $4.00 million $ 1,000,000
Notwithstanding the foregoing, if during either twelve (12) month period
Star Gross Profit Dollars do not result in the maximum Earn-Out Payment (i.e.
$1,000,000) for either such period, any Star Gross Profit Dollars in excess of
any threshold for which an Earn-Out Payment was made shall be applied to the
other period and if a higher threshold is achieved in the year of the carryback
or carryforward, Star shall be paid the additional incremental amount; provided,
however, that in no event shall the aggregate of the Earn-Out Payments for both
years exceed $2,000,000. For example, if the Star Gross Profit Dollars are $3.25
million during the first year, the first Earn-Out Payment would equal $500,000.
If the Star
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Gross Profit Dollars for the second year are $3.75 million, the second Earn-Out
Payment would equal $1,000,000 (i.e., $750,000 for achieving the $3.50 million
threshold in the second year plus $250,000 as a cumulative make up payment). The
$250,000 is calculated by taking the $250,000 of Star Gross Profit Dollars
achieved in the second year in excess of the $3.50 million threshold and adding
it to the first year Star Gross Profit Dollars, which results in Star Gross
Profit Dollars of $3.50 million for the first year and an Earn-Out Payment of
$750,000 (i.e. $250,000 more than was actually paid). As another example, if the
Star Gross Profit Dollars for the first year are $4,500,000, the first Earn-Out
Payment would be $1,000,000 and the $500,000 excess would be carried forward and
added to the Star Gross Profit Dollars for the second year to determine the
Earn-Out Payment.
In addition, Star shall be entitled to earn an additional Earn-Out Payment,
not to exceed $400,000, if Sentinel Software is sold to Pepsico before December
31, 1998 equal to ten percent (10%) of the net revenue of such sale. "Net
Revenues" for purposes of the Sentinel Software Earn-Out Payment shall be equal
to the gross income derived from the sale of Sentinel Software to Pepsico or a
related party without any offset or adjustment except for reductions thereto for
any returns or customary allowances credited to the Gross Sales. Net Revenues
shall be determined in accordance with generally accepted accounting principles
consistently applied.
(b) The Earn-Out Payments shall be paid in Common Stock. The value of the
Common Stock will be calculated based on the ten (10) day simple average of the
closing prices of the Common Stock in the last ten (10) trading days of the
twelve month period for which the Earn-Out Payment relates (the "Average"). The
Common Stock held in escrow provided for in Section 2.5 hereof shall be
disbursed from escrow as needed to make the Earn-Out Payments. The remaining
shares of Common Stock payable under this Section 2.6 shall be newly issued
shares of Common Stock.
(c) Star Gross Profit Dollars shall be calculated on the following sales
("Star Sales"):
1. Sales by the Star Technologies division of WMT to customers
identified on Schedule 2.6;
2. Sales by the Star Technologies division of WMT to customers that
are recruited after the Closing Date as customers for WMT by any of the
Star employees identified on Schedule 3.11, or by any employees hired in
the Star Technologies division of WMT; and
3. Sales by divisions of WMT other than the Star Technologies division
of WMT to customers referred by the Star Technologies division of WMT
except for customers that are already customers of the other divisions of
WMT for the products of such division.
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Star Gross Profit Dollars shall mean gross Star Sales net of returns and
customary allowances less the actual (specifically identifiable) product cost
net of manufacturer's price protection and other nonpromotional manufacturer
cost reductions ("Star Costs") determined in accordance with generally accepted
accounting principles consistent with Star's past accounting practices.
For the purpose of calculating the Earn-Out Payments, separate books and
records shall be maintained by WMT with respect to the Star Sales and Star
Costs. Such books and records shall be maintained in accordance with generally
accepted accounting principles and consistent with Star's past accounting
practices.
Star will be entitled to reasonable rights to audit the Earn-Out Payments.
Upon receipt of the Calculation from WMT, Star shall have ten (10) business days
in which to request in writing that WMT deliver within thirty (30) business days
of such request the books and records, and back up invoices and schedules, to
Star or its accountant to confirm the calculation. If within ten (10) business
days, Star does not request such books and records or if within ten (10)
business days after receipt of such books and records Star does not object to
such Calculation, WMT shall deliver instructions to its transfer agent to issue
and deliver to Star the Common Stock as soon as reasonably practicable. If Star
requests such books and records and within ten (10) business days after receipt
of such books and records, Star objects in writing to WMT of the Calculation,
WMT and Star shall work together in good faith to see if they can reach an
agreement on the appropriate Earn-Out Payment. If within fourteen (14) days the
parties have not reached an agreement, the parties shall choose a nationally
recognized accounting firm mutually agreed upon by WMT and Star who shall
calculate the amount, or if no such agreement can be reached, then each of WMT
and Star shall appoint one nationally recognized accounting firm, which
accounting firms shall pick a third nationally recognized accounting firm to
which such disputes shall be referred. In the event that either WMT or Star
shall fail to select a nationally recognized firm in accordance with the
provisions of this subsection within thirty (30) days after notice by the other
party that such selection should be made, and such other party has selected a
nationally recognized accounting firm pursuant to the provisions hereof, such
dispute shall be referred to the nationally recognized accounting firm selected
by such party. The decision of such nationally recognized accounting firm shall
be conclusive and binding on both parties. Each of WMT and Star shall pay the
costs and expenses of its own accountant and Star shall pay the costs of the
nationally recognized accounting firm selected by both parties or their
representatives (the "Independent Accountant); provided, however, that if a
dispute arises that is resolved by the Independent Accountant and the amount of
the Earn-Out Payment as calculated by the Independent Accountant exceeds by more
than five percent (5%) the Calculation, WMT shall pay the costs and expenses of
Star's and the Independent Accountant's costs and expenses.
(d) During the period subsequent to Closing and ending on December 31,
1998, (i) WMT shall conduct its business in conformity with sound business
practices and consistent with past practices and (ii) WMT shall not take any
voluntary action for the purpose of preventing Star from being able to earn the
Earn-Out Payments or avoiding or
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seeking to avoid the observance or performance of any of the terms under
this Section 2.6, and shall at all times in good faith assist in carrying out
all such action as may be reasonably necessary or appropriate in order to
protect the rights of Star with respect to its ability to earn the Earn-Out
Payments against impairment. Notwithstanding this paragraph (d), nothing
contained herein shall require the officers and directors of WMT to maintain
WMT's business in a manner or take actions that would violate their fiduciary
duties to WMT and its shareholders.
(e) If between the date hereof and December 31, 1998, WMT commences a
voluntary case under the federal bankruptcy laws or a petition is filed against
WMT under the federal bankruptcy laws and is not dismissed within ninety (90)
days, Star shall be entitled to seek recovery of any Earn-Out Payments due as an
unsecured creditor of WMT in the related bankruptcy proceedings.
2.7 Closing Date. The Closing under this Agreement (the "Closing") shall be
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held not more than two (2) business days following the satisfaction of all
conditions specified in this Agreement, unless duly waived by the party entitled
to satisfaction thereof. In any event, if the Closing has not occurred on or
before December 31, 1996, this Agreement may be terminated as provided in
Section 10.1(c). 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 Star may agree upon in
writing.
2.8 Escrow of Shares. Star agrees that ten percent (10%) of the WMT Common
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issued to Star under Section 2.3 will be placed in escrow, as described in
Article 8 hereto, as security for indemnification as provided in Article 8 and
for Star's obligations under Section 6.10 until one year following the Closing
Date. On such date WMT, shall instruct the Escrow Agent to promptly deliver any
share certificates to Star.
2.9 Tax Treatment. The parties intend that the purchase and sale of the
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Purchased Assets and issuance of WMT Common in exchange therefor will be a
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF STAR AND
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THE STAR SHAREHOLDERS
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Except as otherwise set forth in the disclosure schedule attached hereto as
Exhibit B (the "Disclosure Schedule"), Star and each of the Star Shareholders
represent and warrant to WMT as of the date hereof as follows:
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3.1 Organization. Star is a corporation duly organized, validly existing
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and in good standing under the laws of the State of California, and is not
required to be qualified in any other jurisdiction except where the failure to
be so qualified will not have a material adverse effect on Star and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
3.2 Capital Structure. The authorized capital stock of Star consists of
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25,000,000 shares of Common Stock, without par value, and 1,000,000 shares of
Preferred Stock, without par value. As of the date hereof and as of the Closing
Date, 2,467,617 shares of Common Stock were issued and outstanding and no shares
of Preferred Stock were issued and outstanding. Schedule 3.2 sets forth a true
and complete list of holders of Star Common showing the number of shares held by
each such shareholder.
All of the outstanding Star Common was issued in compliance with applicable
federal and state securities laws and regulations. All of the outstanding shares
of Star Common are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Star's Articles of
Incorporation or Bylaws, or any agreement to which Star or any Star Shareholder
is a party.
3.3 Obligations With Respect to Capital Stock. There are no options,
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warrants, calls, rights, commitments or agreements of any character to which
Star is a party or by which it is bound obligating Star to issue any shares of
capital stock of Star or obligating Star to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. There are no voting
trusts, proxies or other agreements with respect to the shares of capital stock
of Star.
3.4 Equity Investments. Star does not own any equity stock or interest,
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directly or indirectly, in any corporation, partnership, joint venture, firm or
other entity. Star has no Subsidiaries.
3.5 Authority. Star and each Star Shareholder has all requisite corporate
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power and authority to enter into this Agreement and, subject to satisfaction of
the conditions set forth herein, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Star. This Agreement has been
duly executed and delivered by Star and the Star Shareholders, and constitutes
the valid and binding obligation of Star and the Star Shareholders, enforceable
in accordance with its terms, subject 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. Provided the
conditions set forth in Article 7 are satisfied, the execution and delivery of
this Agreement do not or will not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation under
(a) any provision of the
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Articles of Incorporation or Bylaws of Star or (b) any material agreement
or instrument, permit, franchise, license, judgment or order, applicable to Star
or the Star Shareholders or their respective properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority (a "Governmental Entity"), is required by or with
respect to Star or the Star Shareholders in connection with the execution and
delivery of this Agreement by Star or the Star Shareholders or the consummation
by Star or the Star Shareholders of the transactions contemplated hereby or
thereby, except for such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country.
3.6 Financial Statements. Star has furnished WMT with its audited statement
--------------------
of income and retained earnings and statement of cash flows for the calendar
years ended, and balance sheets at, June 30, 1994, 1995 and 1996, and its
unaudited interim statement of income and retained earnings for the period
ended, and balance sheet at, September 30, 1996. Within sixty (60) days
following Closing, Star shall deliver to WMT the Closing Date Balance Sheet and
statement of income and retained earnings for the period ended as of the Closing
Date. The balance sheet at September 30, 1996 is hereinafter referred to as the
"Star Balance Sheet," and all such financial statements are hereinafter referred
to collectively as the "Star Financial Statements." The Star Financial
Statements have been and will be complete, true and accurate in all material
respects and, except for any interim financial statements, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved, and are or will be in accordance
with Star's books and records, and fairly present the financial position of Star
and the results of its operations as of the date and for the periods indicated
thereon, subject in the case of the unaudited portion of the Star Financial
Statements to normal year-end audit adjustments which will not be material and
the absence of footnote disclosures. At the date of the Star Balance Sheet (the
"Star Balance Sheet Date") and as of the Closing Date, Star had and will have no
liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise) not reflected on the Star Balance Sheet or Closing
Balance Sheet or the accompanying notes thereto except for liabilities and
obligations as may have arisen in the ordinary course of business prior to the
date of said Balance Sheet and which, under GAAP, would not have been required
to be reflected on such Balance Sheet and except for liabilities incurred in the
ordinary course of business since the date of said Balance Sheet which are usual
and normal in amount.
3.7 Business Changes. Since June 30, 1996, except as otherwise contemplated
----------------
by this Agreement or as disclosed in writing to WMT, Star has conducted its
business only in the ordinary and usual course and, without limiting the
generality of the foregoing:
(a) There have been no changes in the condition (financial or otherwise),
business, net worth, assets, properties, employees, operations, obligations or
liabilities of Star which, in the aggregate, have had or may be reasonably
expected to have a materially
-9-
adverse effect on the condition, business, net worth, assets, prospects,
properties or operations of Star, other than those proposed changes set forth on
Schedule 3.11.
(b) Star has not issued, or authorized for issuance, or entered into any
commitment to issue, any equity security, bond, note or other security of Star.
(c) Star has not incurred debt for borrowed money, nor incurred any
obligation or liability except in the ordinary and usual course of business and
in any event not in excess of $5,000 for any single occurrence.
(d) Star has not paid any obligation or liability, or discharged, settled
or satisfied any claim, lien or encumbrance, except for current liabilities in
the ordinary and usual course of business and in any event not in excess of
$100,000 for any single occurrence.
(e) Star has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of Star.
(f) Star has not purchased, redeemed or otherwise acquired or committed
itself to acquire, directly or indirectly, any share or shares of capital stock
of Star.
(g) Star has not mortgaged, pledged, or otherwise encumbered any of its
assets or properties, other than inventory sold in the normal course of business
or accounts receivable.
(h) Star has not disposed of, or agreed to dispose of, by sale, lease,
license or otherwise, any asset or property, tangible or intangible, except, in
the case of such other assets and property, in the ordinary and usual course of
business, and in each case for a consideration believed to be at least equal to
the fair value of such asset or property and in any event not in excess of
$5,000 for any single item or $25,000 in the aggregate other than inventory sold
or returned in the normal course of business.
(i) Star has not purchased or agreed to purchase or otherwise acquire any
securities of any corporation, partnership, joint venture, firm or other entity;
Star has not made any expenditure or commitment for the purchase, acquisition,
construction or improvement of a capital asset, except in the ordinary and usual
course of business and in any event not in excess of $5,000 for any single item
or $25,000 in the aggregate.
(j) Star has not entered into any transaction or contract, or made any
commitment to do the same, except in the ordinary and usual course of business.
(k) Star has not sold, assigned, transferred or conveyed, or committed
itself to sell, assign, transfer or convey, any Proprietary Rights (as defined
in Section 3.18).
-10-
(l) Star has not adopted or amended any bonus, incentive, profit-sharing,
stock option, stock purchase, pension, retirement, deferred-compensation,
severance, life insurance, medical or other benefit plan, agreement, trust, fund
or arrangement for the benefit of employees of any kind whatsoever, nor entered
into or amended any agreement relating to employment, services as an independent
contractor or consultant, or severance or termination pay, nor agreed to do any
of the foregoing.
(m) Star has not effected or agreed to effect any change in its directors,
officers or key employees.
(n) Star has not effected or committed itself to effect any amendment or
modification in its Articles of Incorporation or Bylaws, except as contemplated
in this Agreement.
3.8 Fixed Assets; Properties.
------------------------
(a) Schedule 3.8 sets forth the real and personal property, including fixed
assets and equipment, owned or leased by Star. The Star Balance Sheet reflects
and the Closing Balance Sheet will reflect all of the personal property owned or
leased and used by Star in its business or otherwise held by Star, except for
(i) property acquired or disposed of in the ordinary and usual course of the
business of Star since the date of such Balance Sheet, and (ii) personal
property not required under GAAP to be reflected thereon. Except as reflected in
the notes to the Star and Closing Balance Sheets, Star has good and marketable
title to all assets and properties listed on the Star and Closing Balance Sheets
and thereafter acquired, free and clear of any imperfections of title, lien,
claim, encumbrance, restriction, charge or equity of any nature whatsoever,
except for the lien of current taxes not yet delinquent. The fixed assets
described in Schedule 3.8 constitute all of the tangible personal property
(other than inventory) currently used in the business. To the best of the Star
Parties' knowledge, all of the fixed assets reflected on the Star and Closing
Balance Sheets or thereafter acquired are in good condition and repair for the
requirements of the business as presently conducted by Star.
(b) Star has provided WMT with a full and complete list of all real and
personal property leased by Star or under option to purchase by Star. All such
property leased by Star is held under valid, subsisting and enforceable leases.
To the best of the Star Parties' knowledge, the operations of Star thereon do
not violate any applicable material building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the
property or to such operations.
(c) To the knowledge of Star or the Star Shareholders, there are no
Hazardous Substances in, under or about the soil, sediment, surface water or
groundwater on, under or around any properties at any time owned, leased or
occupied by Star. Star has not disposed of any Hazardous Substances on or about
such property. Star has not disposed of any materials at any site being
investigated or remediated for contamination or possible contamination of the
environment. "Hazardous Substances" shall mean any substance regulated or
-11-
prohibited by any law or designated by any governmental agency to be
hazardous, toxic, radioactive, regulated medical waste or otherwise a danger to
health or the environment.
(d) Star has conducted its business in accordance with all applicable laws,
regulations, orders and other requirements of governmental authorities relating
to Hazardous Substances and the use, storage, treatment, disposal, transport,
generation, release and exposure of others to Hazardous Substances. Star has not
received any notice of any investigation, claim or proceeding against Star
relating to Hazardous Substances and Star is not aware of any fact or
circumstance which could involve Star in any environmental litigation,
proceeding, investigation or claim or impose any environmental liability upon
Star.
3.9 Accounts Receivable; Notes Receivable. Schedule 2.1(b) contains a
-------------------------------------
summary of the accounts receivable of Star as of September 30, 1996, together
with an accurate aging of such accounts receivable. The accounts receivable set
forth on Schedule 2.1(b) and those outstanding and unpaid as of the Closing Date
that will be reflected in the Closing Date Balance Sheet (together the "Accounts
Receivable") arose out of or will arise out of the bona fide furnishing of goods
and services, each in the operation of the business of Star, and require or will
require no additional performance by Star. The Accounts Receivable are
collectible at their full amounts, subject only to amount of the bad debt
allowance reflected on the Closing Balance Sheet. Except as set forth on
Schedule 2.1(b), the notes receivable are obligations of current customers of
Star, whether on an open account or cash on delivery basis, and there are no
disputes between Star and any obligor under any such note receivable with
respect to the amount owing or the payment terms thereunder. Star has provided
WMT with accurate information concerning amounts and aging of Accounts
Receivable and with an accurate customer list of Star.
3.10 Taxes. Star has accurately and completely filed with the appropriate
-----
United States, state, local and foreign governmental agencies all tax returns
and reports required to be filed (subject to permitted extensions applicable to
such filings), and has paid or accrued in full all taxes shown as owing on such
tax returns, duties, charges, withholding obligations and other governmental
liabilities as well as any interest, penalties, assessments or deficiencies, if
any, due to, or claimed to be due by, any governmental authority (including
taxes on properties, income, franchises, licenses, sales and payrolls). (All
such items are collectively referred to herein as "Taxes"). The Star and Closing
Balance Sheets fully accrue or reserve or will fully accrue or reserve all
current and deferred Taxes. Star is not a party to any pending action or
proceeding, nor to the Star Parties' knowledge is any such action or proceeding
threatened by any governmental authority for the assessment or collection of
Taxes. No liability for Taxes has been incurred other than in the ordinary
course of business. There are no liens for Taxes except for liens for property
taxes not yet delinquent. Star is not a party to any Tax sharing, Tax
allocation, Tax indemnity or statute of limitations extension or waiver
agreement, and in the past five (5) years has not been included on any
consolidated combined or unitary return with any other entity.
-12-
3.11 Compensation. Since June 30, 1996, Star has not paid or committed
------------
itself to pay to or for the benefit of any of its directors, officers, employees
or shareholders any compensation of any kind other than wages, salaries and
benefits at the times and rates in effect on Schedule 3.11, nor has it effected
or agreed to effect any amendment or supplement to any employee profit sharing,
stock option, stock purchase, pension, bonus, incentive, retirement, medical
reimbursement, life insurance, deferred compensation or any other employee
benefit plan or arrangement except as set forth on Schedule 3.11. Star does not
have any bonus plan or obligations with respect to any bonus plan, except as set
forth in Schedule 3.11. Star has provided in Schedule 3.11 a full and complete
list of all directors, officers, employees or consultants of Star as of the date
set forth thereon, specifying their names and job designations, their dates of
hire, the total amount paid or payable as wages, salaries or other forms of
direct compensation, and the basis of such compensation, whether fixed or
commission or a combination thereof.
3.12 Compliance with Law. All material licenses, franchises, permits,
-------------------
clearances, consents, certificates and other evidences of authority of Star
which are necessary to the conduct of Star's business ("Permits") are in full
force and effect and Star is not in violation of any Permit in any material
respect. Except for possible exceptions, the curing or noncuring of which would
not have a material adverse effect on the condition (financial or otherwise),
business, net worth, assets, prospects, properties or operations of Star, the
business of Star has been conducted in accordance with all applicable laws,
regulations, orders and other requirements of governmental authorities.
3.13 Litigation. Except for litigation initiated by Star relating to
----------
collections, there is no claim, dispute, action, proceeding, notice, order,
suit, appeal or investigation, at law or in equity, pending against Star, or
involving any of its assets or properties, before any court, agency, authority,
arbitration panel or other tribunal (other than those, if any, with respect to
which service of process or similar notice has not yet been made on Star), and
none have been threatened. The Star and the Star Shareholders are aware of no
facts which, if known to shareholders, customers, governmental authorities or
other persons, would result in any such claim, dispute, action, proceeding, suit
or appeal or investigation which would have a material adverse effect on the
condition (financial or otherwise), business, net worth, assets, prospects,
properties or operations of Star. Star is not subject to any order, writ,
injunction or decree of any court, agency, authority, arbitration panel or other
tribunal, nor is it in default with respect to any notice, order, writ,
injunction or decree.
3.14 Contracts. Star has provided WMT with a complete list in Schedule 3.14
---------
of each executory contract and agreement in the following categories to which
Star is a party, or by which it is bound in any respect, (a) agreements for the
purchase, sale, lease or other disposition of equipment, goods, materials,
research and development, supplies, studies or capital assets, or for the
performance of services, in any case involving more than $5,000; (b) contracts
or agreements for the joint performance of work or services, and all other joint
venture agreements; (c) management or employment contracts, consulting
contracts, collective bargaining contracts, termination and severance
agreements; (d) notes, mortgages, deeds of trust, loan agreements, security
guarantees, debentures, indentures, credit agreements and
-13-
other evidences of indebtedness; (e) pension, retirement, profit-sharing,
deferred compensation, bonus, incentive, life insurance, hospitalization or
other employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plan or arrangement); (f) stock option, stock
purchase, warrant, repurchase or other contracts or agreements relating to any
share of capital stock of Star; (g) contracts or agreements with agents,
brokers, consignees, sales representatives or distributors; (h) contracts or
agreements with any director, officer, employee, consultant or shareholder; (i)
powers of attorney or similar authorizations granted by Star to third parties;
(j) licenses, sublicenses, royalty agreements and other contracts or agreements
to which Star is a party, or otherwise subject, relating to technical assistance
or to Proprietary Rights as defined below; and (k) other material contracts.
Star has not entered into any contract or agreement containing covenants
limiting the right of Star or the Star Shareholders to compete in any business
or with any person. As used in this Agreement, the terms "contract" and
"agreement" include every contract, agreement, commitment, understanding and
promise, whether written or oral.
3.15 No Default.
----------
(a) Each of the contracts, agreements or other instruments referred to in
Section 3.14 of this Agreement and each of the standard customer agreements or
contracts of Star is a legal, binding and enforceable obligation by or against
Star, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity).
To the Star Parties' knowledge, no party with whom Star has an agreement or
contract is in default thereunder or has breached any term or provision thereof
which is material to the conduct of Star's business.
(b) Star has performed, or is now performing, the obligations of, and Star
is not in material default (or would by the lapse of time and/or the giving of
notice be in material default) in respect of, any contract, agreement or
commitment binding upon it or its assets or properties and material to the
conduct of its business. No third party has raised any claim, dispute or
controversy with respect to any of the executory contracts of Star, nor has Star
received written notice or warning of alleged nonperformance, delay in delivery
or other noncompliance by Star with respect to its obligations under any of
those contracts, nor are there any facts which exist indicating that any of
those contracts may be totally or partially terminated or suspended by the other
parties thereto.
3.16 Business and Customers. Schedule 3.16 is a list of all of Star's
customers from whom more than $10,000 in revenues were received in the ten (10)
months ended September 30, 1996.
-14-
3.17 Inventories. The inventories of Star consist of items of a quality and
-----------
quantity usable and salable (within less than six months from the date of
Closing) in the normal course of the business, subject to balance sheet
reserves. A summary of inventory on hand as of September 30, 1996 is set forth
in Schedule 2.1(a). All inventory on hand at Closing will be set forth on the
Closing Balance Sheet. All items included in such inventories are owned by Star.
No items included in the Inventories have been pledged as collateral or are held
by Star on consignment from others. All the Inventories reflected on the balance
sheets included in the Financial Statements and on the books of Star are based
on quantities determined from month-end physical count, and are valued in the
Financial Statements at the lower of cost (last-in, first-out) or market and on
a basis consistent with that of prior periods.
3.18 Proprietary Rights.
------------------
(a) Star has provided WMT with a complete list in writing in Schedule 3.18
of all computer software, software programs, patents and applications for
patents, trademarks, trade names, service marks, and copyrights, and
applications therefor, owned or used by Star or in which it has any rights or
licenses, except for software used by Star and generally available on the
commercial market. Star has provided WMT with a complete and accurate
description in Schedule 3.18 of all agreements of Star with each officer,
employee or consultant of Star providing Star with title and ownership to
patents, patent applications, trade secrets and inventions developed or used by
Star in its business. All of such agreements so described are valid, enforceable
and legally binding, subject to the effect of applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of creditors or
availability of rules of law governing specific performance, injunctive relief
or other equitable remedies (regardless of whether any such remedy is considered
in a proceeding at law or in equity).
(b) Star owns or possesses licenses or other rights to use all computer
software, software programs, patents, patent applications, trademarks, trademark
applications, trade secrets, service marks, trade names, copyrights, inventions,
drawings, designs, customer lists, proprietary know-how or information, or other
rights with respect thereto (collectively referred to as "Proprietary Rights"),
used in the business of Star, and the same are sufficient to conduct Star's
business as it has been and is now being conducted.
(c) The operations of Star do not conflict with or infringe, and no one has
asserted to Star or any Star Shareholder that such operations conflict with or
infringe, on any Proprietary Rights, owned, possessed or used by any third
party. There are no claims, disputes, actions, proceedings, suits or appeals
pending against Star with respect to any Proprietary Rights (other than those,
if any, with respect to which service of process or similar notice may not yet
have been made on Star), and, none has been threatened against Star. To the
knowledge of Star and the Star Shareholders, there are no facts or alleged facts
which would reasonably serve as a basis for any claim that Star does not have
the right to use, free of any rights or claims of others, all Proprietary Rights
in the development, manufacture, use, sale or other disposition of any or all
products or services presently
-15-
being used, furnished or sold in the conduct of the business of Star as it
has been and is now being conducted.
(d) To the Star Parties' knowledge, no employee of Star is in violation of
any term of any employment contract, proprietary information and inventions
agreement, non-competition agreement, or any other contract or agreement
relating to the relationship of any such employee with Star or any previous
employer.
3.19 Insurance. Star has provided WMT with a complete list in Schedule 3.19
---------
of all policies of insurance to which Star is a party or is a beneficiary or
named insured. Star has in full force and effect, with all premiums due thereon
paid, the policies of insurance set forth therein. All the insurable properties
of Star are insured in amounts and coverage and against risks and losses which
are adequate and usually insured against by persons holding or operating similar
properties in similar businesses. There were no claims in excess of $10,000
asserted under any of the insurance policies of Star in respect of all motor
vehicle, general liability, professional liability, errors and omissions, and
worker's compensation claims, nor medical claims in excess of $25,000 for the
period from January 1, 1993 to the date of this Agreement.
3.20 Bank Accounts. Star has furnished to WMT a true and correct list in
-------------
Schedule 3.20 setting forth the names and addresses of all banks, other
institutions and state governmental departments at which Star has accounts,
deposits or safety deposit boxes, or special deposits required to be held by
such state governmental departments with the nature of such account and the
names of all persons authorized to draw on or give instructions with respect to
such accounts or deposits, or to have access thereto, and the names and
addresses of all persons, if any, holding a power-of-attorney on behalf of Star.
All cash in such accounts is held in demand deposits and is not subject to any
restriction or limitation as to withdrawal.
3.21 Brokers or Finders. Except for dealings with Bentley, Hall, Xxx Xxxx
------------------
International, which was retained by WMT, Star has not dealt with any broker or
finder in connection with the transactions contemplated by this Agreement. Star
has not incurred, and shall not incur, directly or indirectly, any liability for
any brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.22 Related Parties. No officer or director of Star, or any Affiliate of
---------------
any such person, has, either directly or indirectly, (a) an interest in any
corporation, partnership, firm or other person or entity which currently
furnishes or sells services or products which are similar to those furnished or
sold by Star, or (b) a beneficial interest in any contract or agreement to which
Star is a party or by which Star may be bound. For purposes of this Section
3.22, there shall be disregarded any interest which arose solely from the
ownership of less than a two percent (2%) equity interest in a corporation whose
stock is regularly traded on any national securities exchange or in the
over-the-counter market.
-16-
3.23 Certain Advances. There are no receivables of Star owing from
----------------
directors, officers, employees, consultants or shareholders of Star, or owing by
any affiliate of any director or officer of Star, other than advances in the
ordinary and usual course of business to officers and employees for reimbursable
business expenses which are not in excess of $2,500 for any one individual.
3.24 Union Activities. None of the employees of Star are represented by any
----------------
union or are parties to any collective bargaining arrangement, and no attempts
are being made to organize or unionize any of the Star employees.
3.25 ERISA. Schedule 3.25 hereto lists all employee pension benefit plans,
-----
multi-employer plans and employee welfare benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) covering active, former or retired employees of Star. Star has
furnished to WMT copies or descriptions of each employment, severance or other
similar contract, arrangement or policy and each plan, agreement, policy or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), vacation benefits, severance benefits, disability
benefits, early retirement benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
compensation or post-retirement benefits.
3.26 Underlying Documents. Copies of any underlying documents listed or
--------------------
described as having been disclosed to WMT pursuant to this Agreement have been
furnished to WMT. All such documents furnished to WMT are true and correct
copies, and there are no amendments or modifications thereto that have not been
disclosed to WMT. The minute books of Star contain complete and accurate records
of all meetings and other corporate actions taken by the directors and
shareholders of Star.
3.27 Full Disclosure. Any information furnished by Star to WMT in writing
---------------
pursuant to this Agreement (including the Schedules hereto), at any time prior
to the Closing Date, does not and will not contain any untrue statement of a
material fact and does not and will not omit to state any material fact
necessary to make any statement, in light of the circumstances under which such
statement is made, not misleading.
3.28 Accounts Payable. Schedule 2.1(h) contains a summary of the accounts
----------------
payable of Star as of September 30, 1996, together with an accurate aging of
such accounts payable. Those accounts payable and those outstanding on the
Closing Date that will be reflected in the Closing Date Balance Sheet
(collectively, the "Accounts Payable") arose or will arise in the normal and
ordinary course of the business of Star. Except as set forth on Schedule 2.1(h),
the Accounts Payable are not past due and there are no collection actions
currently pending with respect to such Accounts Payable.
3.29 Liabilities. Except as disclosed in the Star Financial Statements or
-----------
in Schedule 3.29, there are no liabilities or obligations of any nature to which
Star is subject,
-17-
whether absolute, accrued, contingent or otherwise, and whether due or to
become due that would have a material adverse impact on WMT or on the Purchased
Assets. Furthermore, Star and the Star Shareholders know of no basis for any
assertion against Star of any such liability or obligation not fully disclosed
in the Star Financial Statements or in Schedule 3.29. Except as otherwise
disclosed in Schedule 3.29, the Star Financial Statements do not contain any
items of special or nonrecurring income or any other income not earned in the
ordinary course of business, except as expressly disclosed therein.
3.30 Restricted Securities. Except as otherwise provided by Sections 6.3
---------------------
and 6.10 hereof, the Star Shareholders understand that the WMT Common may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act of 1933, as amended (the "Securities Act") or an exemption
therefrom, and that in the absence of an effective registration statement
covering the WMT Common or an available exemption from registration under the
Securities Act, the WMT Common must be held indefinitely. In particular, each of
the Star Shareholders is aware that the WMT Common may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless all of the conditions of
that Rule are met.
3.31 Purchase Entirely for Own Account. Except as otherwise provided by
---------------------------------
Sections 6.3 and 6.10 hereof, this Agreement is made with each Star Shareholder
in reliance upon such Star Shareholder's representation to WMT, which by such
Star Shareholder's execution of this Agreement such Star Shareholder hereby
confirms, that the WMT Common to be purchased by such Star Shareholder will be
acquired for investment for such Star Shareholder's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that such Star Shareholder has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, each Star Shareholder further represents that such Star
Shareholder does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to the WMT Common.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF WMT
-------------------------------------
Except as contemplated by this Agreement, WMT represents and warrants to
Star and the Star Shareholders as of the date hereof as follows:
4.1 Organization. WMT is a corporation duly incorporated, validly existing
------------
and in good standing under the laws of California. WMT is duly qualified to do
business and is in good standing in its state of incorporation and in each other
jurisdiction in which it owns or leases property or conducts business, except
where the failure to be so qualified would not have a material adverse effect on
the business of WMT. WMT has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
-18-
conducted, and possesses all licenses, franchises, rights and privileges
material to the conduct of its business.
4.2 Authority. WMT has all requisite corporate power and authority to enter
---------
into this Agreement and the related agreements contemplated herein, and, subject
to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of WMT. This Agreement
has been duly executed and delivered by WMT and constitutes the valid and
binding obligation of WMT enforceable in accordance with its terms, subject to
the effect of applicable bankruptcy, insolvency, reorganization or other similar
federal or state laws affecting the rights of creditors and the effect or
availability of rules of law governing specific performance, injunctive relief
or other equitable remedies. Provided the conditions set forth in Article 7 are
satisfied, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation under (a) any provision of the Articles of
Incorporation or Bylaws of WMT, or (b) any material agreement or instrument,
permit, license, judgment, order, statute, law, ordinance, rule or regulation
applicable to WMT or its properties or assets, other than any such conflicts,
violations, defaults, terminations, cancelations or accelerations which
individually or in the aggregate would not have a material adverse effect on
WMT.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required by or with
respect to WMT in connection with the execution and delivery of this Agreement
by WMT or the consummation by WMT of the transactions contemplated hereby or
thereby, except for (i) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws, (ii) the approval of the California Department of
Corporations and (iii) the listing of the WMT Common on The Nasdaq Stock Market.
4.3 Capital Structure. The authorized capital stock of WMT consists of
-----------------
10,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, no
par value. As of November 5, 1996, 4,241,277 shares of Common Stock were issued
and outstanding. No shares of Preferred Stock are outstanding.
All of the outstanding shares of Common Stock are, and any shares of Common
Stock issuable upon exercise of any WMT Option, when issued pursuant to such
exercise, will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, WMT's Articles of
Incorporation or Bylaws or any agreement to which WMT is a party or is bound.
4.4 Financial Statements. WMT has furnished to Star its audited
--------------------
consolidated statement of operations, statement of stockholders' equity and
statement of cash flows for the three (3) fiscal years ended December 31, 1995
and WMT's audited consolidated
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balance sheet at December 31, 1995; and the unaudited consolidated
statement of operations and statement of cash flows for the nine (9) months
ended September 30, 1996 and the unaudited consolidated balance sheet at
September 30, 1996. WMT will furnish to Star as soon as available its audited
consolidated financial statements for the fiscal year ended December 31, 1996.
The balance sheet at September 30, 1996 is hereinafter referred to as the "WMT
Balance Sheet," and all such financial statements are hereinafter referred to
collectively as the "WMT Financial Statements." The WMT Financial Statements
have been and will be prepared in accordance with GAAP applied on a consistent
basis during the periods involved, and fairly present and will present the
consolidated financial position of WMT and the results of its operations as of
the date and for the periods indicated thereon. At the date of the WMT Balance
Sheet (the "WMT Balance Sheet Date"), neither WMT nor its consolidated
subsidiaries had any liabilities or obligations, secured or unsecured (whether
accrued, absolute, contingent or otherwise) not reflected on the WMT Balance
Sheet or the accompanying notes thereto except for liabilities and obligations
as may have arisen in the ordinary course of business a result of the sale of
the semiconductor business and resultant reorganization prior to the date of
said Balance Sheet and which, under GAAP, would not have been required to be
reflected on such Balance Sheet and except for liabilities incurred in the
ordinary course of business since the date of said balance sheet which are usual
and normal in amount and type.
4.5 SEC Documents. WMT has furnished to Star a true and complete copy of
-------------
WMT's Form 10-K for the year ended December 31, 1995, Form 10-Q for each of the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, and Notice
of Annual Meeting and Proxy Statement for WMT's 1996 Annual Meeting, (the "WMT
SEC Documents"). As of their respective filing dates, the WMT SEC Documents
comply or will comply in all material respects with the requirements of the
Securities Exchange Act of 1934 or the Securities Act, and none of the WMT SEC
Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed WMT
SEC Document.
4.6 No Conflict. The execution and delivery of this Agreement by WMT and
-----------
the performance of WMT's obligations hereunder, (i) are not in violation or
breach of, and will not conflict with or constitute a default under, any of the
terms of the Articles of Incorporation or Bylaws of WMT or any of its
Subsidiaries, or any material contract, agreement or commitment binding upon WMT
or any of its assets or properties; (ii) will not result in the creation or
imposition of any lien, encumbrance, equity or restriction in favor of any third
party upon any of the assets or properties of WMT; and (iii) will not conflict
with or violate any applicable law, rule, regulation, judgment, order or decree
of any government, governmental instrumentality or court having jurisdiction
over WMT or any of its assets or properties. The consent of WMT's lenders is
required to consummate the transactions contemplated herein pursuant to the
terms of its existing credit agreement.
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4.7 Shares of Common Stock. The shares of WMT Common will, when issued and
----------------------
delivered to the shareholders of Star in accordance with this Agreement, be duly
authorized, validly issued, fully paid and nonassessable.
4.8 Brokers or Finders. Except for Bentley, Hall, Xxx Xxxx International,
------------------
WMT has not dealt with any broker or finder in connection with the transactions
contemplated by this Agreement. Except with respect to Bentley, Hall, Xxx Xxxx
International, WMT has not incurred, and shall not incur, directly or
indirectly, any liability for any brokerage or finders' fees or agents
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.9 Business Changes. Since September 30, 1996, there have been no changes
----------------
in the condition (financial or otherwise), business, net worth, assets,
properties, employees, operations, obligations or liabilities of WMT which, in
the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the condition, business, net worth, assets, prospects,
properties or operations of WMT.
4.10 Shares of Common Stock. The shares of WMT Common will, when issued and
----------------------
delivered to Star in accordance with this Agreement, be duly authorized, validly
issued, fully paid and nonassessable.
4.11 Rule 144. Subject to Section 6.7 hereof, Star and Star Shareholders
--------
will have the right to sell the shares of WMT Common received by it under this
Agreement pursuant to the terms and conditions of Rules 144 and 145 under the
Securities Act and the holding period requirement of Rule 144(d) shall not apply
to such shares. At Closing, WMT will provide a letter from its counsel addressed
to Star specifying the method and requirements for transfer of the WMT Common
pursuant to Rules 144 and 145; provided, however, notwithstanding any provision
of this Agreement to the contrary, a distribution of the WMT Common to the Star
Shareholders upon the dissolution, or winding up of Star will not be prohibited.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
During the period from the date hereof, and continuing until the Closing
Date, unless earlier terminated in accordance with Section 10.1, Star and the
Star Shareholders covenant, and agree with WMT that:
5.1 Conduct of Business in Normal Course. Star shall carry on the business
------------------------------------
and its activities diligently and in the ordinary course and shall not make or
institute any unusual or novel methods of purchase, sale, lease, management,
accounting or operation that will vary materially from the methods used by Star
as of June 30, 1996. Star shall maintain the
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nature and quantities of inventories for the business in a normal and
customary manner consistent with prior practice.
5.2 Preservation of Business and Relationships. Star shall use its best
------------------------------------------
efforts to preserve its business organization intact, to keep available its
present employees, and to preserve its present relationships with suppliers,
customers and others having business relationships with it.
5.3 Maintenance of Insurance. Prior to the Closing, Star shall maintain in
------------------------
effect all insurance covering the business. If the Closing shall occur after a
renewal date for any such insurance, Star shall renew the insurance on the same
or substantially similar terms, limits of liability and other conditions.
5.4 Employees and Compensation. Star shall not do, or agree to do, any of
--------------------------
the following acts: (a) grant any increase in salaries payable or to become
payable to any employee, sales agent or representative; or (b) except as set
forth on Schedule 3.11, increase benefits payable to any employee, sales agent
or representative under any executive compensation, bonus, pension,
profit-sharing, retirement, deferred compensation, severance, employee stock
option or stock purchase, group life, health and other employee benefit plans,
arrangements, practices or commitments. Star shall provide WMT with reasonable
access to its employees during normal business hours.
5.5 Dividends; Changes in Stock. Star shall not and shall not propose to
---------------------------
(a) declare or pay any dividends on or make other distributions in respect of
any of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of Star, or (c)
repurchase or otherwise acquire any shares of its capital stock or rights to
acquire any shares of its capital stock.
5.6 Issuance of Securities. Star shall not issue, deliver, or sell or
----------------------
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock of any class or securities
convertible into, or rights, warrants or options to acquire, any such shares or
other convertible securities.
5.7 Governing Documents. Star shall not amend its Articles of Incorporation
-------------------
or Bylaws.
5.8 No Other Bids. Neither the Star Shareholders, Star nor any of their
-------------
respective directors, officers or agents, will, directly or indirectly, solicit
or initiate or encourage any discussions or negotiations with, or participate in
any negotiations with or provide any information to or otherwise cooperate in
any other way with any corporation, partnership, person or other entity or group
(other than WMT) concerning any merger, sale of substantial assets, sale of
shares of capital stock or any division of Star or control thereof (collectively
an "Acquisition Transaction"). WMT shall be promptly notified in writing by
-22-
Star of any of the events referred to in this Section 5.8 including a
summary of the material terms of any other bid.
5.9 No Acquisitions. Star shall not (a) acquire or agree to acquire by
---------------
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or (b) otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to Star except in the ordinary course of business consistent with
prior practice.
5.10 No Dispositions. Except with contemporaneous notice to WMT, Star shall
---------------
not lease or otherwise dispose of any of its assets (other than the sale of
inventory in the ordinary course of business), individually or in the aggregate,
except in the ordinary course of business consistent with prior practice and in
any event not in excess of $5,000 for any single item or more than $25,000 in
the aggregate.
5.11 Indebtedness. Except with contemporaneous notice to WMT, Star shall
------------
not incur any indebtedness for borrowed money in an amount exceeding $5,000 or
guarantee any such indebtedness or issue or sell any debt securities of Star or
guarantee any debt securities of others except in connection with the purchase
of inventory pursuant to the existing bank line of credit.
ARTICLE 6
ADDITIONAL AGREEMENTS
---------------------
6.1 Access to Information. Star shall afford to WMT and shall cause its
---------------------
independent accountants to afford to WMT, and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Closing Date to Star's properties, books, contracts,
commitments and records and to the independent accountants reasonable access to
the audit work papers and other records of Star's accountants. During such
period, Star shall use reasonable efforts to furnish promptly to WMT (a) a copy
of each report, schedule and other document filed or received by Star during
such period pursuant to the requirements of federal and state securities laws
and (b) all other information concerning the business, properties and personnel
of Star as WMT may reasonably request. WMT will not use such information for
purposes other than this Agreement and will otherwise hold such information in
confidence (and WMT will cause its consultants and advisors also to hold such
information in confidence). From and after the Closing Date, WMT will provide
Star or the Star Shareholders reasonable access to the books and records to the
extent necessary for such persons to respond to a tax audit or in the event of
any governmental action or the defense or prosecution of any litigation.
6.2 Legal Conditions. Each party will take all reasonable actions necessary
----------------
to comply promptly with all legal requirements which may be imposed on such
party with
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respect to this Agreement and will promptly cooperate with and furnish
information to the other party in connection with any such requirements imposed
upon such other party or any Subsidiary of such other party in connection with
this Agreement. Each party will take, and will cause its Subsidiaries to take,
all reasonable actions to obtain (and to cooperate with the other party and its
Subsidiaries in obtaining) any consent, authorization, order or approval of, or
any exemption by, any governmental authority, or other third party, required to
be obtained or made by such party or its Subsidiaries (or by the other party or
its Subsidiaries) in connection with this Agreement or the taking of any action
contemplated thereby.
6.3 3(a)(10) Fairness Hearing. As promptly as practicable, WMT, with the
-------------------------
cooperation of Star, shall prepare and file a permit application under Section
25113 of the California Corporations Code with the California Department of
Corporations with respect to the transactions contemplated by this Agreement and
WMT shall request a fairness hearing pursuant to Section 25142 of the California
Corporations Code. WMT shall pay all of the costs and expenses associated with
the fairness hearing, other than the legal expenses and disbursements of counsel
which are discussed at Article 9. WMT shall also take any action required to be
taken to cause the WMT Common to be issued in this transaction to be listed on
The Nasdaq Stock Market. Star shall use its best efforts to furnish to WMT all
information concerning Star and the holders of its outstanding securities as may
be reasonably requested in connection with any action contemplated by this
Section 6.3.
6.4 Good Faith. 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.
6.5 WMT Governing Documents. WMT agrees that, prior to the Closing, it will
-----------------------
give Star prompt notice of any amendment to its Articles of Incorporation or
Bylaws.
6.6 Current Available Information. From and after the Closing Date, and for
-----------------------------
so long as is necessary in order to permit Star to sell the WMT Common pursuant
to Rule 144 under the Securities Act, WMT will use its best efforts to file on a
timely basis all reports required to be filed by it pursuant to Section 13 of
the Securities Exchange Act of 1934, as amended, referred to in paragraph (c)(1)
of Rule 144 under the Securities Act. WMT is under no obligation to register the
sale, transfer or other disposition of any WMT Common by or on behalf of Star or
to take any other action necessary in order to make compliance with an exemption
from registration available except as expressly provided for in this Agreement.
6.7 Legend; Stop Transfer Instructions. Star understands and agrees that:
----------------------------------
(1) the WMT Common will bear the following legend:
-24-
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
(2) stop transfer instructions will be given to WMT's transfer agent
with respect to certificates evidencing the WMT Common. WMT agrees to
remove promptly such stop transfer instructions and legend upon full
compliance with this Agreement by the undersigned, including, without
limitation, a sale or transfer of WMT Common in accordance with Rules 144
and 145.
6.8 Retention and Motivation Program. After consultation with Star, WMT
--------------------------------
will establish a program to address the retention and motivation of those Star
employees listed on Schedule 7.1(f).
6.9 Collection of Accounts Receivable; Sale of Inventory. In the event WMT,
----------------------------------------------------
using normal collection and sales practices, has not on or prior to six months
from Closing collected of the Accounts Receivable 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 for doubtful accounts) or sold the
Inventory reflected on Closing Date Balance Sheet (except for Inventory
identified on Schedule 6.9), Star shall remit to WMT within thirty (30) days
after six months from the Closing Date (the "Collection Period") the uncollected
amount of such accounts or the value of such Inventory, against WMT's assignment
to Star of the applicable uncollected Accounts Receivable and unsold Inventory.
Inventory that is returned to and accepted by the vendor in accordance with
Star's stock rotation rights and limits will not be subject to this Section 6.9.
In satisfaction of its obligations hereunder, Star may deliver shares of WMT
Common to WMT, valued in accordance with the provisions of 8.6(b). WMT may make
a claim against the Escrow for any amounts owed to WMT under this Section 6.9,
but it shall not be WMT's sole remedy.
6.10 Registration Rights. WMT and the Star Shareholders shall enter into
-------------------
the Registration Rights Agreement in the form attached hereto as Exhibit 6.10.
-25-
ARTICLE 7
CONDITIONS PRECEDENT
--------------------
7.1 Conditions to Obligations of WMT and the Star Parties. The obligations
-----------------------------------------------------
of WMT and the Star Parties to consummate this Agreement shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions unless
waived by both WMT and Star:
(a) Government Approvals. All authorizations, consents, orders or approvals
--------------------
of, or declarations or filings with, or expiration of waiting periods imposed
by, any governmental authority necessary for the consummation of the
transactions contemplated by this Agreement including, but not limited to, the
approval of the California Department of Corporations and the requirements of
applicable federal or state securities laws and The Nasdaq Stock Market, shall
have been filed, occurred or been obtained.
(b) Shareholder Approval. The consent of the Star Shareholders to the
--------------------
consummation of the transactions contemplated by this Agreement shall have been
obtained.
(c) Third-Party Approvals. Any and all consents or approvals required from
---------------------
third parties relating to contracts, agreements, licenses, leases and other
instruments, material to the respective businesses of WMT and Star shall have
been obtained.
(d) Legal Action. No temporary restraining order, preliminary injunction or
------------
permanent injunction or other order preventing the consummation of this
Agreement shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
shall be pending which, in the good faith judgment of Star or WMT has a
reasonable probability of resulting in such order, injunction or damages.
(e) Securities Laws. WMT shall have received any and all permits,
---------------
authorizations, approvals and orders under federal and state securities laws for
the issuance of the WMT Common, including, without limitation, approval of the
California Commissioner of Corporations pursuant to Sections 25110 and 25142 of
the California Corporate Securities Laws without the imposition of any
conditions adverse to WMT or which would require WMT to amend its Articles of
Incorporation, Bylaws or any contract. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
-26-
(f) Employment Agreements. Each of the Star employees designated in Exhibit
---------------------
7.1(f) hereto shall have entered into an employment agreement with WMT, a form
of which is also contained in Exhibit 7.1(f).
7.2 Conditions to Obligations of WMT. The obligations of WMT to consummate
--------------------------------
this Agreement are subject to the satisfaction on or prior to the Closing Date
of the following conditions, unless waived by WMT:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Star and the Star Shareholders set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as if made
at and as of the Closing Date, except as otherwise contemplated by this
Agreement, and WMT shall have received a certificate or certificates signed by
the chief executive officer of Star to such effect.
(b) Due Diligence. WMT shall have completed its due diligence investigation
-------------
of Star to its good faith satisfaction.
(c) Performance of Obligations. Star and the Star Shareholders shall have
--------------------------
performed all obligations required to be performed by each under this Agreement
prior to the Closing Date, and WMT shall have received a certificate signed by
the chief executive officer of Star to such effect.
(d) Opinion of Star's Counsel. WMT shall have received an opinion dated as
-------------------------
of the Closing Date of Xxxxx X. Xxx, Esq., counsel to Star, in substantially the
form attached hereto as Exhibit 7.2(c).
(e) Financial Statements. Until the Closing Date, Star's Financial
--------------------
Statements for each month after September 30, 1996, shall be delivered to WMT as
soon as practicable thereafter.
(f) No Material Adverse Change. There shall have been no changes in the
--------------------------
condition (financial or otherwise), business, prospects, employees, operations,
obligations or liabilities of Star which, in the aggregate, have had or may be
reasonably expected to have a materially adverse effect on the financial
condition, business, or operations of Star on a consolidated basis.
(g) Non-Compete Arrangements. Each of the Star Shareholders designated on
------------------------
Exhibit 7.1(f) shall have entered into a covenant not to compete, a form of
which is attached hereto as Exhibit 7.2(h).
(h) Escrow Agreement. WMT, First Trust of California, N.A., Star and the
----------------
Star Shareholders shall have entered into the Escrow Agreement, a form of which
is attached hereto as Exhibit 8.2.
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7.3 Conditions to Obligations of the Star Parties. The obligations of the
---------------------------------------------
Star Parties to consummate the transactions contemplated hereby are subject to
the satisfaction on or prior to the Closing Date of the following additional
conditions unless waived by Star:
(a) Representations and Warranties. The representations and warranties of
------------------------------
WMT set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as if made at and as of the
Closing Date, except as otherwise contemplated by this Agreement, and Star shall
have received a certificate signed by the chief executive officer and the chief
financial officer of WMT to such effect.
(b) Performance of Obligations of WMT. WMT shall have performed in all
---------------------------------
material respects all obligations required to be performed by it under this
Agreement prior to the Closing Date, and Star shall have received a certificate
signed by the chief financial officer of WMT to such effect.
(c) Opinion of WMT's Counsel. Star shall have received an opinion dated the
------------------------
Closing Date of Pillsbury Madison & Sutro LLP, outside counsel to WMT, in
substantially the form attached hereto as Exhibit 7.3(c).
(d) No Material Adverse Change. Since September 30, 1996 there shall have
--------------------------
been no changes in the condition (financial or otherwise), business, prospects,
employees, operations, obligations or liabilities of WMT which, in the
aggregate, have had or may be reasonably expected to have a materially adverse
effect on the financial condition, business or operations of WMT.
(e) Nasdaq Listing Application. The additional listing application filed
--------------------------
with The Nasdaq Stock Market with respect to the WMT shares to be issued at the
Closing shall have been approved and such shares listed for trading on The
Nasdaq Stock Market.
(f) Escrow Agreement. WMT shall have signed the Escrow Agreement.
----------------
7.4 Best Efforts. All the parties hereto shall use their respective best
------------
efforts to cause the Closing Date to be not later than December 31, 1996.
ARTICLE 8
INDEMNIFICATION AND ESCROW
--------------------------
8.1 Indemnification by Star and the Star Shareholders.
-------------------------------------------------
(a) Star and each Star Shareholder, severally based on his pro rata
ownership of Star at Closing as set forth on Schedule 3.2 hereof, after the
Closing, agrees to defend and indemnify WMT and their respective affiliates,
directors, officers and shareholders, and their respective successors and
assigns (collectively, the "WMT Indemnitees"), against and
-28-
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 covered by
this indemnity (in this Section 8.1 collectively, the "Indemnifiable Damages")
which any such indemnified person may suffer or incur by reason of (i) the
inaccuracy or breach of any of the representations, warranties and covenants of
Star or the Star Shareholders contained in this Agreement or any documents,
certificate or agreement delivered pursuant hereto; (ii) any claim by any person
under any provision of any federal or state securities law relating to any
transaction, event, act or omission of or by Star occurring before or after the
Closing Date; or (iii) liabilities of Star, Star Shareholders or the Purchased
Assets arising before or after the Closing not expressly assumed by WMT in
Section 2.2 hereunder; provided, however, that the total indemnity shall not
exceed the fair market value (as determined pursuant to Section 8.6) of the WMT
Common received by Star as the "Star Indemnitor." Nothing herein shall limit in
any way WMT's remedies in the event of breach by Star or the Star Shareholders
of any of their covenants or agreements hereunder which are not also a
representation or warranty or for willful fraud or intentionally deceptive
material misrepresentation or omission by Star or any of the Star Shareholders
in connection herewith or with the transactions contemplated hereby.
(b) Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, WMT and, after the Closing Date, WMT, Star
and the affiliates of any of them, shall have the right to be put in the same
financial position as they would have been in had each of the representations,
warranties and covenants of Star and the Star Shareholders been true and
accurate or the same said parties had not breached any such covenants or had any
of the events, claims or liabilities referred to (a) of this Section 8.1 not
occurred or been made or incurred.
(c) Any indemnitee under this Agreement may not seek recovery under the
indemnities set forth herein unless and until the Indemnifiable Damages of such
party are greater than $25,000, at which point such indemnity shall apply to all
Indemnifiable Damages.
8.2 Escrow Fund. As security for the indemnity provided for in Section 8.1
-----------
and for the provisions of Section 6.10 hereof, a total of ten percent (10%) of
the WMT Common to be received by Star pursuant to this Agreement, exclusive of
the Earn-Out, shall be registered in the name of First Trust of California,
National Association (or other institution selected by WMT with the reasonable
consent of Star) as escrow agent (the "Escrow Agent"), such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein and in the Escrow Agreement to be signed by all parties thereto,
the form of which is attached as Exhibit 8.2. In the event of any conflict
between the terms of this Agreement and the Escrow Agreement, the terms of the
Escrow Agreement shall govern. WMT shall pay all costs and fees of the Escrow
Agent for establishing and administering the Escrow Fund. Upon compliance with
the terms hereof, WMT shall be entitled to obtain indemnity from the Escrow Fund
for all Indemnifiable Damages covered
-29-
by the indemnity provided for in Section 8.1 hereof and any amounts owed to
it under Section 6.10 hereof.
8.3 Escrow Period. The Escrow Fund shall remain in existence until November
-------------
7, 1997.
8.4 Protection of Escrow Fund. The Escrow Agent shall hold and safeguard
-------------------------
the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund
in accordance with the terms of this Agreement and not as the property of WMT,
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
8.5 Distributions; Voting.
---------------------
(a) Any dividends payable in securities or other distributions of any kind
(including any shares received upon a stock split, stock dividend or
recapitalization) made in respect of any securities in the Escrow Fund shall be
held in the Escrow Fund subject to the rights of WMT. Cash dividends, if any
shall be distributed to Star.
(b) Star shall have voting rights with respect to the shares of stock in
the Escrow Fund so long as such stock or other voting securities are held in the
Escrow Fund.
8.6 Claims Upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any officer of WMT (an "Officer's
Certificate") stating that WMT has paid or properly accrued Indemnifiable
Damages in an aggregate stated amount to which such party is entitled to
indemnity pursuant to this Agreement, and specifying in reasonable detail the
individual items of Indemnifiable Damages included in the amount so stated, the
date each such item was paid or properly accrued, and the nature of the
misrepresentation, breach of warranty or claim to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 8.7 hereof, deliver
to WMT out of the Escrow Fund, as promptly as practicable, the number of WMT
Common or amount of other assets held in the Escrow Fund to indemnify WMT
against such Indemnifiable Damages.
(b) For the purpose of indemnity pursuant to this Agreement, each share of
WMT Common in the Escrow Fund shall be valued at an amount equal to the closing
price per share of Common Stock on The Nasdaq Stock Market on the business day
prior to the date on which the WMT Common is released from the Escrow as a
result of such indemnity.
8.7 Objections to Claims. Upon the time of delivery of an Officer's
--------------------
Certificate to the Escrow Agent, the Escrow Agent shall deliver a duplicate copy
of such certificate to each Star Shareholder and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery of WMT Common
or other property pursuant to Section 8.6 hereof unless the Escrow Agent shall
have received written authorization from the
-30-
Spokesperson for Star and the Star Shareholders ("Spokesperson"), initially
Xxxxxxx Xxxxx, but also any successor as chosen by the Star Shareholders, to
make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of the WMT Common or other property in the
Escrow Fund in accordance with Section 8.6 hereof, provided that no such payment
or delivery may be made if the Spokesperson shall object in a written statement
to the claim made in the Officer's Certificate, and such statement shall have
been delivered to the Escrow Agent prior to the expiration of such thirty (30)
day period.
8.8 Resolution of Conflicts; Arbitration.
------------------------------------
(a) If the Spokesperson shall object in writing to the indemnity of the WMT
Indemnitees in respect of any claim or claims made in any Officer's Certificate,
the Spokesperson and WMT shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims. If the Spokesperson
and WMT should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and distribute
the WMT Common or other property from the Escrow Fund in accordance with the
terms thereof.
(b) If no such agreement can be reached after good faith negotiation within
sixty (60) days after objection by either the Spokesperson or WMT, either WMT or
the Spokesperson may demand arbitration of the matter and the matter shall be
settled by arbitration conducted by three arbitrators. WMT and the Spokesperson
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of the arbitrators so selected as to the
validity and amount of any claim in such Officer's Certificate or by the Star
Shareholders shall be final and binding and conclusive upon the parties to this
Agreement, and, notwithstanding anything in Section 8.7 hereof, the Escrow Agent
shall be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith, if applicable.
(c) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration shall be held in the City of
San Jose, California under the rules then in effect of the American Arbitration
Association. A claimant shall be deemed to be the non-prevailing party in the
event that the arbitrators award such claimant less than one-half (1/2) of the
amount claimed by it; otherwise, the other party shall be deemed to be the
non-prevailing party. The non-prevailing party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the reasonable attorneys' fees and costs
incurred by the other party to the arbitration as well as the amount of any
Indemnifiable Damages awarded and in addition interest thereon from the date of
actual loss or expenditure until the date paid at ten percent (10%) per annum,
or at the maximum rate permitted by applicable law if less than ten percent
(10%) per annum. In addition, if WMT is the non-prevailing party, it will pay
for the reasonable travel and lodging expenses of the Star Shareholders.
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8.9 Distribution upon Termination of Escrow Period. Immediately following
----------------------------------------------
termination of the Escrow Period, the Escrow Agent shall deliver to the Star all
of the WMT Common in the Escrow Fund in excess of any amount of such WMT Common
sufficient, in the reasonable judgment of WMT, to satisfy any agreed upon claims
specified in any Officer's Certificate theretofore properly delivered to the
Escrow Agent.
8.10 Escrow Agent's Duties.
---------------------
(a) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein or in the Escrow Agreement and may
rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.
(b) The Escrow Agent is hereby expressly authorized to disregard any and
all orders by any party who is not authorized to give orders under the Escrow
Agreement, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the outlawing of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.
8.11 Indemnification by WMT. After the Closing Date, WMT shall, as to those
----------------------
representations, warranties, covenants and agreements which are herein made or
agreed to by WMT, indemnify and hold harmless the Star Shareholders and Star's
officers and directors (prior to the Closing) and their heirs and assigns
against and in respect of:
(a) any damage, deficiency, losses or costs incurred by any Star
Shareholder resulting from any material misrepresentation or breach of warranty
or any nonfulfillment of any covenant or agreement on the part of WMT under this
Agreement;
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(b) any claim by any person under any provision of any federal or state
securities laws relating to any transaction, event, act or omission of or by WMT
(including, without limitation, any tender offer);
(c) any claim made by any person relating to or arising out of
transactions, events, acts or omissions of the Acquired Assets or Assumed
Liabilities after the Closing;
(d) any claim, action, suit, proceeding, demand, judgment, assessment, cost
and expense, including reasonable counsel fees, incident to any of the
foregoing; provided that the total indemnity shall not exceed the fair market
value (as determined pursuant to Section 8.6) of the WMT Common received by
Star.
WMT shall reimburse the Star Shareholders for any liabilities, damages,
deficiencies, claims, actions, suits, proceedings, demands, judgments,
assessments, costs and expenses to which this Section 8.11 relates only if a
claim for indemnification is made by the Star Shareholders within the period
ending at December 31, 1998. Without limiting the generality of the foregoing,
with respect to the measure of Indemnifiable Damages, the Star Shareholders
shall have the right to be put in the same financial position as they would have
been in had each of the representations, warranties and covenants of WMT been
true and accurate or the same said parties had not breached any such covenants
or had any of the events, claims or liabilities referred to in clauses (b) or
(c) of this Section 8.11 not occurred or been made or incurred. Any dispute as
to indemnification shall be resolved by arbitration in accordance with Section
8.8.
8.12 Indemnification Procedure. A party seeking indemnification (the
-------------------------
"Indemnitee") shall use its best efforts to minimize any liabilities, damages,
deficiencies, claims, judgments, assessments, costs and expenses in respect of
which indemnity may be sought under this Agreement. The Indemnitee shall give
prompt written notice to the party from whom indemnification is sought (the
"Indemnitor") of the assertion of a claim for indemnification, but in no event
longer than (i) thirty (30) days after service of process in the event
litigation is commenced against the Indemnitee by a third party, or (ii) sixty
(60) days after the assertion of such claim. No such notice of assertion of a
claim shall satisfy the requirements of this Section 8.12 unless it describes in
reasonable detail and in good faith the facts and circumstances upon which the
asserted claim for indemnification is based. If any action or proceeding shall
be brought in connection with any liability or claim to be indemnified
hereunder, the Indemnitee shall provide the Indemnitor twenty (20) calendar days
to decide whether to defend such liability or claim. During such period, the
Indemnitee shall take all necessary steps to protect the interests of itself and
the Indemnitor, including the filing of any necessary responsive pleadings, the
seeking of emergency relief or other action necessary to maintain the status
quo, subject to reimbursement from the Indemnitor of its expenses in doing so.
The Indemnitor shall (with, if necessary, reservation of rights) defend such
action or proceeding at its expense, using counsel selected by the insurance
company insuring against any such claim and undertaking to defend such claim, or
by other counsel selected by it and approved by the Indemnitee, which approval
shall not be unreasonably withheld or delayed. The Indemnitor shall keep the
Indemnitee fully apprised at all times
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of the status of the defense and shall consult with the Indemnitee prior to
the settlement of any indemnified matter. Indemnitee agrees to use reasonable
efforts to cooperate with Indemnitor in connection with its defense of
indemnifiable claims. In the event the Indemnitee has a claim or claims against
any third party growing out of or connected with the indemnified matter, then
upon receipt of indemnification, the Indemnitee shall fully assign to the
Indemnitor the entire claim or claims to the extent of the indemnification
actually paid by the Indemnitor and the Indemnitor shall thereupon be subrogated
with respect to such claim or claims of the Indemnitee.
ARTICLE 9
PAYMENT OF EXPENSES
-------------------
Except as provided in Section 8.2, WMT, Star and the Star Shareholders
shall each pay their own fees and expenses incurred incident to the preparation
and carrying out of the transactions herein contemplated (including legal,
accounting and travel).
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
10.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing Date:
(a) by mutual written consent of Star and WMT;
(b) by either WMT or Star if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of any party set forth in this Agreement and, if such breach is
curable, such breach has not been promptly cured after written notice of such
breach;
(c) by either WMT or Star if the Closing shall not have occurred by
December 31, 1996;
(d) by either WMT or Star if there shall be a final nonappealable order of
a federal or state court in effect preventing consummation of this Agreement;
(e) by WMT if any condition to WMT's obligation to consummate this
Agreement has not been satisfied or waived by WMT; and
(f) by Star if any condition to Star's obligation to consummate this
Agreement has not been satisfied or waived by Star.
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10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Star or WMT as provided in Section 10.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of the parties hereto or their respective officers or directors except as set
forth in Article 9 and the confidentiality provision of this Agreement and
except to the extent that such termination results from the (a) willful breach
by a party hereto of any of its representations or warranties, or (b) a breach
by a party hereto of its covenants or agreements set forth in this Agreement.
10.3 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
10.4 Extension; Waiver. At any time prior to the Closing, WMT or the Star
-----------------
Parties may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit thereof contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE 11
GENERAL
-------
11.1 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
Western Micro Technology, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xx. Xxxxx X. Xxxxx
Chief Financial Officer
Fax: (000) 000-0000
with a copy to:
Pillsbury Madison & Sutro LLP
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attention: Xx. Xxxxxxxxx X. Xxxxxx
Fax: (000) 000-0000
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Star Technologies, Inc.
00000 Xx Xxxxxx
Xxxxxx Xxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxx
Chief Financial Officer
Fax: (000) 000-0000
with a copy to:
Xxxxx Xxx, Esq.
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Fax: (000) 000-0000
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
11.2 Headings. The headings of the several sections of this Agreement are
--------
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
11.3 Entire Understanding. The terms set forth in this Agreement including
--------------------
its Schedules and Exhibits are intended by the parties as a final, complete and
exclusive expression of the terms of their agreement and may not be
contradicted, explained or supplemented by evidence of any prior agreement, any
contemporaneous oral agreement or any consistent additional terms. The Schedules
and Exhibits attached to this Agreement are made a part of this Agreement.
11.4 Counterparts. This Agreement may be executed in counterparts, and when
------------
so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
11.5 Binding Nature. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto. No party may assign or transfer any rights under
this Agreement.
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11.6 Applicable Law. This Agreement shall be governed by, construed and
--------------
enforced in accordance with the laws of the State of California.
11.7 Attorneys' Fees. If any action at law or in equity is necessary to
---------------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
all as of the date first above written.
WESTERN MICRO TECHNOLOGY, INC.,
a California corporation
By /s/ Xxxxx X. Xxxxx
-------------------------------------
Title Chief Financial Officer
---------------------------------
STAR TECHNOLOGIES, INC., a California
corporation
By /s/ Xxxxxxx X. Xxxxx
------------------------------------
Title Chairman, CEO
---------------------------------
STAR SHAREHOLDERS
-----------------
/s/ Xxxxxxx X. Xxxxx
---------------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxxxxx X .Xxxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxxx
/s/ Xxxxx X. Xxxxxx
---------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxx
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