<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended . . . . . . . . . . . . . . . . . December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the Transition Period from ____________________ to ____________________
Commission File Number 0-11560
----------
WESTERN MICRO TECHNOLOGY, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
California 94-2414428
-------------- --------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. Hacienda Avenue, Campbell, CA 95008
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(408) 379-0177
------------------
(Registrant's telephone number,
including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES /x/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $25,293,508 on February 29, 1996.
The aggregate number of outstanding shares of Common Stock, without par
value, of the registrant was 4,201,425 shares as of February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant is hereby incorporating by reference into Part III of this
Form 10-K certain portions of the registrant's definitive proxy statement with
respect to the registrant's 1996 annual meeting of shareholders to be filed with
the Securities and Exchange Commission no later than 120 days after the end of
the fiscal year covered by this Form 10-K.
<PAGE>
When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain of such
risks, see "Business--Factors Affecting Future Results." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release updates or revisions to these statements.
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
INDEX TO 1995 FORM 10-K
Item No. Page
- -------- ----
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of Security Holders . . . . . . . 6
Executive Officers and Key Personnel of the Registrant . . . . . . 7
PART II
5. Market for the Registrant's Common Stock and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 9
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 10
8. Financial Statements and Supplementary Data . . . . . . . . . . . 14
9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 33
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . 33
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain Beneficial Owners and Management . . 33
13. Certain Relationships and Related Transactions . . . . . . . . . . 33
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 35
<PAGE>
PART I
ITEM 1. BUSINESS
--------
General
- -------
Western Micro Technology, Inc. (the "Company") is a distributor of
commercial mid-range computer systems, peripheral equipment and software, with
its headquarters in Northern California's "Silicon Valley." The Company was
incorporated under the name of Silicon Valley Services, Inc. on December 30,
1975 in the State of California.
As a distributor of computer systems and peripheral equipment, the Company
sells mid-range file servers and workstations, integrated personal computers and
a full range of storage products and software.
The Company's market covers the entire United States. The Company
maintains two distribution centers, two integration centers and ten sales
offices.
On July 26, 1995, the Company sold its electronics components distribution
assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at
approximately $12,500,000, consisted of a $9,200,000 payment in cash and the
assumption of $3,300,000 in accounts payable. Of the $9,200,000 cash payment,
$1,000,000 was held back in escrow for six months to serve as a source of
certain specified rights within the purchase agreement with Reptron. The sale,
which was approved by the Company's shareholders, included the Company's semi-
conductor component inventory, certain receivables, furniture and equipment. In
addition, Reptron assumed certain building and equipment lease obligations. As a
result of this sale, the Company recorded a restructuring charge of $3,600,000.
Of this amount, $2,376,000 was for non-cash write-offs comprised of $1,353,000
in goodwill and a $1,023,000 increase to long-term inventory related reserves.
Severance and other exit related charges related to the sale comprised the
remaining $1,224,000. As a result of the sale, the Company has focused its
efforts on its mid-range computer distribution business, concentrating on sales
and services to Value-Added Resellers ("VARs"), Integrators and Original
Equipment Manufacturers ("OEMs"). On February 14, 1996, $211,184 was
distributed from the escrow to the Company and the balance was paid to Reptron.
Concurrent with the distribution of the escrow funds, Reptron returned
approximately $789,000 of designated assets, valued at historical cost, to the
Company. These designated assets were primarily comprised of semiconductor
inventories. The Company has established reserves to offset any diminution in
value of these assets and believes that there will be no material adverse impact
to its financial statements as a result.
On November 18, 1995, the Company acquired all of the common stock of
International Parts, Inc. ("IPI"), a privately held Texas corporation, for
300,000 shares of the Company's common stock. Of this stock, 30,000 shares are
held in escrow until August 15, 1996 to serve as a source of certain specified
rights under the Agreement and Plan of Reorganization with IPI. IPI is involved
primarily in the distribution of computer systems and peripheral equipment. The
acquisition has been accounted for as a purchase with the result that IPI's
operations are
-1-
<PAGE>
included in the Company's financial statements from the purchase date. For the
fiscal year ended December 31, 1995, IPI revenues of $779,000 were included in
the Company's financial statements. For the fiscal year ended December 31,
1994, IPI had revenues of $15,200,000 with net income of $90,000.
Distribution Activities
- -----------------------
The Company is a specialty distributor of mid-range computer systems,
peripheral equipment and software. Manufacturers of these products generally
consider independent franchised distributors, such as the Company, to be an
important extension of their sales and marketing activities and are moving more
of their business into this channel. As a distributor, the Company sells,
processes orders, delivers and services (if necessary) the manufacturers'
products, relieving the manufacturer of a portion of the costs associated with
such functions, including the investment in accounts receivable and inventory,
while offering customers off-the-shelf delivery. For the fiscal year ended
December 31, 1995, the Company's computer systems group accounted for
approximately 74% of the Company's overall distribution revenues. The remaining
percentage was derived from the Company's semiconductor component distribution
group before it was sold to Reptron.
The Company has a broad base of customers in the computer, industrial,
instrumentation, telecommunications and consumer products markets. No single
distribution customer accounted for more than 10% of the Company's net
distribution sales during the year ended December 31, 1995. Distribution is
presently conducted from the Company's major distribution center in Campbell,
California and its facility in Burr Ridge, Illinois. The Company also has ten
sales offices located in: Westlake Village, Anaheim and Campbell, California;
Burr Ridge, Illinois; Mt. Laurel, New Jersey; San Antonio, Texas; Colorado
Springs, Colorado; Atlanta, Georgia; Burlington, Massachusetts and Raleigh,
North Carolina.
Mid-range systems distribution is one of the fastest growing segments of
the computer industry. As prices for computer systems and peripheral equipment
have declined and as the systems themselves have become more complex, the market
for these systems has increased and the cost to manufacturers of providing a
field sales force of skilled personnel for on-site customer presentation has
become uneconomical except with respect to large customers. Accordingly,
manufacturers of such equipment are beginning to rely on distributors to augment
their sales marketing efforts.
The Company specializes in selling commercial multi-user computer systems
and a full range of disk drives, optical and board level products, and software.
The major customers for these products are VARs, who purchase computer hardware
from the Company, generally incorporate vertical market software, and
sell an integrated computer system to an end-user customer or OEM.
The Company offers such organizations a single source for hardware,
software, and service needs. The Company makes available to its systems
customers a wide range of pre- and post-sales support from its technical support
group. During the year ended December 31, 1995, the Company estimates that OEMs
accounted for 25% of the Company's systems sales and VARs accounted for 75%. In
addition, other value-added functions are conducted in the Company's technology
and integration centers located in Campbell, California and Burr Ridge,
Illinois, which offer "turnkey" system assembly, bundling
-2-
<PAGE>
and construction. These centers accounted for approximately 14% of the
Company's systems revenues for the year ended December 31, 1995.
The Company offers customers in-warranty and out-of-warranty service
options under which all repairs and maintenance services, including parts and
labor, are performed at Company premises for vendors with which the Company has
service agreements. Because the Company generally performs these services more
rapidly than manufacturers under their warranties, many customers elect this
option. To date, revenue from these services has not been significant.
Currently, the Company acts as a franchised distributor for approximately
30 manufacturers of computer systems, peripheral equipment and software. The
Company maintains an on-going program for evaluation of new and existing
products and suppliers through market research and customer and supplier
consultations. During the year ended December 31, 1995, approximately 50% of
the Company's net sales were of systems products manufactured by International
Business Machines Corporation ("IBM"), American Telephone and Telegraph Company,
NCR Corporation, DTK Computer, Inc. and Wyse Technology, Inc. The Company
estimates that typical orders for integrated computer systems range from
approximately $10,000 to $300,000. During 1995, the Company enhanced its
product offerings with the additions of IBM software and mid-range products from
Unisys Corporation.
Marketing of computer systems, peripheral equipment and software is
currently conducted from all of the Company's locations, with branch offices
electronically linked to the Company's central computer in Campbell, California.
This enables financial and operational information to be monitored on a
real-time basis.
To become an authorized distributor, the Company normally enters into a
nonexclusive franchise agreement with a manufacturer that is typically
cancelable by either party upon 30 to 120 days' prior written notice. Several of
the franchise agreements with the manufacturers provide (i) that the
manufacturer is obligated, in the event of cancelation by the manufacturer, to
repurchase all of the products in the Company's inventory, (ii) that the Company
has the right to return discontinued products and, to a specified percentage,
inventory, in exchange for other products and (iii) that the Company has price
protection in the form of credits for inventory items, where the price has been
reduced by the manufacturer. Those manufacturers that do not have explicit
provisions affording such protection in their franchise agreements with
distributors such as the Company have, as a matter of policy, generally extended
such protection to their distributors. However, in the absence of explicit
provisions, there can be no assurance that such protection will continue to be
extended in the future. If such protection were discontinued, the potential for
inventory write-downs by the Company could be increased substantially.
Nature of Business and Competition
- ----------------------------------
Although the Company's business is not seasonal to any material extent, its
business is affected by trends affecting the electronics industry in general and
mid-range computer markets in particular.
-3-
<PAGE>
The Company competes with national, regional, and local distributors in its
marketing areas, some of which have substantially greater financial and
marketing resources than the Company. These competitors can be classified into
two types: fulfillment distributors and value-added distributors. The Company
considers itself to be a value-added distributor. The Company also competes
with its own suppliers, in some limited circumstances where franchise agreements
require that orders below a certain volume be referred to the suppliers'
franchised distributors. Competition is based primarily on product
availability, availability of trade credit, price, level of service, and the
reputation of the manufacturer.
The Company views inventory management as a high priority function. The
Company believes its inventory turns and incidence of slow-moving and obsolete
inventory, which are monitored regularly, compare favorably with industry
averages.
Factors Affecting Future Results
- --------------------------------
The Company's past operating results have been, and its future operating
results will be, subject to a variety of uncertainties. The Company's quarterly
operating results may be subject to fluctuations as a result of a number of
factors, including the addition or loss of key suppliers or customers, price
competition and changes in the supply and demand for computer products. Price
competition in the industries in which the Company competes is intense and could
result in gross margin declines, which could have a material adverse impact on
the Company's profitability. The Company's future success depends in part on the
continued service of its key personnel, and its ability to identify and hire
additional personnel. There is intense competition for qualified personnel in
the areas of the Company's activities and there can be no assurance that the
Company will be able to continue to attract and retain qualified personnel
necessary for the development of its business. Loss of services of, or failure
to recruit, key sales and management personnel could be significantly
detrimental to the Company.
Marketing and Backlog
- ---------------------
Systems and computer products are sold by sales personnel who regularly
call on customers in assigned market areas, and by inside telephone sales
personnel. Sales are coordinated by sales managers and product managers whose
responsibilities include supplier and product selection and pricing.
Compensation for marketing personnel is based primarily on attainment of
specified gross profit margins and inventory turns.
Although the Company receives volume purchase orders, not all such orders
will necessarily result in sales, as most orders are subject to revision or
cancelation without penalty. Consequently, the Company does not believe
backlog is necessarily a meaningful indicator of sales for future periods.
Employees
- ---------
As of December 31, 1995, the Company had 103 full-time employees, 77 of
whom were in operations, and the balance of whom were in corporate
administration. Approximately 50 of the employees engaged in operations were
sales personnel, all of whom participate in ongoing training to keep current on
the latest technological advances in their respective areas.
-4-
<PAGE>
The Company is not a party to any collective bargaining agreement and
considers its employee relations to be good.
Impact of Environmental Restrictions
- ------------------------------------
The Company believes that compliance with federal, state, and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment will not have a material
effect upon its capital expenditures, operations, or competitive position.
Insurance
- ---------
The Company presently carries broad insurance coverage including property
damage, business interruption, general liability, product liability and
directors and officers coverage. As a result of reduced availability of a
variety of types of coverage offered by the insurance industry and increased
premium costs, the Company may, in the future, be forced or may elect to become
self insured for certain risks.
ITEM 2. PROPERTIES
----------
The Company's executive, administrative, principal telemarketing sales
offices, main distribution warehouse and technology and integration center are
located in a 35,563 square foot one-story facility located in Campbell,
California. The facility is occupied under a lease for a monthly rent and other
commitments of $24,183 through June 1997, during which time the rent will be
increased pursuant to a schedule. The lease expires in June 2000.
A total of 2,500 square feet of space is leased by the Company for its
sales office in San Antonio, Texas, for a monthly rent of $1,750. The lease
expires in November 1996.
The leases for the Westlake Village and Anaheim, California offices,
containing approximately 1,200 square feet and 2,400 square feet, respectively,
provide for monthly rents and other commitments aggregating $1,987 per month.
The Westlake Village lease expires in August 1996 and the Anaheim lease expires
in June 1996.
The lease for the Company's Burlington, Massachusetts facility covers 2,700
square feet, with a monthly rent and other commitments in the amount of $3,038.
The lease on this facility expires in June 1996.
Approximately 1,000 square feet of space is leased by the Company for its
sales office in Raleigh, North Carolina, at a monthly rent of $1,100. The lease
expires in January 1997.
Approximately 10,200 square feet of space is leased by the Company for its
sales, integration and stocking office in Burr Ridge, Illinois, at a monthly
rent of $6,140. This rent will increase effective October 1996, to $6,565 per
month through the end of the lease term, September 1998. There is a five-year
renewal option at the end of the lease term.
-5-
<PAGE>
In addition to the leases described above, the Company also rents
professional office space, on a month-to-month or quarter-to-quarter basis, for
sales offices in Colorado Springs, Colorado; Atlanta, Georgia; and Mt. Laurel,
New Jersey.
The Company also leases various vehicles, testing and other equipment.
The Company believes its facilities are adequate for its current
operations.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In the course of its business, the Company is sometimes named as a
defendant in litigation. The Company is currently a defendant in a lawsuit and
could incur an uninsured liability. However, in the opinion of management, the
outcome of such litigation will not have a material adverse effect on the
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual Meeting of Shareholders on October 2, 1995, the following
proposals were voted on and approved by the holders of 3,283,392 shares of
common stock, representing 88.5% of the outstanding shares which were
represented at the meeting:
(1) To elect a Board of six (6) directors to hold office until the next
annual meeting of shareholders or until their respective successors have been
elected and qualified;
Director Votes For Withheld
-------- --------- --------
James J. Heffernan 3,232,100 51,292
Jerome A. Martin 3,238,000 45,392
P. Scott Munro 3,238,000 45,392
K. William Sickler 3,236,200 47,192
J. Larry Smart 3,238,800 44,592
William H. Welling 3,215,523 67,869
(2) To approve the adoption of the Company's 1995 Employee Stock Purchase
Plan;
Votes For Against Abstain Broker Non-Votes
--------- ------- ------- ----------------
3,013,979 108,849 112,502 48,062
(3) To ratify the designation of Coopers & Lybrand L.L.P. as independent
accountants for the period ending December 31, 1995;
Votes For Against Abstain Broker Non-Votes
--------- ------- ------- ----------------
3,258,025 9,967 15,400 0
-6-
<PAGE>
EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE REGISTRANT
------------------------------------------------------
(a) Executive Officers
------------------
P. SCOTT MUNRO, 39, has been President, Chief Executive Officer and
Secretary of the Company since July 1995. Mr. Munro was appointed as a Director
of the Company in July 1995. From January 1993 to July 1995, Mr. Munro was
President, Computer Systems Division of the Company and from July 1990 to
January 1993 Senior Vice President, Computer Systems Division of the Company.
DONALD A. COCHRANE, 40, was promoted to the position of Senior Vice
President, Sales and Marketing in July 1995. Mr. Cochrane joined the Company in
March 1993 as General Manager, Reseller Division and was promoted in February
1994 to Vice President, Reseller Division. From 1989 to 1993 he was Director,
Reseller Sales, at NeXT Computer, a software company; from 1985 to 1988, he was
Manager of Peripherals Product Marketing for Apple Computer; from 1983 to 1985
he was Vice President of Sales and Marketing for Mountain Computer; and from
1982 to 1983, he was Western Regional Sales Manager for Mountain Computer.
JAMES W. DORST, 41, joined the Company in May 1995 as Chief Financial
Officer. From 1994 to 1995 Mr. Dorst, a certified public accountant, was Chief
Financial Officer of Accolade, Inc., an entertainment software developer. From
1986 through 1993 he was the Chief Financial Officer of Drypers, Corp., a
manufacturer of consumer disposable products, and prior to 1986 he was employed
by the public accounting firm of Coopers & Lybrand L.L.P.
(b) Key Personnel
-------------
RANDY RUDOLPH, 37, joined the Company in October 1995 as Director of
Information Technology and in December 1995 was appointed as Vice President of
Information Technology. Prior to joining the Company, Mr. Rudolph was in
information systems management at Wells Fargo Bank and Security Pacific National
Bank. Mr. Rudolph has also owned and managed a technology consulting firm.
SANDRA M. SALAH, 36, became Vice President of Product Management in July
1995. In June 1994, Ms. Salah was promoted to Vice President, Systems
Marketing. Ms. Salah has been with the Company since 1982. Prior to her
promotion, Ms. Salah was Director of Product Marketing from 1992 to 1994, and
from 1985 to 1991 was a Corporate Product Manager.
-7-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
(a) Common Stock Price Range
------------------------
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol WSTM. The following table sets forth, for the periods indicated, high
and low sales price information as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994
--------------- ---------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 7.50 $ 4.00 $ 11.25 $ 7.50
Second Quarter $ 6.38 $ 2.25 $ 9.75 $ 5.25
Third Quarter $ 6.00 $ 2.94 $ 9.00 $ 4.50
Fourth Quarter $ 6.25 $ 5.00 $ 9.13 $ 5.75
</TABLE>
(b) As of March 22, 1996, there were approximately 1,725 beneficial
shareholders and 188 shareholders of record.
(c) The Company has never paid a dividend and has no current plans to do
so.
-8-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
Income Statement Date 1995 1994 1993 1992 1991
--------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 106,462 $ 119,285 $ 96,843 $ 80,478 $ 85,496
Selling, general and administrative expense 13,703 16,968 16,768 15,165 17,566
Restructuring costs 3,600 -- 1,510 -- --
Loss from continuing operations (5,098) (1,002) (1,091) (385) (1,356)
Discontinued operations, net of tax -- 387 524 427 (2,114)
Cumulative effect from change in
accounting principle -- -- -- -- 189
--------- --------- -------- -------- --------
Net (loss) income $ (5,098) $ (615) $ (567) $ 42 $ (3,281)
Per share:
Loss from continuing operations
-Primary $ (1.36) $ (0.27) $ (0.31) $ (0.12) $ (0.45)
-Fully Diluted (1.36) (0.27) (0.31) (0.11) (0.45)
Income (loss) from discontinued operations
-Primary -- $ 0.10 $ 0.15 $ 0.13 $ (0.70)
-Fully Diluted -- 0.10 0.15 0.12 (0.70)
Cumulative effect from change in
accounting principle
-Primary -- -- -- -- $ 0.06
-Fully Diluted -- -- -- -- 0.06
Net (loss) income per share:
-Primary $ (1.36) $ (0.17) $ (0.16) $ 0.01 $ (1.09)
-Fully diluted $ (1.36) $ (0.17) $ (0.16) $ 0.01 $ (1.09)
Number of shares used in per share
calculation:
-Primary 3,756 3,669 3,474 3,320 3,011
-Fully diluted 3,756 3,669 3,474 3,418 3,011
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
Balance Sheet Data 1995 1994 1993 1992 1991
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 7,312 $ 12,334 $ 12,021 $ 10,836 $ 9,971
Net trade accounts receivable $ 14,258 $ 15,170 $ 13,365 $ 10,035 $ 9,800
Inventories $ 15,251 $ 18,959 $ 17,467 $ 13,391 $ 11,287
Total assets $ 35,899 $ 37,898 $ 34,975 $ 27,426 $ 29,196
Capital lease obligations, less current portion $ 117 $ 65 $ 52 $ 96 $ 280
Shareholders' equity $ 11,004 $ 14,424 $ 13,976 $ 13,635 $ 13,369
</TABLE>
Amounts for all prior years have been restated to reflect the 1994
discontinuation of the Testing Division (see Note 7 of the Notes to Financial
Statements) and the acquisition of First Computer Corporation accounted for as a
pooling of interests (see Note 11 of the Notes to Financial Statements).
-9-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
On July 26, 1995, the Company sold its electronics components distribution
assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at
approximately $12,500,000, consisted of a $9,200,000 payment in cash and the
assumption of $3,300,000 in accounts payable. Of the $9,200,000 cash payment,
$1,000,000 was held back in escrow for six months to serve as a source of
certain specified rights within the purchase agreement with Reptron. The sale,
which was approved by the Company's shareholders, included the Company's semi-
conductor component inventory, certain receivables, furniture and equipment. In
addition, Reptron assumed certain building and equipment lease obligations. As a
result of this sale, the Company recorded a restructuring charge of $3,600,000.
Of this amount, $2,376,000 was for non-cash write-offs comprised of $1,353,000
in goodwill and a $1,023,000 increase to long-term inventory related reserves.
Severance and other exit related charges related to the sale comprised the
remaining $1,224,000. As a result of the sale, the Company has focused its
efforts on its mid-range computer distribution business, concentrating on sales
and services to VARs, Integrators and OEMs. On February 14, 1996, $211,184 was
distributed from the escrow to the Company and the balance was paid to Reptron.
Concurrent with the distribution of the escrow funds, Reptron returned
approximately $789,000 of designated assets, valued at historical cost, to the
Company. These designated assets were primarily comprised of semiconductor
inventories. The Company has established reserves to offset any diminution in
value of these assets and believes that there will be no material adverse impact
to its financial statements as a result.
On November 18, 1995, the Company acquired all of the common stock of
International Parts, Inc. ("IPI"), a privately held Texas corporation, for
300,000 shares of the Company's common stock. Of this stock, 30,000 shares are
held in escrow until August 15, 1996, to serve as a source of certain specified
rights under the Agreement and Plan of Reorganization with IPI. IPI is involved
primarily in the distribution of computer systems and peripheral equipment. The
acquisition has been accounted for as a purchase with the result that IPI's
operations are included in the Company's financial statements from the purchase
date. For the fiscal year ended December 31, 1995, IPI revenues of $779,000
were included in the Company's financial statements. For the fiscal year ended
December 31, 1994, IPI had revenues of $15,200,000 with net income of $90,000.
On January 2, 1996, the Company acquired substantially all of the assets
and the associated goodwill of R&D Hardware Systems Company of Colorado, Inc., a
privately held Colorado corporation ("R&D"), for $1,000,000 and 125,000 shares
of the Company's common stock. Of the total consideration, $100,000 and 12,500
shares were held back in escrow for approximately four months to serve as a
source of certain specified rights in the purchase agreement with R&D. The
assets primarily consisted of certain inventories and trade accounts receivable
of R&D.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
- ---------------------------------------------------------------------
Net sales for the year ended December 31, 1995 of $106,462,000 were 11%
lower than the net sales of $119,285,000 for the year ended December 31, 1994.
Gross profit as a
-10-
<PAGE>
percentage of net sales was 12% and 14%, respectively, for the years ended
December 31, 1995 and 1994. Net sales decreased in 1995 due to the sale of the
Company's semiconductor component business to Reptron in July 1995. Net sales
related to the ongoing mid-range computer systems business were $78,214,000 for
the year ended December 31, 1995 as compared to $59,934,000 for the same period
in 1994, an increase of 31%. The net sales for the year ended December 31, 1995
include $779,000 in sales from IPI. Semiconductor component sales, representing
the balance of the reported consolidated net sales, decreased 53% as a result of
the sale of the net assets of the semiconductor distribution business in July
1995 and the continued loss of semiconductor component lines in the 19 month
period ending with the date of the sale of the Company's component assets. The
decrease in gross profit was attributable to the lower average gross profit of
systems products as well as a decrease in average component selling prices prior
to the sale of the Company's components assets. The Reptron sale early in the
third quarter of 1995 allowed for a significant increase in the mid-range
computer systems sales, as the Company focused its efforts solely on this
business.
Selling, general and administrative expense as a percentage of net sales
decreased to 13% in the year ended December 31, 1995 from 14% in the year ended
December 31, 1994. The decrease in selling, general and administrative expense
is due to several factors, of which the most significant is the sale of the
Company's component distribution assets and the transfer of employees and
infrastructure associated with that business to Reptron. In the management of
its ongoing mid-range computer systems business, the Company had a reduction in
force, consolidated its executive, administrative, distribution and integration
facilities into one location, and aggressively cut back controllable sales
related expenses, which included the modification of management compensation
plans with such compensation determined as a function of return on assets. For
the year ended December 31, 1994, the Company recorded a non-recurring, non-
cash charge of $393,000 to account for the compensation element of certain First
Computer Corporation ("FCC") restricted stock awards exchanged for publicly
traded shares of the Company's stock when FCC was acquired on December 1, 1994.
As a result of the sale of the Company's component distribution assets to
Reptron, the Company recorded a restructuring charge of $3,600,000. Of this
amount $2,376,000 was for non-cash write-offs comprised of $1,353,000 in
goodwill and a $1,023,000 increase to long-term inventory related reserves.
Severance and other exit related charges related to the sale comprised the
remaining $1,224,000.
Interest expense decreased 4% in the fiscal year ended December 31, 1995 as
compared with the year ended December 31, 1994, mainly due to a decrease in
general bank borrowings for the year as the proceeds received from the sale of
the semiconductor distribution assets were used to reduce short-term debt.
Effective September 30, 1994, the Company discontinued its Testing Division
operations in North Carolina, as a result of its sole customer, Mitsubishi,
discontinuing its testing business with the Company. For the period ended
December 31, 1994, income from discontinued operations, net of income tax, of
$450,000 was reduced by a $63,000 estimated loss on disposition, consisting
primarily of expense related to an employment agreement offset by gains on the
sale of testing equipment.
-11-
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
- ---------------------------------------------------------------------
Net sales for the year ended December 31, 1994 of $119,285,000 were 23%
higher than the net sales of $96,843,000 for the year ended December 31, 1993.
Gross profit as a percentage of net sales was 14% and 18%, respectively, for the
years ended December 31, 1994 and 1993. Net sales increased due to increased
systems product sales, which can be attributed to the expansion of the Company's
inside sales customer base, and including the 1994 acquisitions of National
Information Systems, Inc. ("NIS") and FCC. Component product sales remained
relatively flat for the year ended December 31, 1994 compared to the same period
in the previous year. Gross profit as a percentage of sales decreased due to
the increase in personal computer sales, which sales typically yield a
substantially lower gross profit than mid-range systems sales. Additionally,
sales of memory products have yielded a lower gross profit percentage
than they did in the same period in the previous year, due to lower average
selling prices, and due to increased competition among some
of the Company's component product lines. The Company lost three key suppliers
during fiscal year 1994 and one key supplier in March 1995. Such suppliers'
component products represented 19% of the Company's total net sales for the year
ended December 31, 1994 and 24% of the Company's total gross profit.
Selling, general and administrative expense as a percentage of net sales
decreased 3% to 14% in the year ended December 31, 1994 from 17% in the year
ended December 31, 1993. However, selling, general, and administrative expense
increased in absolute dollars to $16,968,000 for the year ended December 31,
1994 from $16,768,000 over the prior fiscal year. For the year ended December
31, 1994, the Company recorded a non-recurring, non-cash charge of $393,000 to
account for the compensation element of certain FCC restricted stock awards
exchanged for publicly traded shares of the Company's stock when FCC was
acquired on December 1, 1994.
In March 1993, the Company was notified by one of its major shareholders of
his intent to effect a change in the composition of the Board of Directors. The
resulting dispute was resolved in April 1993. Legal and other costs of the
proxy dispute, as well as employment agreements entered into in conjunction
therewith, were expensed in the fiscal year ended December 31, 1993.
Restructuring charges, including severance payments related to an approximate
10% reduction in force were also expensed in the fiscal year ended December 31,
1993. The settlement costs and restructuring charges totaled $1,510,000. There
were no such expenses in the year ended December 31, 1994.
Interest expense increased 65% in the fiscal year ended December 31, 1994
as compared with the year ended December 31, 1993 due to increased bank
borrowings and increased average interest rates on bank borrowings.
Other income of $395,000 for the year ended December 31, 1993 resulted
primarily from the sale of stock held as an investment.
Effective September 30, 1994, the Company discontinued its Testing Division
operations in North Carolina, as a result of its sole customer, Mitsubishi,
discontinuing its testing business with the Company. For the period ended
December 31, 1994, income from discontinued opera-
-12-
<PAGE>
tions, net of income tax, of $450,000 was reduced by a $63,000 estimated loss on
disposition, consisting primarily of expense related to an employment agreement
offset by gains on the sale of testing equipment. For the period ended December
31, 1993, income from discontinued operations, net of income tax, was $524,000.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities during the year ended December
31, 1995 totaled $3,719,000 compared to net cash used by operations of
$3,245,000 for the same period one year ago. This major swing is primarily the
result of the sale of the component assets to Reptron, which reduced, at the
time of the sale, accounts receivable and inventory by approximately $9,200,000
and accounts payable by approximately $3,300,000.
Net cash used by investing activities totaled $1,172,000 from January 1,
1995 to December 31, 1995 compared to $575,000 in the prior year. This is
mainly due to increased leasehold improvements and fixed asset purchases for the
Company's corporate headquarters, which moved to a new location in July 1995 and
asset purchases for new sales offices in San Antonio, Texas; Boston,
Massachusetts; and Atlanta, Georgia. The Company also made significant
purchases of computer hardware to upgrade its internal networking abilities.
Net cash used by financing activities totaled $2,139,000 from January 1,
1995 to December 31, 1995 primarily due to reductions in short-term borrowings
for working capital purposes, which are a result of the sale of the component
assets and profitable operations in the last two quarters of the year.
As a result of the above operating, investing and financing activities, the
Company's cash increased $408,000 to $546,000 at December 31, 1995.
The Company has a $15,000,000 line of credit with a bank which expires in
April 1998. Borrowings under the line of credit are limited to 80% of eligible
accounts receivable and 40% of eligible inventories (up to a maximum of
$4,000,000), as defined in the agreement, and are collateralized by
substantially all of the Company's assets. This line bears interest at prime
plus 1.75% (10.65% at December 31, 1995) and requires the Company to pay a
minimum of $5,000 in interest per month. Borrowings under this line of credit
were $7,039,929 at December 31, 1995.
The Company's operations have required substantial working capital to
finance inventories, accounts receivable and capital expenditures. The Company
has financed its acquisitions, working capital, and equipment requirements
through bank borrowings, restricted stock issuances, equipment leases and loans,
and believes it has the ability to obtain sufficient resources to fund its
operations through calendar 1996.
-13-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Western Micro Technology, Inc.
Campbell, California
We have audited the accompanying consolidated balance sheets of Western Micro
Technology, Inc. as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Western Micro
Technology, Inc. as of December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 2, 1996
-14-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
__________
<TABLE>
<CAPTION>
December 31,
------------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 546 $ 138
Trade accounts receivable, net of allowance for doubtful
account of $380 in 1995 and $393 in 1994 14,258 15,170
Inventories, net 15,251 18,959
Other current assets 1,705 1,095
-------- --------
Total current assets 31,760 35,362
Property and equipment, net 1,720 889
Goodwill, net of accumulated amortization of $12 in 1995
and $740 in 1994 2,206 1,389
Other assets 213 258
-------- --------
Total assets $ 35,899 $ 37,898
======== ========
LIABILITIES
Current liabilities:
Notes payable $ 7,040 $ 9,175
Current portion of capital lease obligations 86 86
Accounts payable 15,950 11,949
Accrued expenses 1,372 1,818
-------- --------
Total current liabilities 24,448 23,028
Capital lease obligations, less current portion 117 65
Other 330 381
-------- --------
24,895 23,474
Commitments and contingencies (Notes 4 and 9).
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 10,000,000 shares;
Issued and outstanding: none
Common stock, without par value:
Authorized: 10,000,000 shares;
Issued and outstanding: 4,009,988 shares in 1995 and
3,702,007 shares in 1994 15,587 13,909
Retained earnings (deficit) (4,583) 515
-------- --------
Total shareholders' equity 11,004 14,424
-------- --------
Total liabilities and shareholders' equity $ 35,899 $ 37,898
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-15-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
__________
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 106,462 $ 119,285 $ 96,843
Cost of goods sold 93,416 102,662 79,802
--------- --------- --------
Gross profit 13,046 16,623 17,041
Selling, general and administrative expense 13,703 16,968 16,768
Restructuring costs 3,600 1,510
Interest expense, net 850 884 535
Other income (9) (10) (395)
--------- --------- --------
Loss from continuing operations before
income taxes (5,098) (1,219) (1,377)
Benefit from income taxes 217 286
--------- --------- --------
Loss from continuing operations (5,098) (1,002) (1,091)
Discontinued operations:
Income from operations, net of income tax 450 524
Estimated loss on disposition (63)
--------- --------- --------
Net loss $ (5,098) $ (615) $ (567)
========= ========= ========
Net (loss) income per common share:
Continuing operations $ (1.36) $ (0.27) $ (0.31)
Discontinued operations 0.10 0.15
--------- --------- --------
Net loss per share $ (1.36) $ (0.17) $ (0.16)
========= ========= ========
Number of shares used in per share calculations 3,756 3,669 3,474
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-16-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
__________
<TABLE>
<CAPTION>
Common Stock
--------------------- Retained
Earnings
Shares Amount (Deficit) Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balances, January 1, 1993 3,195,564 $ 11,912 $ 1,723 $ 13,635
Exercise of stock options 396,418 960 960
Issuance of restricted stock 32,894 -
Warrants repurchased (15) (15)
Retirement of shares (6,800) (26) (11) (37)
Net loss (567) (567)
---------- -------- --------- --------
Balances, December 31, 1993 3,618,076 12,831 1,145 13,976
Exercise of stock options 51,513 150 150
Stock compensation 393 393
Issuance of common stock 35,004 254 254
Retirement of shares (2,586) (61) (15) (76)
Tax benefit from the exercise of 342 342
stock options
Net loss (615) (615)
---------- -------- --------- --------
Balances, December 31, 1994 3,702,007 13,909 515 14,424
Exercise of stock options 7,981 18 18
Issuance of common stock 300,000 1,660 1,660
Net loss (5,098) (5,098)
---------- -------- --------- --------
Balances, December 31, 1995 4,009,988 $ 15,587 $ (4,583) $ 11,004
========== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-17-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
__________
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,098) $ (615) $ (567)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
(Gain) loss on disposal of property and equipment (68) 87 (2)
Depreciation and amortization 527 557 866
Provision for doubtful accounts receivable 291 302 779
Provision for restructuring costs 3,600 829
Compensation associated with restricted stock grants 393
Change in assets and liabilities:
Accounts receivable 421 (1,819) (4,108)
Inventories 2,035 (1,430) (4,075)
Other current assets (110) 178 (386)
Assets related to discontinued operations 132
Other assets (154) 4 15
Accounts payable 4,001 (443) 4,562
Accrued expenses and other liabilities (1,726) (459) 229
-------- -------- --------
Net cash provided by (used in) operating activities 3,719 (3,245) (1,726)
-------- -------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (1,364) (575) (460)
Proceeds from sale of assets 192 31
-------- -------- --------
Net cash used by investing activities (1,172) (575) (429)
-------- -------- --------
Cash flows from financing activities:
Net (repayments) proceeds under line-of-credit (2,135) 3,087 1,705
Proceeds from exercise of stock options 18 74 923
Repurchase of warrants (15)
Repayment of capital leases and equipment loan (123) (75) (121)
Proceeds from equipment loan 101 115
Tax benefit from the exercise of stock options 342
-------- -------- --------
Net cash (used in) provided by financing activities (2,139) 3,543 2,492
Net increase (decrease) in cash 408 (277) 337
Cash, beginning of year 138 415 78
-------- -------- --------
Cash, end of year $ 546 $ 138 $ 415
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-18-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. Summary of Significant Accounting Policies:
------------------------------------------
NATURE OF OPERATIONS:
Western Micro Technology, Inc. (the "Company") is a distributor of
commercial mid-range computer systems, peripheral equipment and software.
Prior to July 26, 1995, the Company's operations also included distribution
of electronic components (see Note 12). The Company's primary sales office
and distribution center, from which it ships to customers throughout the
United States, is located in California. In addition to the California
location, the Company has a distribution center in Illinois and sales
offices throughout the Country. The principal customers of the Company are
VARS, computer system integrators and OEMs located in the U.S.
FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. During 1994, the Company acquired
First Computer Corporation ("FCC") in a business combination accounted for
as a pooling of interests. Accordingly, all financial information herein
has been restated to reflect the combined operations of these companies
(see Note 11).
ESTIMATES:
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CERTAIN RISKS AND CONCENTRATIONS:
The Company maintains cash balances with three major financial
institutions. The Company sells its products to a broad geographic and
demographic base of customers, extends trade credit, and generally does not
require supporting collateral. To reduce credit risk, the Company performs
ongoing credit evaluations of its customers and maintains an allowance for
doubtful accounts.
Continued
-19-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. Summary of Significant Accounting Policies, continued:
------------------------------------------
Revenues are concentrated with a relatively limited number of customers and
supplies of certain systems are concentrated among a few providers. The
loss of a major customer or the interruption of certain supplier
relationships could affect operating results adversely.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities approximate fair value due to their
maturities. Based on borrowing rates currently available to the Company
for loans with similar terms, the carrying value of capital lease
obligations and notes payable obligations also approximate fair value.
REVENUE RECOGNITION:
The Company records revenue, net of allowance for estimated returns, at the
time of product shipment.
INVENTORIES:
Inventories, consisting primarily of purchased product held for resale, are
stated at the lower of cost (first-in, first-out) or net realizable value.
The Company's inventories include high technology computer systems that may
be specialized in nature and subject to rapid technological obsolescence.
The Company does, however, have certain return privileges with many of its
vendors. While the Company attempts to minimize the required inventories
on hand and considers technological obsolescence when estimating required
reserves to reduce recorded amounts to market values, it is reasonably
possible that such estimates could change in the near term.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives, typically two to ten
years. Leasehold improvements are amortized over the useful lives of the
improvements or lease term, whichever is shorter.
When assets are sold or retired, the cost and related accumulated
depreciation are removed from the accounts and the resulting gains or
losses are included in income.
Continued
-20-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. Summary of Significant Accounting Policies, continued:
------------------------------------------
GOODWILL:
Goodwill represents the excess cost over the fair value of identifiable net
assets of businesses acquired and is being amortized on a straight-line
basis over fifteen years.
INCOME TAXES:
The Company accounts for its income taxes using the liability method under
which deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts expected to be realized.
NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of common
shares outstanding during each period and does not include the effects of
anti-dilutive stock options.
RECENT PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," which requires the review for
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain circumstances, an impairment loss would be
recognized. The Company does not believe that adoption of Statement No.
121, which will become effective for the Company's fiscal year 1996, will
have a material impact on its financial condition or operating results.
Continued
-21-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. Summary of Significant Accounting Policies, continued:
------------------------------------------
In October 1995, the Financial Accounting Standards Board Issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation" which
established a fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies
who elect not to adopt the new method of accounting. While the Company
studies the impact of the pronouncement, it continues to account for
employee stock purchase rights and stock options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS No. 123 will be effective
for fiscal years beginning after December 15, 1995.
2. Property and Equipment:
----------------------
Property and equipment consist of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Test equipment $ 30 $ 21
Office equipment 3,979 3,523
Automobiles 103 103
Leasehold improvements 812 406
------- -------
4,924 4,053
Accumulated depreciation and amortization (3,204) (3,164)
------- -------
$ 1,720 $ 889
======= =======
</TABLE>
The Company leases various equipment and vehicles under capital leases, all
of which have been accounted for as installment purchases (Note 3).
Accordingly, capitalized costs of $357,000 and $310,000, net of accumulated
amortization of $163,000 and $152,000 at December 31, 1995 and 1994,
respectively, are included in property and equipment.
Continued
-22-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
3. Notes Payable and Capital Lease Obligations:
-------------------------------------------
NOTES PAYABLE:
The Company has a $15,000,000 line of credit with a bank which expires in
April 1998. Borrowings under the line of credit are limited to 80% of
eligible accounts receivable and 40% of eligible inventories (up to a
maximum of $4,000,000), as defined in the agreement, and are collateralized
by substantially all of the Company's assets. This line bears interest at
prime plus 1.75% (10.65% at December 31, 1995) and requires the Company to
pay a minimum of $5,000 in interest per month. Borrowings under this line
of credit were $7,039,929 at December 31, 1995. The weighted average
interest rates for the Company's borrowings during 1995 and 1994 were 10.6%
and 10.3%, respectively.
CAPITAL LEASE OBLIGATIONS:
The Company leases property and equipment under capital leases which expire
through 2000. At December 31, 1995, future minimum payments under capital
leases are as follows (IN THOUSANDS):
1996 $ 111
1997 71
1998 24
1999 20
2000 12
-----
Minimum lease payments 238
Less amount representing interest 35
-----
Present value of minimum lease payments 203
Less current portion 86
-----
$ 117
=====
4. Operating Lease Commitments:
---------------------------
The Company leases its warehouse and office space under operating leases.
These leases expire through 2000 and provide for payment of insurance,
maintenance and property taxes. In addition, the Company leases copiers
and fax machines under operating leases and rental arrangements extending
for periods of up to five years.
Continued
-23-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
4. Operating Lease Commitments, continued:
---------------------------
The total rent expense, net of sublease income, was $934,000, $1,222,000
and $1,098,000 for 1995, 1994 and 1993, respectively.
Future minimum rental commitments for all noncancelable operating leases
are as follows (IN THOUSANDS):
Years Ending December 31,
-------------------------
1996 $ 446
1997 385
1998 379
1999 320
2000 173
-------
$ 1,703
=======
5. Income Taxes:
------------
The provision for (benefit from) income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1995:
Current
Deferred
-------- ------ ------
$ - $ - $ -
======== ====== ======
1994:
Current 41 41
Deferred
-------- ------ ------
$ 41 $ - $ 41
======== ====== ======
1993:
Current 31 31
Deferred
-------- ------ ------
$ 31 - $ 31
======== ====== ======
</TABLE>
Continued
-24-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
5. Income Taxes, continued:
------------
The provision for (benefit from) income taxes shown above have been
classified as follows in the statements of operations (IN THOUSANDS):
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Continuing operations $ (217) $ (286)
Discontinued operations 258 317
------ ------ ------
$ - $ 41 $ 31
====== ====== ======
</TABLE>
The Company's effective tax expense (benefit) rate differs from the U.S.
federal statutory tax rate as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Maximum statutory tax rate (34)% (34)% (34)%
Goodwill and other nondeductible expenses 11 14 6
Benefit resulting from utilization of federal NOL (3)
Change in valuation reserve 23 30 28
Other 6
--- --- ---
- % 7 % 6 %
=== === ===
</TABLE>
Continued
-25-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
5. Income Taxes, continued:
------------
The components of the net deferred tax asset are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserve $ 154 $ 197
Accumulated depreciation 61 218
Uniform inventory capitalization 119 143
Inventory reserve 475 167
Other nondeductible reserves 418 507
Other 276 448
Federal and state NOL 1,679 336
Valuation allowance (3,182) (2,016)
------- -------
$ - $ -
======= =======
</TABLE>
At December 31, 1995, the Company had a state net operating loss
carryforward of approximately $6,400,000 available to offset future state
taxable income and $5,500,000 for federal tax purposes. Included in the
above amounts are net operating losses generated by the
exercise/dispositions of stock options of $2,000,000 and $1,000,000 for
state and federal tax purposes, respectively. The operating loss
carryforward expires from 1999 through 2010.
6. Shareholders' Equity:
--------------------
STOCK OPTION PLAN:
Under the terms of the 1987 and 1994 Stock Option Plans, the Company may
grant nonqualified or incentive stock options at prices not less than 85%
and 100% of the market value at the grant date, respectively. To date,
most options have been granted at 100% of the market value as of the date
of grant. Generally, options become exercisable in equal annual increments
over four years beginning one year after the date of grant and expire five
years after they become exercisable.
Continued
-26-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
6. Shareholders' Equity, continued:
--------------------
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Shares Number Price
Available of per
for Grant Shares Share Total
--------- ------ ----- -----
<S> <C> <C> <C> <C>
Balances, January 1, 1993 189,061 738,653 $2.00-$4.00 $ 1,882
Options granted (60,000) 60,000 $6.00-$9.25 480
Options exercised (396,418) $2.00-$3.63 (960)
Options terminated 96,937 (96,937) $2.13-$3.50 (244)
--------- --------- -------
Balances, December 31, 1993 225,998 305,298 $2.00-$9.25 1,158
Additional shares reserved 150,000
Options granted (635,000) 635,000 $6.00-$8.13 4,288
Options exercised (51,513) $2.13-$3.00 (150)
Options terminated 294,441 (294,441) $2.13-$9.25 (2,058)
--------- --------- -------
Balances, December 31, 1994 35,439 594,344 $2.00-$8.75 3,238
Options granted (342,500) 342,500 $2.25-$5.63 1,151
Options exercised (7,981) $2.00-$2.50 (18)
Options terminated 324,375 (324,375) $2.25-$8.25 (1,869)
--------- --------- -------
Balances, December 31, 1995 17,314 604,488 $2.25-$8.75 $ 2,502
========= ========= =======
</TABLE>
At December 31, 1995, there were 621,802 shares of common stock reserved
for issuance under the Company's stock option plans and outstanding options
for 154,488 shares of common stock were exercisable. In June 1994, the
Board of Directors gave certain employees the right to cancel certain
outstanding stock options and receive new options with an exercise prices
of $6.00 per share (the fair market value as of the date of grant).
Options for 200,000 shares of common stock at original exercise prices
ranging from $8.13 to $8.50 per share were canceled, and new options for a
like number of shares were issued in fiscal 1994. The new options retained
the vesting of the canceled options. Income tax benefits related to the
exercise of nonqualified stock options, to the extent recognized, have been
recorded as additional proceeds.
Continued
-27-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
6. Shareholders' Equity, continued:
--------------------
EMPLOYEE STOCK PURCHASE PLAN:
The Company implemented an Employee Stock Purchase Plan (the "Plan") in
November 1995, under which 175,000 shares of common stock have been
reserved for issuance. The Plan is qualified under Section 423 of the
Internal Revenue Code. The Plan allows for the purchase of stock at 85% of
the fair market value of the grant or the exercise date, whichever is less.
7. Discontinued Operations:
-----------------------
As of September 30, 1994, the Company reported its Testing Division as
discontinued operations. Operating results of these divisions are included
in the Consolidated Statements of Operations under the caption
"Discontinued Operations: Income from Operations, Net of Income Tax." The
related net assets are immaterial. Operating results for the discontinued
operations were as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1994 1993
---- ----
<S> <C> <C>
Net sales $ 2,116 $ 2,909
Income tax provision $ 258 $ 317
Income from operations $ 450 $ 524
</TABLE>
8. Supplemental Cash Flow Information:
----------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) for interest and income taxes were (IN THOUSANDS):
<TABLE>
Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest $ 895 $ 762 $ 490
Income taxes $ (30) $ 37 $ (74)
</TABLE>
Continued
-28-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
8. Supplemental Cash Flow Information, continued:
----------------------------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Capital lease obligations $ 79 $ 16 $ -
Common stock issued in connection
with acquisition $ 1,660 $ 254 $ -
Retirement of shares $ - $ 76 $ 37
</TABLE>
9. Contingencies:
-------------
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes that any liabilities resulting from such proceedings, or claims
which are pending or known to be threatened, will not have a material
adverse effect on the Company's consolidated financial position or results
of operations.
The Company has employment agreements with three employees which provide
for aggregate cash severance payments of up to $428,000 in the event of
termination without cause, or pursuant to a change in control.
10. Savings and Retirement Plan:
---------------------------
Effective October 1, 1988, the Company adopted the "Western Micro
Technology Savings and Retirement Plan," qualified under Section 401(a) of
the Internal Revenue Code. The Plan provides for tax deferred, automatic
salary deductions and alternative investment options. Employees are
eligible to participate after completion of six months of employment.
Participants may apply for loans from their accounts.
The Plan permits Company contributions determined quarterly by the Board of
Directors. No contributions were made in the years ended December 31,
1995, 1994 or 1993.
Continued
-29-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
11. Business Combinations:
---------------------
On November 18, 1995, the Company acquired all of the common stock of
International Parts, Inc. ("IPI"), a privately held company, for 300,000
shares of the Company's common stock, of which 10% of such shares are being
held in escrow until August 15, 1996 in connection with certain
representations and warranties of the seller. The terms of the agreement
between the Company and IPI (the "Agreement") also contain an earn-out
provision which allows for IPI to earn up to an additional 300,000 shares
of the Company's common stock based on 30% of gross profit dollars
generated for certain fiscal year 1996 and 1997 sales (as defined in the
Agreement) in excess of $418,550 per quarter. The stock so issued will be
valued at an average of prevailing market closing stock prices at each
quarterly payment date. The acquisition has been accounted for as a
purchase with the result that IPI operations are included in the
Company's financial statements since the purchase date. In
connection with this purchase, the Company has recorded approximately
$2,000,000 of goodwill. For the fiscal year ended December 31, 1994,
IPI had revenues of approximately $15,200,000 with net income of
approximately $90,000.
On December 1, 1994, the Company acquired all of the common stock of First
Computer Corporation ("FCC"), a privately held company, for 328,943 shares
of the Company's common stock. FCC was also involved in the distribution
of mid-range computer systems. Under the terms of the merger agreement,
FCC stockholders received for each of their shares of common stock .741485
shares of the Company's common stock. The merger has been accounted for as
a pooling of interests and, accordingly, the consolidated financial
statements have been restated to include the amounts and results of the
operations of FCC for all periods presented.
Continued
-30-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
11. Business Combinations, continued:
---------------------
Revenue and net income (loss) from the continuing and discontinued
operations of the separate companies for the eleven months ended December
1, 1994 and the year ended December 31, 1993 are presented below:
<TABLE>
<CAPTION>
Eleven
Months Year
Ended Ended
December 1, December 31,
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
Revenue:
Western Micro Technology, Inc. $ 103,996 $ 93,623
FCC 6,886 6,129
------------ ------------
Combined $ 110,882 $ 99,752
============ ============
Net income (loss):
Western Micro Technology, Inc. $ (405) $ (590)
FCC (258) 23
------------ ------------
Combined $ (663) $ (567)
============ ============
</TABLE>
12. Sale of Components Business and Restructuring Charge:
----------------------------------------------------
On July 26, 1995, the Company sold its electronics components distribution
assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at
approximately $12,500,000, consisted of a $9,200,000 payment in cash and
the assumption of $3,300,000 in accounts payable. Of the $9,200,000 cash
payment, $1,000,000 was held back in escrow for six months to serve as a
source of certain specified rights within the purchase agreement with
Reptron. The sale, which was approved by the Company's shareholders,
included the Company's semiconductor component inventory, certain
receivables, furniture and equipment. In addition, Reptron assumed certain
building and equipment lease obligations. As a result of this sale, the
Company recorded a restructuring charge of $3,600,000. Of this amount,
$2,376,000 was for non-cash write-offs comprised of $1,353,000 in goodwill
and a $1,023,000 increase to long-term inventory related reserves.
Severance and other exit related charges related to the sale comprised the
remaining $1,224,000. On February 14, 1996, $211,184 was distributed from
the escrow to the Company and the balance was paid to Reptron.
Concurrent with the distribution of the escrow funds, Reptron returned
approximately $789,000 of
Continued
-31-
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
12. Sale of Components Business and Restructuring Charge, continued:
----------------------------------------------------
designated assets, valued at historical cost, to the Company. These
designated assets were primarily comprised of semiconductor inventories.
The Company has established reserves to offset any diminution in value of
these assets and believes that there will be no material adverse impact to
its financial statements as a result.
13. Subsequent Event:
----------------
On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
Company ("R&D"), a privately held company, for $1,000,000 and 125,000
shares of the Company's common stock. The agreement between the Company
and R&D also contains an earn-out provision which allows R&D to earn up to
an additional 142,500 shares of the Company's common stock based on
attainment of gross profit targets for certain fiscal year 1996 and 1997
sales (as defined in Agreement) up to a cumulative value not to exceed
$292,500. The acquisition has been accounted for as a purchase with the
future results of R&D to be included in the Company's financial statements
from the date of purchase. In connection with the acquisition, the Company
expects to record approximately $1,275,000 of goodwill and other intangible
assets. For the year ended December 31, 1994, R&D had revenues of
$9,557,000 with net income of $446,000.
Continued
-32-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS REGARDING THE DIRECTORS
---------------------------------------------------------------------
OF THE COMPANY ON ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS. See Part I, "Executive Officers and Key
Personnel of the Company" for information regarding the Executive Officers and
Key Personnel of the Company. Reference is made to the information appearing in
the Company's definitive proxy statement under the heading "Election of
Directors," which information is incorporated herein by reference.
SECTION 16 REPORTS. Reference is made to the information appearing in
the Company's definitive proxy statement under the heading "Section 16
Reports," which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Reference is made to the information appearing in the Company's
definitive proxy statement under the headings "Executive Compensation"
and "Compensation of Directors," which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Reference is made to the information appearing in the Company's definitive
proxy statement under the heading "Security Ownership of Directors, Executive
Officers and Certain Shareholders," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with Management and Others
---------------------------------------
None.
Continued
-33-
<PAGE>
(b) Certain Business Relationships
------------------------------
None.
(c) Indebtedness of Management
--------------------------
None.
Continued
-34-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The financial statements listed below appear on the pages indicated:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Accountants 14
Consolidated Balance Sheets, December 31, 1995 and
1994 15
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993 16
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993 17
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 18
Notes to Consolidated Financial Statements 19
</TABLE>
2. Financial Statement Schedules
-----------------------------
The financial statement schedules listed below appear on the pages
indicated:
Page Number
-----------
Schedule II - Valuation and Qualifying Accounts and
Reserves 40
Report of Independent Accountants on Financial
Statement Schedules 41
3. Exhibits
--------
The exhibits listed under Item 14(c) are filed or incorporated by
reference herein.
Continued
-35-
<PAGE>
(b) Reports on Form 8-K
-------------------
On December 4, 1995, the Registrant filed a report on Form 8-K
relating to its acquisition of all of the outstanding stock of
International Parts, Inc. on November 18, 1995.
(c) Exhibits
--------
The Exhibits listed below are filed or incorporated by reference
herein.
INDEX TO EXHIBITS
Number Description
- ------ -----------
3.1(a) Articles of Incorporation for Silicon Valley Services, Inc. filed with
the California Secretary of State on December 30, 1975, filed as
Exhibit 3-A to the Company's Form S-1, Registration No. 2-86846, is
hereby incorporated by reference.
3.1(b) Certificate of Amendment of Articles of Incorporation of Silicon Valley
Services, Inc. (part of which changed the name of the Company to
Western Micro Technology, Inc.) filed with the California Secretary of
State on April 1, 1977, filed as Exhibit 4.2 to the Company's Form S-8,
Registration No. 33-60778, is hereby incorporated by reference.
3.1(c) Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on August 30, 1983, filed as Exhibit 4.3
to the Company's Form S-8, Registration No. 33-60778, is hereby
incorporated by reference.
3.1(d) Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on April 5, 1988, filed as Exhibit 3.1 to
the Company's Form 10-K for the year ended March 31, 1988, is hereby
incorporated by reference.
3.2 Amended Bylaws dated June 15, 1994, filed as Exhibit A to the Company's
Definitive Proxy Statement dated May 23, 1994 as filed with the
Commission on May 24, 1994, is hereby incorporated by reference.
*10.1 Amended and Restated Incentive and Non-Incentive Stock Option Plan
filed as Exhibit 10.1 with Form 10-K for the year ending December 31,
1990 is hereby incorporated by reference.
*10.2 Amended and Restated 1994 Stock Option Plan of Western Micro
Technology, Inc., filed as Exhibit B to the Company's Definitive Proxy
Statement dated May 23, 1994 as filed with the Commission on May 24,
1994, is hereby incorporated by reference.
Continued
-36-
<PAGE>
Number Description
- ------ -----------
10.3 Lease for Saratoga, California facility filed as Exhibit 10.5 with Form
10-K for the year ending March 31, 1987 is hereby incorporated by
reference.
10.4 Amended Lease for Saratoga, California facility dated January 21, 1992,
filed as Exhibit 10.3 with Form 10-K for the year ending December 31,
1991, is hereby incorporated by reference.
10.5 Master Lease Commitment dated September 25, 1989 and Supplements 8.01
and 8.02 thereto, filed as Exhibit 10.5 with Form 10-K for the year
ending March 31, 1990 is hereby incorporated by reference.
10.6 Loan and Security Agreement with CoastFed Business Credit Corporation
of California dated January 29, 1992, filed as Exhibit 10.9 with Form
10-K for the year ending December 31, 1991, is hereby incorporated by
reference.
10.7 Amendment to Loan Documents between the Company and CoastFed Business
Credit Corporation dated March 27, 1994, filed as Exhibit 10.23 with
Form 10-Q for the period ending June 30, 1994, is hereby incorporated
by reference.
10.8 Lease for Irvine, California facility dated October 29, 1993, filed as
Exhibit 10.18 with Form 10-K for the period ending December 31, 1993,
is hereby incorporated by reference.
*10.9 Promissory Note from Ronald H. Mabry dated March 31, 1994, filed as
Exhibit 10.21 with Form 10-Q for the period ending March 31, 1994, is
hereby incorporated by reference.
*10.10 Employment Agreement between the Company and Ronald H. Mabry dated
April 1, 1994, filed as Exhibit 10.21 with Form 10-Q for the period
ending March 31, 1994, is hereby incorporated by reference.
10.11 Business Partner (Redistributor) Agreement between the Company and
International Business Machines Corporation dated October 1, 1992 filed
as Exhibit 10.27 with Form 10-K for the period ending December 31,
1994, is hereby incorporated by reference.
10.12 Business Partner (Redistributor) Agreement between the Company and
International Business Machines Corporation dated February 28, 1994
filed as Exhibit 10.28 with Form 10-K for the period ending December
31, 1994, is hereby incorporated by reference.
Continued
-37-
<PAGE>
Number Description
- ------ -----------
*10.13 Employment Agreement between the Company and P. Scott Munro dated June
1, 1994 filed as Exhibit 10.29 with Form 10-K for the period ending
December 31, 1994, is hereby incorporated by reference.
*10.14 Employment Agreement between the Company and John Ashbaugh dated July
29, 1994 filed as Exhibit 10.30 with Form 10-K for the period ending
December 31, 1994, is hereby incorporated by reference.
10.15 Asset Purchase Agreement dated May 5, 1995 between the Company and
Reptron Electronics, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed with the Commission on August 9, 1995,
is hereby incorporated by reference.
10.16 Agreement and Plan of Reorganization dated November 18, 1995 between
the Company and International Parts, Inc., filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Commission on
December 4, 1995 is hereby incorporated by reference.
10.17 Asset Purchase Agreement dated January 2, 1996 between the Company and
R&D Hardware Systems Company of Colorado, filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Commission on
January 17, 1996, is hereby incorporated by reference.
*10.18 Employment Letter between the Company and P. Scott Munro dated January
18, 1996.
*10.19 Employment Letter between the Company and Donald A. Cochrane dated
January 18, 1996.
*10.20 Employment Letter between the Company and James W. Dorst dated June 12,
1995.
10.21 Lease Agreement between MP Hacienda, Inc. and the Company dated July
15, 1995.
10.22 Amendment to Loan Documents dated November 20, 1995 between the Company
and Coast Business Credit.
21.0 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
Continued
-38-
<PAGE>
Number Description
- ------ -----------
24.0 Power of Attorney (see page 43 of this Form 10-K).
* Denotes management compensation plan or arrangement.
(d) Financial Statement Schedules
-----------------------------
The financial statement schedules listed below appear on the pages
indicated.
Page Number
-----------
Schedule II - Valuation and Qualifying Accounts and
Reserves 40
Report of Independent Accountants on Financial
Statement Schedules 41
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
Continued
-39-
<PAGE>
SCHEDULE II
WESTERN MICRO TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
__________
<TABLE>
<CAPTION>
Balance at Balance
Beginning At End
of Period Additions(1) Deductions(2) of Period
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts $576 $779 $473 $882
Year ended December 31, 1994:
Allowance for doubtful accounts $882 $302 $791 $393
Year ended December 31, 1995:
Allowance for doubtful accounts $393 $491 $504 $380
</TABLE>
__________
(1) Charged to costs and expenses.
(2) Accounts written off against the reserve.
Continued
-40-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Western Micro Technology, Inc.:
Our report on the consolidated financial statements of Western Micro Technology,
Inc. and subsidiaries has been incorporated in this Form 10-K on pages 14-32.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in the index on page
35 of this Form 10-K.
In our opinion, the financial schedule referred to above when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 2, 1996
Continued
-41-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1996 REGISTRANT:
WESTERN MICRO TECHNOLOGY, INC.
By /s/ P. SCOTT MUNRO
-------------------------------------------------
P. Scott Munro
President, Chief Executive Officer,
Secretary and Director
(Principal Executive Officer)
By /s/ JAMES W. DORST
-------------------------------------------------
James W. Dorst
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Continued
-42-
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints P. Scott Munro and James W. Dorst and
both of them, as his attorney-in-fact, with full power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
By /s/ P. SCOTT MUNRO March 30, 1996
------------------------------------
P. Scott Munro
President, Chief Executive Officer,
Secretary and Director
(Principal Executive Officer)
By /s/ JAMES W. DORST March 30, 1996
------------------------------------
James W. Dorst
Chief Financial Officer
(Principal Financial and
Accounting Officer)
By /s/ JAMES J. HEFFERNAN March 27, 1996
------------------------------------
James J. Heffernan
Director
By /s/ JEROME A. MARTIN March 30, 1996
------------------------------------
Jerome A. Martin
Director
Continued
-43-
<PAGE>
Signature and Title Date
------------------- ----
By /s/ K. WILLIAM SICKLER March 29, 1996
------------------------------------
K. William Sickler
Director
By /s/ J. LARRY SMART March 28, 1996
------------------------------------
J. Larry Smart
Chairman of the Board
By /s/ WILLIAM H. WELLING March 28, 1996
-------------------------------------
William H. Welling
Director
Continued
-44-
<PAGE>
INDEX TO EXHIBITS
Number Description
- ------ -----------
3.1(a) Articles of Incorporation for Silicon Valley Services, Inc. filed with
the California Secretary of State on December 30, 1975, filed as
Exhibit 3-A to the Company's Form S-1, Registration No. 2-86846, is
hereby incorporated by reference.
3.1(b) Certificate of Amendment of Articles of Incorporation of Silicon Valley
Services, Inc. (part of which changed the name of the Company to
Western Micro Technology, Inc.) filed with the California Secretary of
State on April 1, 1977, filed as Exhibit 4.2 to the Company's Form S-8,
Registration No. 33-60778, is hereby incorporated by reference.
3.1(c) Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on August 30, 1983, filed as Exhibit 4.3
to the Company's Form S-8, Registration No. 33-60778, is hereby
incorporated by reference.
3.1(d) Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on April 5, 1988, filed as Exhibit 3.1 to
the Company's Form 10-K for the year ended March 31, 1988, is hereby
incorporated by reference.
3.2 Amended Bylaws dated June 15, 1994, filed as Exhibit A to the Company's
Definitive Proxy Statement dated May 23, 1994 as filed with the
Commission on May 24, 1994, is hereby incorporated by reference.
*10.1 Amended and Restated Incentive and Non-Incentive Stock Option Plan
filed as Exhibit 10.1 with Form 10-K for the year ending December 31,
1990 is hereby incorporated by reference.
*10.2 Amended and Restated 1994 Stock Option Plan of Western Micro
Technology, Inc., filed as Exhibit B to the Company's Definitive Proxy
Statement dated May 23, 1994 as filed with the Commission on May 24,
1994, is hereby incorporated by reference.
10.3 Lease for Saratoga, California facility filed as Exhibit 10.5 with Form
10-K for the year ending March 31, 1987 is hereby incorporated by
reference.
10.4 Amended Lease for Saratoga, California facility dated January 21, 1992,
filed as Exhibit 10.3 with Form 10-K for the year ending December 31,
1991, is hereby incorporated by reference.
10.5 Master Lease Commitment dated September 25, 1989 and Supplements 8.01
and 8.02 thereto, filed as Exhibit 10.5 with Form 10-K for the year
ending March 31, 1990 is hereby incorporated by reference.
Continued
-45-
<PAGE>
Number Description
- ------ -----------
10.6 Loan and Security Agreement with CoastFed Business Credit Corporation of
California dated January 29, 1992, filed as Exhibit 10.9 with Form 10-K
for the year ending December 31, 1991, is hereby incorporated by
reference.
10.7 Amendment to Loan Documents between the Company and CoastFed Business
Credit Corporation dated March 27, 1994, filed as Exhibit 10.23 with
Form 10-Q for the period ending June 30, 1994, is hereby incorporated
by reference.
10.8 Lease for Irvine, California facility dated October 29, 1993, filed as
Exhibit 10.18 with Form 10-K for the period ending December 31, 1993,
is hereby incorporated by reference.
*10.9 Promissory Note from Ronald H. Mabry dated March 31, 1994, filed as
Exhibit 10.21 with Form 10-Q for the period ending March 31, 1994, is
hereby incorporated by reference.
*10.10 Employment Agreement between the Company and Ronald H. Mabry dated
April 1, 1994, filed as Exhibit 10.21 with Form 10-Q for the period
ending March 31, 1994, is hereby incorporated by reference.
10.11 Business Partner (Redistributor) Agreement between the Company and
International Business Machines Corporation dated October 1, 1992 filed
as Exhibit 10.27 with Form 10-K for the period ending December 31,
1994, is hereby incorporated by reference.
10.12 Business Partner (Redistributor) Agreement between the Company and
International Business Machines Corporation dated February 28, 1994
filed as Exhibit 10.28 with Form 10-K for the period ending December
31, 1994, is hereby incorporated by reference.
*10.13 Employment Agreement between the Company and P. Scott Munro dated June
1, 1994 filed as Exhibit 10.29 with Form 10-K for the period ending
December 31, 1994, is hereby incorporated by reference.
*10.14 Employment Agreement between the Company and John Ashbaugh dated July
29, 1994 filed as Exhibit 10.30 with Form 10-K for the period ending
December 31, 1994, is hereby incorporated by reference.
10.15 Asset Purchase Agreement dated May 5, 1995 between the Company and
Reptron Electronics, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed with the Commission on August 9, 1995,
is hereby incorporated by reference.
Continued
-46-
<PAGE>
Number Description
- ------ -----------
10.16 Agreement and Plan of Reorganization dated November 18, 1995 between the
Company and International Parts, Inc., filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Commission on
December 4, 1995 is hereby incorporated by reference.
10.17 Asset Purchase Agreement dated January 2, 1996 between the Company and
R&D Hardware Systems Company of Colorado, filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Commission on
January 17, 1996, is hereby incorporated by reference.
*10.18 Employment Letter between the Company and P. Scott Munro dated January
18, 1996.
*10.19 Employment Letter between the Company and Donald A. Cochrane dated
January 18, 1996.
*10.20 Employment Letter between the Company and James W. Dorst dated June 12,
1995.
10.21 Lease Agreement between MP Hacienda, Inc. and the Company dated July
15, 1995.
10.22 Amendment to Loan Documents dated November 20, 1995 between the Company
and Coast Business Credit.
21.0 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
24.0 Power of Attorney (see page 43 of this Form 10-K).
* Denotes management compensation plan or arrangement.
Continued
-47-
<PAGE>
EXHIBIT 10.18
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
January 18, 1996
Mr. P. Scott Munro
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
Dear Scott:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. ("Company").
In consideration of the mutual covenants and promises made in this letter
agreement, you and the Company agree as follows:
1. Employment. Commencing as of January 1, 1996 (the "Effective Date"),
----------
you will continue to serve as the Company's President and Chief Executive
Officer. You will be given such duties, responsibilities and authority as are
appropriate to such position. Throughout the term of your employment, you will
devote such business time and energies to the business and affairs of the
Company as needed to carry out your duties and responsibilities as President and
Chief Executive Officer, subject to the overall supervision and direction of the
board of directors of the Company (the "Board").
2. Term. Commencing as of the Effective Date, your employment with the
----
Company will be "at-will." Either you or the Company can terminate your
employment at any time and for any reason, with or without cause and with or
without notice, in each case subject to the terms and provisions of paragraph 7
below.
3. Salary. For your services to the Company as President and Chief
------
Executive Officer, you will be paid a base salary, payable semi-monthly during
each month of employment, at an annualized rate of two hundred and three
thousand dollars ($203,000) per year.
4. Bonus. Upon execution of this Agreement, you will receive a one-time
-----
special cash bonus of $35,000 in recognition of your 1995 performance. In
addition, you will be eligible to receive an annual bonus if the goals of the
program are
<PAGE>
Mr. P. Scott Munro
January 18, 1996
Page 2
achieved. The terms of the bonus plan will be determined by the Compensation
Committee of the Board of Directors. For the purposes of such plan, your target
bonus will be $125,000, of which $25,000 will be the target bonus for each
calendar quarter and will be paid quarterly upon the attainment of certain
quarterly performance criteria and $25,000 will be the target bonus for the
entire year and will be paid annually upon the attainment of certain annual
performance criteria.
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of the Company
at the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company.
6. Options. On the Effective Date, the Company will grant and issue to
-------
you, subject to the approval of the Company's shareholders at its 1996 Annual
Meeting, options to purchase 40,000 shares of Common Stock of the Company, at
the fair market value of such Common Stock on the date of grant (the "Options"),
subject to the terms and conditions contained in the Company's standard form of
incentive stock option agreement (the "Option Agreement"). Subject to your
execution of the Option Agreement, your Options will vest over a five-year
period at the rate of 25% per year beginning on the second anniversary of the
date of grant. Notwithstanding the foregoing, your Options will become fully
vested and immediately exercisable in the event of a "change in control" of the
Company (as such term is defined in the Option Agreement), unless such
acceleration of vesting would in the sole judgment of the Board of Directors
based on advice of the Company's independent auditors be an impediment to
accounting for such transaction as a pooling of interest, in which case the
Options will not become fully vested and immediately exercisable.
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate
---------
your employment for "Cause." "Cause" will exist in the event you are convicted
of a felony or, in carrying out your duties, you are guilty of gross negligence
or gross misconduct resulting, in either case, in material harm to the Company.
In the event your employment is terminated for Cause
<PAGE>
Mr. P. Scott Munro
January 18, 1996
Page 3
you will be entitled to any unpaid salary and bonus due you pursuant to
paragraphs 3 and 4 above through the date of termination and you will be
entitled to no other compensation from the Company.
(b) Without Cause. Following the Effective Date, the Company may
-------------
terminate your employment without Cause. In such event, you will be entitled to
continue to receive your base salary for a period of twelve (12) months
following your termination.
(c) Change in Responsibilities Following a Change in Control. Following
--------------------------------------------------------
the Effective Date, in the event your responsibilities are substantially
reduced, without Cause, within 12 months following a "change in control" of the
Company (as such term is defined in the Option Agreement), your resulting
resignation of employment will be treated as a termination of employment by the
Company without Cause in accordance with subparagraph (b) above.
(d) Voluntary Termination. In the event you terminate your employment
---------------------
with the Company of your own volition, such termination will have the same
consequences as a termination for Cause under subparagraph (a) above.
8. Assignability; Binding Nature. Commencing on the Effective Date, this
-----------------------------
letter agreement will be binding upon you and the Company and your respective
successors, heirs, and assigns. This letter agreement may not be assigned by
you except that your rights to compensation and benefits hereunder, subject to
the limitations of this letter agreement, may be transferred by will or
operation of law. No rights or obligations of the Company under this letter
agreement may be assigned or transferred except by operation of law in the event
of a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and assumes the Company's
obligations under this letter agreement contractually or as a matter of law.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of California. Any controversy or claim relating to this letter
agreement any breach thereof, and any claims you may have against the Company or
any officer, director or employee of the Company or arising from or relating to
your employment with the Company, will be settled solely and finally by arbitra-
tion in accordance with the
<PAGE>
Mr. P. Scott Munro
January 18, 1996
Page 4
rules of the American Arbitration Association ("AAA") then in effect in the
State of California, and judgment upon such award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. The arbitrator may
provide that the cost of the arbitration (including reasonable legal fees)
incurred by you or the Company will be borne by the non-prevailing party.
10. Withholding. Anything to the contrary notwithstanding, following the
-----------
Effective Date all payments made by the Company hereunder to you or your estate
or beneficiaries will be subject to tax withholding pursuant to any applicable
laws or regulations. In lieu of withholding, the Company may, in its sole
discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided in this
----------------
Agreement, this letter agreement contains all the legally binding understandings
and agreements between you and the Company pertaining to the subject matter of
this letter agreement and supersedes all such agreements, whether oral or in
writing, previously entered into between the parties. In particular, on the
Effective Date this letter agreement will supersede your employment agreement
dated June 1, 1994, which as of the Effective Date will terminate and be of no
further force or effect.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the Board in
writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
In the event any portion of this letter agreement is determined to be invalid or
unenforceable for any reason, the remaining portions shall be unaffected thereby
and will remain in full force and effect to the fullest extent permitted by law.
Please acknowledge your acceptance and understanding of this letter
agreement by signing and returning it to me by
<PAGE>
Mr. P. Scott Munro
January 18, 1996
Page 5
5:00 p.m. on January 18, 1996. A copy of the signed letter agreement will be
sent to you for your records.
Sincerely,
/s/ K. WILLIAM SICKLER
---------------------------------------
ACKNOWLEDGED AND AGREED:
/s/ P. SCOTT MUNRO
- -------------------------------
P. Scott Munro
Dated: January 18, 1996
<PAGE>
EXHIBIT 10.19
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
January 18, 1996
Mr. Donald A. Cochrane
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
Dear Don:
This letter agreement sets forth the terms and conditions of your
employment with Western Micro Technology, Inc. ("Company").
In consideration of the mutual covenants and promises made in this letter
agreement, you and the Company agree as follows:
1. Employment. Commencing as of January 1, 1996 (the "Effective Date"),
----------
you will continue to serve as the Company's Senior Vice-President of Marketing
and Sales. You will be given such duties, responsibilities and authority as are
appropriate to such position. Throughout the term of your employment, you will
devote such business time and energies to the business and affairs of the
Company as needed to carry out your duties and responsibilities as Senior
Vice-President of Marketing and Sales, subject to the overall supervision and
direction of the Chief Executive Officer and President and the board of
directors of the Company (the "Board").
2. Term. Commencing as of the Effective Date, your employment with the
----
Company will be "at-will." Either you or the Company can terminate your
employment at any time and for any reason, with or without cause and with or
without notice, in each case subject to the terms and provisions of paragraph 7
below.
3. Salary. For your services to the Company as Vice-
------
President of Marketing and Sales, you will be paid a base salary, payable
semi-monthly during each month of employment, at an annualized rate of one
hundred and fifty thousand dollars ($150,000) per year.
4. Bonus. You will be eligible to receive an annual bonus if the goals
-----
of the program are achieved. The terms of the bonus plan will be determined by
the Compensation Committee
<PAGE>
Mr. Donald A. Cochrane
January 18, 1996
Page 2
of the Board of Directors. For the purposes of the plan, your target bonus will
be $70,000, of which $15,000 will be the target bonus for each calendar quarter
and will be paid upon the attainment of certain quarterly performance criteria
and $10,000 will be the target bonus for the entire year and will be paid upon
the attainment of certain annual performance criteria.
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of the Company
at the time or thereafter made available to the Company's executives or salaried
employees generally, including, without limitation, pension and other retirement
plans, profit sharing plans, group life insurance, accidental death and
dismemberment insurance, hospitalization, surgical, major medical and dental
coverage, sick leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs sponsored by
the Company.
6. Options. On the Effective Date, the Company will grant and issue to
-------
you, subject to the approval of the Company's shareholders at its 1996 Annual
Meeting, options to purchase 20,000 shares of Common Stock of the Company, at
the fair market value of such Common Stock on the date of grant (the "Options"),
subject to the terms and conditions contained in the Company's standard form of
incentive stock option agreement (the "Option Agreement"). Subject to your
execution of the Option Agreement, your Options will vest over a five-year
period at the rate of 25% per year beginning on the second anniversary of the
date of grant. Notwithstanding the foregoing, your Options will become fully
vested and immediately exercisable in the event of a "change in control" of the
Company (as such term is defined in the Option Agreement), unless such
acceleration of vesting would in the sole judgment of the Board of Directors
based on advice of the Company's independent auditors be an impediment to
accounting for such transaction as a pooling of interest, in which case the
Options will not become fully vested and immediately exercisable.
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. Following the Effective Date, the Company may terminate
---------
your employment for "Cause." "Cause" will exist in the event you are convicted
of a felony or, in carrying out your duties, you are guilty of gross negligence
or gross misconduct resulting, in either case, in material harm to the Company.
In the event your employment is terminated for Cause you will be entitled to any
unpaid salary and bonus due you pursuant to paragraphs 3 and 4 above through the
date of termi-
<PAGE>
Mr. Donald A. Cochrane
January 18, 1996
Page 3
nation and you will be entitled to no other compensation from the Company.
(b) Without Cause. Following the Effective Date, the Company may
-------------
terminate your employment without Cause. In such event, you will be entitled to
continue to receive your base salary for a period of nine (9) months following
the termination date.
(c) Change in Responsibilities Following a Change in Control. Following
--------------------------------------------------------
the Effective Date, in the event your responsibilities are substantially
reduced, without Cause, within 12 months following a "change in control" of the
Company (as such term is defined in the Option Agreement), your resulting
resignation of employment will be treated as a termination of employment by the
Company without Cause in accordance with subparagraph (b) above.
(d) Voluntary Termination. In the event you terminate your employment
---------------------
with the Company of your own volition, such termination will have the same
consequences as a termination for Cause under subparagraph (a) above.
8. Assignability; Binding Nature. Commencing on the Effective Date, this
-----------------------------
letter agreement will be binding upon you and the Company and your respective
successors, heirs, and assigns. This letter agreement may not be assigned by
you except that your rights to compensation and benefits hereunder, subject to
the limitations of this letter agreement, may be transferred by will or
operation of law. No rights or obligations of the Company under this letter
agreement may be assigned or transferred except by operation of law in the event
of a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and assumes the Company's
obligations under this letter agreement contractually or as a matter of law.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in accordance with,
the laws of California. Any controversy or claim relating to this letter
agreement any breach thereof, and any claims you may have against the Company or
any officer, director or employee of the Company or arising from or relating to
your employment with the Company, will be settled solely and finally by arbitra-
tion in accordance with the rules of the American Arbitration Association
("AAA") then in effect in the State of California, and judgment upon such award
<PAGE>
Mr. Donald A. Cochrane
January 18, 1996
Page 4
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. The arbitrator may provide that the cost of the arbitration (including
reasonable legal fees) incurred by you or the Company will be borne by the
non-prevailing party.
10. Withholding. Anything to the contrary notwithstanding, following the
-----------
Effective Date all payments made by the Company hereunder to you or your estate
or beneficiaries will be subject to tax withholding pursuant to any applicable
laws or regulations. In lieu of withholding, the Company may, in its sole
discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided in this
----------------
Agreement, this letter agreement contains all the legally binding understandings
and agreements between you and the Company pertaining to the subject matter of
this letter agreement and supersedes all such agreements, whether oral or in
writing, previously entered into between the parties.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the Board in
writing. No waiver by you or the Company of the breach of any condition or
provision of this letter agreement will be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
In the event any portion of this letter agreement is determined to be invalid or
unenforceable for any reason, the remaining portions shall be unaffected thereby
and will remain in full force and effect to the fullest extent permitted by law.
Please acknowledge your acceptance and understanding of this letter
agreement by signing and returning it to me by
<PAGE>
Mr. Donald A. Cochrane
January 18, 1996
Page 5
5:00 p.m. on January 18, 1996. A copy of the signed letter agreement will be
sent to you for your records.
Sincerely,
/s/ P. SCOTT MUNRO
----------------------------------------
ACKNOWLEDGED AND AGREED:
/s/ DONALD A. COCHRANE
- ---------------------------------
Donald A. Cochrane
Dated: January 18, 1996
<PAGE>
EXHIBIT 10.20
June 12, 1995
Mr. James W. Dorst
Western Micro Technology, Inc.
12900 Saratoga Avenue
Saratoga, California 95070
Dear Jim:
This letter agreement sets forth the basic terms and conditions of your
employment with Western Micro Technology, Inc. ("Company"). Your effective date
of hire is May 1, 1995. In consideration of the mutual covenants and promises
made in this letter agreement, you and the company agree as follows:
1. Employment. You have been appointed by the Company to serve as its
----------
Chief Financial Officer. Your duties, responsibilities and authority
are those as are appropriate to such position. Throughout the term of
your employment, you will devote such business time and energies to
the business and affairs of the Company as needed to carry out your
duties and responsibilities as Chief Financial Officer, subject to the
overall supervision and direction of the President, Chief Executive
Officer and the Board of Directors of the Company (the "Board").
2. Term. Your employment with the Company will be "at-will." In other
----
words, you or the Company can terminate your employment at any time
and for any reason, with or without cause and with or without notice,
in each case subject to the terms and provisions of paragraph 7 below.
3. Salary. For your services to the Company as Chief Financial Officer,
------
you will be paid a base salary, payable semi-monthly during each month
of employment, at an annualized rate of one hundred and fifty thousand
dollars ($150,000) per year.
4. Bonus. The Board (or such director or directors designated by the
-----
Board for such purpose), in consultation with you, will establish a
performance bonus program under which you will be eligible to receive
an annual bonus of up to $50,000 if the goals of the program are
achieved. The Company anticipates that you and the Board will
finalize the terms of this program on or about July 1, 1995.
<PAGE>
5. Employee Benefit Programs. During the term of your employment, you
-------------------------
will be entitled to participate in all employee benefit programs of
the Company at the time or thereafter made available to the Company's
executives or salaried employees generally, including, without
limitation, pension and other retirement plans, profit sharing plans,
group life insurance, accidental death and dismemberment insurance,
hospitalization, surgical, major medical and dental coverage, sick
leave (including salary continuation arrangements), long-term
disability, vacations, holidays and other employee benefit programs
sponsored by the Company.
6. Options. The Company will grant and issue to you options to purchase
-------
50,000 shares of Common Stock of the Company, at the fair market value
of such Common Stock on the date of grant (the "Options"), subject to
the terms and conditions contained in the Company's standard form of
incentive stock option agreement (the "Option Agreement"). Subject to
your execution of the Option Agreement, your Options will vest at the
rate of 25% per year from the date of employment and will be subject
to such additional vesting requirements as set forth in the Option
Agreement. Notwithstanding the foregoing, your options will become
fully vested and immediately exercisable in the event your employment
is actually or constructively terminated within twelve (12) months of
a "change in control" of the Company (as such term will be defined in
the Option Agreement), provided that the Company's consummation of the
Reptron Transaction will not be deemed a "change in control" under the
Option Agreement of this letter agreement.
7. Consequences of Termination of Employment.
-----------------------------------------
(a) For Cause. The Company may terminate your employment for
---------
"Cause." "Cause" will exist in the event you are convicted of a
felony or, in carrying out your duties, you are guilty of gross
negligence or gross misconduct resulting, in either case, in
material harm to the Company. In the event your employment is
terminated for Cause you will be entitled to any unpaid salary
and bonus due your pursuant to paragraphs 3 and 4 above through
the date of termination and you will be entitled to no other
compensation from the Company.
(b) Without Cause. The Company may terminate your employment without
-------------
Cause. in such event, you will be entitled to continue to
receive your base salary for a period of time following your
<PAGE>
termination determined in accordance, with the Company's
standard severance policy.
(c) Change in Responsibilities Following a Change of Control. In
--------------------------------------------------------
the event your responsibilities are substantially reduced,
without Cause, within 12 months following a "change in control"
of the Company (as such term will be defined in the Option
Agreement, but excluding consummation of the Reptron Transaction
described in Section 6 above), your resulting resignation of
employment will be treated as a termination of employment by the
Company without Cause in accordance with subparagraph (b) above.
(d) Voluntary Termination. In the event you terminate your
---------------------
employment with the Company of your own volition, such
termination will have the same consequences as a termination for
Cause under subparagraph (a) above.
(e) Assignability; Binding Nature. Following your execution of this
-----------------------------
letter where indicated, this letter agreement will be binding
upon you and the Company and your respective successors, heirs,
and assigns. This letter agreement may not be assigned by you
except that your rights to compensation and benefits hereunder,
subject to the limitations of this letter agreement, may be
transferred by will or operation of law. No rights or
obligations of the Company under this letter agreement may be
assigned or transferred except by a operation of law in the event
of a merger or consolidation in which the Company is not the
continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company (other than the
Reptron Transaction) provided that the assignee or transferee is
the successor to all or substantially all of the assets of the
Company and assumes the Company's obligations under this letter
agreement contractually or as a matter of law. In the event of
such a merger, consolidation, sale of assets, or liquidation, the
company will use its best efforts to cause such assignee or
transferee to assume the Company's obligations hereunder.
9. Governing Law; Arbitration. This letter agreement will be deemed a
--------------------------
contract made under, and for all purposes shall be construed in
accordance with, the laws of California. Any controversy or claim
relating to this letter agreement or any breach thereof, and any
claims you may have against the Company or any
<PAGE>
officer, director or employee of the Company arising from or related
to your employment with the Company, will be settled solely and
finally by arbitration in accordance with the rules of the American
Arbitration Association ("AAA") then in effect in the State of
California, and judgment upon such award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. The
arbitration may provide that the cost of the arbitration (including
reasonable legal fees) incurred by you or the Company will be borne by
the non-prevailing party.
10. Withholding. Anything to the contrary notwithstanding, all payments
-----------
made by the Company hereunder to you or your estate or beneficiaries
will be subject to tax withholding pursuant to any applicable laws or
regulations. In lieu of withholding, the Company may, in its sole
discretion, accept other provision for payment of taxes as required by
law, provided it is satisfied that all requirements of law affecting
its responsibilities to withhold such taxes have been satisfied.
11. Entire Agreement. Except as otherwise specifically provided in this
----------------
Agreement, this letter agreement contains all the legally binding
understandings and agreements between you and the Company pertaining
to the subject matter of this letter agreement and supersedes all such
agreements, whether oral or in writing, previously entered into
between you and the Company.
12. Miscellaneous. No provision of this letter agreement may be amended
-------------
or waived unless such amendment or waiver is agreed to by you and the
Board in writing. No waiver by you or the Company of the breach of
any condition or provision of this letter agreement will be deemed a
waiver of a similar or dissimilar provision or condition at the same
or any prior or subsequent time. In the event any portion of this
letter agreement is determined to be invalid or unenforceable for any
reason, the remaining portions shall be unaffected thereby and will
remain in full force and effect to the fullest extent permitted by
law.
Please acknowledge your acceptance and understanding of this letter agreement by
signing and returning it to me. A copy of
<PAGE>
the signed letter agreement will be sent to you for your records.
Sincerely,
/s/ Ronald H. Mabry
- -------------------------------
ACKNOWLEDGED AND AGREED:
/s/ James W. Dorst
- -------------------------------
James W. Dorst
June 12, 1995
- -------------------------------
Dated:
<PAGE>
EXHIBIT 10.21
LEASE AGREEMENT
---------------
1. Parties. This Lease is made by and between MP HACIENDA, INC., a Delaware
------- -----------------
corporation ("Landlord"), and WESTERN MICRO TECHNOLOGY, a California
corporation ("Tenant").
2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
--------
Landlord, upon the terms and conditions hereinafter set forth, those
certain premises (the "Premises") presently known, as of the date of this
Lease, as 252 - 254 Hacienda Avenue, situated in the City of Campbell
County of Santa Clara, State of California, described as follows: for
purposes of this Lease, the rentable square footage area of the Building
shall be deemed to be approximately Thirty-Five Thousand Five Hundred
Sixty-Three (35,563) square feet (the "Building"), as shown cross-hatched
on the site plan (the "Site Plan") attached hereto as Exhibit "A." The
Building is located on a larger parcel (the "Parcel") containing other
buildings (the "Buildings") as shown on the Site Plan, which Parcel is
described in Exhibit "B" attached hereto. In the event Landlord
subdivides the Parcel in the future into two (2) or more legal parcels,
the term "Parcel" shall thereafter refer to the legal parcel on which the
Premises are located. Landlord shall not be required to make any
alterations, additions or improvements to the Premises and the Premises
shall be leased to Tenant in an "as-is" condition.
2.A. Condition. Landlord shall deliver that portion of the Premises known as
---------
254 Hacienda ("Expansion Premises") to Tenant clean and free of debris on
the Commencement Date and warrants to Tenant that the existing plumbing,
fire sprinkler system, lighting, air conditioning, and heating in the
Expansion Premises, other than those constructed by tenant, shall be in
good operating condition on the Commencement Date. If a non-compliance
with said warranty exists as of the Commencement Date, Landlord shall
promptly after receipt of written notice from Tenant setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Landlord's expense. If Tenant does not give Landlord written notice of a
non-compliance with the warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the
obligation of Tenant at Tenant's sole cost and expense. That portion of
the Premises known as 252 Hacienda shall be accepted "as is" and no
warranty shall apply.
3. Term. The term of this Lease ("Lease Term") shall be for five (5) years,
----
commencing on July 15, 1995, (the "Commencement Date") and ending on July
14, 2000 unless sooner terminated pursuant to any provision hereof.
Notwithstanding said scheduled Commencement Date, if for any reason
Landlord cannot deliver possession of the Premises to Tenant on said date,
Landlord shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Tenant
hereunder, but in such case Tenant shall not be obligated to pay rent
until possession of the Premises is tendered to Tenant and the
commencement and termination dates of this Lease shall be revised to
conform to the date of Landlord's delivery of possession. In the event
Landlord shall permit Tenant to occupy the Premises prior to the
Commencement Date, such occupancy shall be subject to all the provisions
of this Lease, including the obligation to pay the Monthly Installment of
rent, and(1) Common Area Charges.
4. Rent.
----
A. Time of Payment. Tenant shall pay to Landlord as rent for the
---------------
Premises the sum specified in Paragraph 4.B below (the "Monthly
Installment") each month in advance on the first day of each calendar
month, without deduction or offset, prior notice or demand,
commencing on the Commencement Date and continuing through the term
of this Lease, together with such
- --------------------
(1) final rev
-1-
<PAGE>
additional rents as are payable by Tenant to Landlord under the terms
of this Lease. The Monthly Installment for any period during the
Lease Term which period is less than one (1) full month shall be a
prorata portion of the Monthly Installment based upon a thirty (30)
day month.
B. Monthly Installment. A) The Monthly Installment of rent payable each
-------------------
month during the period from July 1, 1995 through and including June
30, 1997, shall be the sum of Twenty-Four Thousand One Hundred
Eighty-Three and 00/100ths Dollars ($24,183.00) per month. B) The
Monthly Installment of rent payable each month during the period from
July 1, 1997 through June 30, 2000 shall be the sum of Twenty-Six
Thousand Six Hundred Fifty-Six and 00/100ths Dollars ($26,656.00) per
month.
C. Late Charge. Tenant acknowledges that late payment by Tenant to
-----------
Landlord of rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but
are not limited to, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any mortgage
or deed of trust covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be
received by Landlord within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord, as additional rent, a late charge
equal to six percent (6%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate
of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any of its other rights
and remedies granted hereunder.
D. Additional Rent. All taxes, insurance premiums, Common Area Charges,
---------------
late charges, costs and expenses which Tenant is required to pay
hereunder, together with all interest and penalties that may accrue
thereon in the event of Tenant's failure to pay such amounts, and all
reasonable damages, costs and attorneys' fees and expenses which
Landlord may incur by reason of any default of Tenant or failure on
Tenant's part to comply with the terms of this Lease, shall be deemed
to be additional rent ("Additional Rent") and shall be paid in
addition to the Monthly Installment of rent, and, in the event of
nonpayment of the Monthly Installment of rent.
E. Place of Payment. Rent shall be payable in lawful money of the
----------------
United States of America to Landlord at 511 Division Street, Campbell
CA, or to such other person (s) or at such other place (s) as
Landlord may designate in writing.
F. Advance Payment. Concurrently with the execution of this Lease,
---------------
Tenant shall pay to Landlord the sum of Twenty-Four Thousand One
Hundred Eighty-Three and 00/100ths Dollars ($24,183.00) to be applied
to the Monthly Installment of rent first accruing under this Lease.
5. Security Deposit. Tenant shall deposit the sum of Twenty-Six Thousand Six
----------------
Hundred Fifty-Six and 00/100ths Dollars ($26,656.00) (the "Security
Deposit") upon execution of this Lease, to secure the faithful performance
by Tenant of each term, covenant and condition of this Lease. This
deposit shall be a combination of Tenant's security deposit in the amount
of Twenty-One Thousand Five Hundred Seventy-Seven and 68/100ths Dollars
($21,577.68) currently on account with Landlord and the balance of Five
Thousand Seventy-Eight and 32/100ths Dollars ($5,078.32) payable by Tenant
to Landlord upon execution of this Lease herein. If Tenant shall at any
time fail to make any payment or fail to keep or perform any term,
covenant or condition on its part to be made or performed or kept under
this Lease, Landlord may, but shall not be obligated to and without
waiving or releasing Tenant from any obligation under this Lease, use,
apply or retain the whole or any part of the Security Deposit (A) to the
extent of any sum due to Landlord; (B) to make any required payment on
Tenant's behalf; or (C) to compensate Landlord for any loss, damages,
attorneys' fees or expense sustained by Landlord due to Tenant's
-2-
<PAGE>
default. In such event, Tenant shall, within five (5) days of written
demand by Landlord, remit to Landlord sufficient funds to restore the
Security Deposit to its original sum. No interest shall accrue on the
Security Deposit. Landlord shall not be required to keep the Security
Deposit separate from its general funds. Should Tenant comply with all
the terms, covenants, and conditions of this Lease and at the end of the
term of this Lease leave the Premises in the condition required by this
Lease, then said Security Deposit, less any sums owing to Landlord, shall
be returned to Tenant within thirty (30) days after the termination of
this Lease and vacancy of the Premises by Tenant.
6. Use of Premises. Tenant shall use the Premises only in conformance with
---------------
applicable governmental laws, regulations, rules and ordinances for the
purpose of general office, manufacturing, distribution and warehousing of
electronic parts and for no other purpose. Tenant shall indemnify,
protect, defend, and hold Landlord harmless against any loss, expense,
damage, attorneys' fees or liability arising out of the failure of Tenant
to comply with any applicable law. Tenant shall not commit or suffer to
be committed any waste upon the Premises, or any nuisance, or other acts
or things which may disturb the quiet enjoyment of any other tenant in the
buildings adjacent to the Premises, or allow any sale by auction upon the
Premises, or allow the Premises to be used for any unlawful purpose, or
place any loads upon the floor, walls or ceiling which endanger the
structure, or place any harmful liquids in the drainage system of the
Building. No waste materials or refuse shall be dumped upon or permitted
to remain upon any part of the Premises outside of the Building proper,
except in trash containers placed inside exterior enclosures designated
for that purpose by Landlord. No materials, supplies, equipment, finished
products or semi-finished products, raw materials or articles of any
nature shall be stored upon or permitted to remain on any portion of the
Premises outside of the Building proper. Tenant shall strictly comply
with the provisions of Paragraph 39 below.
7. Taxes and Assessments.
---------------------
A. Tenant's Property. Tenant shall pay before delinquency any and all
-----------------
taxes and assessments, license fees and public charges levied,
assessed or imposed upon or against Tenant's fixtures, equipment,
furnishings, furniture appliances and personal property installed or
located on or within the Premises. Tenant shall cause said fixtures,
equipment, furnishings, furniture, appliances and personal property
to be assessed and billed separately from the real property of
Landlord. If any of Tenant's said personal property shall be
assessed with Landlord's real property, Tenant shall pay Landlord the
taxes attributable to Tenant within ten (10) days after receipt of a
written statement from Landlord setting forth the taxes applicable to
Tenant's property.
B. Property Taxes. Tenant shall pay, as additional rent, its Pro Rata
--------------
Share (as defined below) of all Property Taxes levied or assessed
with respect to the land comprising the Parcel and with respect to
all buildings and improvements located on the Parcel which become due
or accrue during the term of this Lease. Tenant shall pay such
Property Taxes to Landlord within twenty (20) days after receipt of
billing. Provided that Landlord bills Tenant at least thirty (30)
days prior to the delinquency date of such Property Taxes, Tenant
shall pay such Property Taxes to Landlord at least ten (10) days
prior to the delinquency date, and if Tenant fails to do so, Tenant
shall reimburse Landlord, on demand, for all interest, late fees and
penalties that the taxing authority charges Landlord. In the event
Landlord's mortgagee requires an impound for Property Taxes, then on
the first day of each month during the Lease Term, Tenant shall pay
Landlord one twelfth (1/12) of its annual share of such Property
Taxes. Tenant's liability hereunder shall be prorated to reflect the
Commencement and termination dates of this Lease. Tenant's share of
the Property Taxes shall be determined by Landlord from the
respective valuation assigned in the Assessor's worksheet or such
other information as may be reasonably available. Landlord's
reasonable determination thereof, in good faith, shall be conclusive.
As used in this Lease, the term "Tenant's Pro Rata Share" shall mean
a fraction, expressed as a percentage, the numerator of which is the
number of square feet of floor space contained in
-3-
<PAGE>
the Premises and the denominator of which is the number of square
feet of floor space contained in all of the Buildings located on the
Parcel. As of the Commencement Date, Tenant's Pro Rata Share is
Eleven and Fifty-Seven One Hundredths percent (11.57%).
For the purpose of this Lease, "Property Taxes" means and includes
all taxes, assessments (including, but not limited to, assessments
for public improvements or benefits), taxes based on vehicles,
utilizing parking areas, taxes based or measured by the rent paid,
payable or received under this Lease, taxes on the value, use, or
occupancy of the Premises, the Buildings and/or the Parcel,
Environmental Surcharges, and all other governmental impositions and
charges of every kind and nature whatsoever, whether or not customary
or within the contemplation of the parties hereto and regardless of
whether the same shall be extraordinary or ordinary, general or
special, unforeseen or foreseen, or similar or dissimilar to any of
the foregoing which, at any time during the Lease Term, shall be
applicable to the Premises, the Buildings and/or the Parcel or
assessed, levied or imposed upon the Premises, the Buildings and/or
the Parcel, or become due and payable and a lien or charge upon the
Premises, the Buildings and/or the Parcel, or any part thereof, under
or by virtue of any present or future laws, statutes, ordinances,
regulations or other requirements of any governmental authority
whatsoever. The term "Environmental Surcharges" shall mean and
include any and all expenses, taxes, charges or penalties imposed by
the Federal Department of Energy, the Federal Environmental
protection Agency, the Federal Clean Air Act, or any regulations
promulgated thereunder or any other local, state or federal
governmental agency or entity now or hereafter vested with the power
to impose taxes, assessments, or other types of surcharges as a means
of controlling or abating environmental pollution or the use of
energy. The term "Property Taxes" shall not include any federal,
state or local net income, estate, or inheritance tax imposed on
Landlord.
C. Other Taxes. Tenant shall, as additional rent, pay or reimburse
-----------
Landlord for any tax based upon, allocable to, or measured by the
area of the Premises or the Buildings or the Parcel; or by the rent
paid, payable or received under this Lease; any tax upon or with
respect to the possession, leasing, operation, any tax upon or with
respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of the Premises or
any portion thereof; any privilege tax, excise tax, business and
occupation tax, gross receipts tax, sales and/or use tax, water tax,
sewer tax, employee tax, occupational license tax imposed upon
Landlord or Tenant with respect to the Premises; any tax upon this
transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises.
8. Insurance.
---------
A. Indemnity. Tenant agrees to indemnify, protect and defend Landlord
---------
against and hold Landlord harmless from any and all claims, causes of
action, judgments, obligations or liabilities, and all reasonable
expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees), on account of, or arising out of, the
operation, maintenance, use or occupancy of the Premises and all
areas appurtenant thereto. This Lease is made on the express
understanding that Landlord shall not be liable for, or suffer loss
by reason of, injury to person or property, from whatever cause
(except for active negligence or willful misconduct of Landlord),
which in any way may be connected with the operation, use or
occupancy of the Premises specifically including, without limitation,
any liability for injury to the person or property of Tenant, its
agents, officers, employees, licensees and invites
B. Liability Insurance. Tenant shall, at Tenant's expense, obtain and
-------------------
keep in force during the term of this Lease a policy of comprehensive
public liability insurance insuring Landlord and Tenant against
claims and liabilities arising out of the operation, use, or
occupancy of the Premises and all areas appurtenant thereto,
including parking areas. Such insurance shall be in an amount
-4-
<PAGE>
of not less than Three Million Dollars ($3,000,000.00) for bodily
injury or death as a result of any one occurrence and Five Hundred
Thousand Dollars ($500,000.00) for damage to property as a result of
any one occurrence. The insurance shall be with companies approved
by Landlord, which approval Landlord agrees not to withhold
unreasonably. Tenant shall deliver to Landlord, prior to possession,
and at least thirty (30) days prior to the expiration thereof, a
certificate of insurance evidencing the existence of the policy
required hereunder and such certificate shall certify that the policy
(1) names Landlord as an additional insured, (2) shall not be
canceled or altered without thirty (30) days prior written notice to
Landlord, (3) insures performance of the indemnity set forth in
Paragraph 8.A above, (4) the coverage is primary and any coverage by
Landlord is in excess thereto and (5) contains a cross-liability
endorsement. Landlord may maintain a policy or policies of
comprehensive general liability insurance insuring Landlord (and such
others as are designated by Landlord), against liability for personal
injury, bodily injury, death and damage to property occurring or
resulting from an occurrence in, on or about the Premises or the
Common Area, with such limits of coverage as Landlord may from time
to time determine are reasonably necessary for its protection. The
cost of any such liability insurance maintained by Landlord shall be
a Common Area Charge and Tenant shall pay, as additional rent, its
share of such cost to Landlord as provided in Paragraph 12 below.
C. Property Insurance. Landlord shall obtain and keep in force during
------------------
the term of this Lease a policy or policies of insurance covering
loss or damage to the Premises and the Buildings, in the amount of
the full replacement value thereof, providing protection against
those perils included within the classification of "all risk"
insurance, plus a policy of rental income insurance in the amount of
one hundred percent (100%) of twelve (12) months rent (including,
without limitation, sums payable as Additional Rent), plus, at
Landlord's option, flood insurance and earthquake insurance, and any
other coverages which may be required from time to time by Landlord's
mortgagee. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord on the Premises.
Tenant shall, within twenty (20) days after receipt of billing, pay
to Landlord as additional rent, the full cost of such insurance
procured and maintained by Landlord. Tenant acknowledges that such
insurance procured by Landlord shall contain a deductible which
reduces Tenant's cost for such insurance and, in the event of loss or
damage, Tenant shall be required to pay to Landlord the amount of
such deductible.
D. Tenant's Insurance. Release of Landlord. Tenant acknowledges that
------------------
the insurance to be maintained by Landlord on the Premises pursuant
to Subparagraph C above will not insure any of Tenant's property.
Accordingly, Tenant, at Tenant's own expense, shall maintain in full
force and effect on all of its fixtures, equipment, leasehold
improvements and personal property in the Premises, a policy of "All
Risk' coverage insurance to the extent of at least ninety percent
(90%) of their insurable value, or an amount which reasonably insures
the aforementioned. Tenant hereby releases Landlord, and its
partners, officers, agents employees and servants from any and all
claims, demands, losses, expenses or injuries to the Premises or to
the furnishings, fixtures, equipment, inventory or other personal
property of Tenant in, about, or upon the Premises, which are caused
by perils, events or happenings where the same are covered by the
insurance required by this Lease or which are the subject of
insurance carried by Tenant and in force at the time of such loss.
9. Utilities. Tenant shall pay for all water, gas, light, heat, power,
---------
electricity, telephone, trash pick up, sewer charges and all other
services supplied to or consumed on the Premises, and all taxes and
surcharges thereon. In addition, the cost of any utility services
supplied to the Common Area or not separately metered to the Premises
shall be a Common Area Charge and Tenant shall pay its share of such costs
to Landlord as provided in Paragraph 12 below.
-5-
<PAGE>
10. Repairs and Maintenance.
-----------------------
A. Landlord's Repairs. Subject to provisions of Paragraph 16, Landlord
------------------
shall keep and maintain the exterior roof, structural elements and
exterior walls of the Building in good order and repair. Landlord
shall not, however, be required to maintain, repair or replace the
interior surface of exterior walls, nor shall Landlord be required to
maintain, repair or replace windows, doors, skylights or plate glass.
Landlord shall have no obligation to make repairs under this
Subparagraph until a reasonable time after receipt of written notice
from Tenant of the need for such repairs. Tenant shall reimburse
Landlord, as additional rent, within fifteen (15) days after receipt
of billing, for the cost of such repairs and maintenance which are
the obligation of Landlord hereunder, provided however, that Tenant
shall not be required to reimburse Landlord for the cost of
maintenance and repairs of the structural elements of the Building
unless such maintenance or repair is required because of the
negligence or willful misconduct of Tenant or its employees, agents
or invitees. As used herein, the term "structural elements of the
building" shall mean and be limited to the foundation, footings,
floor slab (but not flooring), structural walls, and roof structure
(but not roofing or roof membrane).
B. Tenant's Repairs. Except as expressly provided in Subparagraph A
----------------
above, Tenant shall, at its sole cost, keep and maintain the entire
Premises and every part thereof, including without limitation, the
windows, window frames, plate glass, glazing, skylights, truck doors,
doors and all door hardware, the walls and partitions, and the
electrical, plumbing, lighting, heating, ventilating and air
conditioning systems and equipment in good order, condition and
repair. The term "repair' shall include replacements, restorations
and/or renewals when necessary as well as painting. Tenant's
obligation shall extend to all alterations, additions and
improvements to the Premises, and all fixtures and appurtenances
therein and thereto. Tenant shall, at all times during the Lease
Term, have in effect a service contract for the maintenance of the
heating, ventilating and air conditioning ("HVAC") equipment with an
HVAC repair and maintenance contractor approved by Landlord. The
HVAC service contract shall provide for periodic inspection and
servicing at least once every three (3) months during the term
hereof, and Tenant shall provide Landlord with a copy of such
contract and all periodic service reports.
Should Tenant fail to make repairs required of Tenant hereunder
forthwith upon five (5) days notice from Landlord or should Tenant
fail thereafter to diligently complete the repairs, Landlord, in
addition to all other remedies available hereunder or by law and
without waiving any alternative remedies, may make the same, and in
that event, Tenant shall reimburse Landlord as additional rent for
the cost of such maintenance or repairs within five (5) days of
written demand by Landlord.
Landlord shall have no maintenance or repair obligations whatsoever
with respect to the Premises except as expressly provided in
Paragraphs 10.A and 11. Tenant hereby expressly waives the
provisions of Subsection 1 of Section 1932 and Sections 1941 and 1942
of the Civil Code of California and all rights to make repairs at the
expense of Landlord as provided in Section 1942 of said Civil Code.
There shall be no allowance to Tenant for diminution of rental value,
and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from the making of or the
failure to make, any repairs, alterations, decorations, additions or
improvements in or to any portion of the Premises or the Building or
Common Area (or any of the areas used in connection with the
operation thereof, or in or to any fixtures, appurtenances or
equipment), or by reason of the negligence of Tenant or any other
tenant or occupant of the Parcel. In no event shall Landlord be
responsible for any consequential damages arising or alleged to have
arisen from any of the foregoing matters. Tenant hereby agrees that,
except for Landlord's or its agents gross negligence or willful
misconduct, Landlord shall not be liable for injury to Tenant's
business or any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers, or any other person in or about the Premises,
the
-6-
<PAGE>
Building, or the Common Area, nor shall Landlord be liable for injury
to the person of Tenant, Tenant's employees, agents or contractors
whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said damage or injury results from any
other cause, whether the said damage or injury results from
conditions arising upon the Premises or upon other portions of the
Building, or from other sources or places and regardless of whether
the cause of such damage or injury or the means of repairing the same
is inaccessible to Tenant. Landlord shall not be liable for any
damages arising from any act or neglect of any other tenant, if any,
of the Building or the Parcel.
11. Common Area. Subject to the terms and conditions of this Lease and such
-----------
rules and regulations as Landlord may from time to time prescribe, Tenant
and Tenant's employees, invitees and customers shall, in common with other
occupants of the Parcel, and their respective employees, invitees and
customers, and others entitled to the use thereof, have the nonexclusive
right to use the access roads, parking areas and facilities provided and
designated by Landlord for the general use and convenience of the
occupants of the Parcel, which areas and facilities are referred to herein
as "Common Area. This right shall terminate upon the termination of this
Lease. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of the Common Area. Landlord
further reserves the right to promulgate such reasonable rules and
regulations relating to the use of the Common Area, and any part or parts
thereof, as Landlord may deem appropriate for the best interest of the
occupants of the Parcel. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide
by them and cooperate in their observance. Such rules and regulations may
be amended by Landlord from time to time, with or without advance notice,
and all amendments shall be effective upon delivery of a copy of them to
Tenant. Tenant shall have the non-exclusive use of no more than
Seventy-Five (75) of the parking spaces in the Common Area as designated
from time to time by Landlord. Tenant shall not at any time park or
permit the parking of Tenant's trucks or other vehicles, or the trucks or
other vehicles of others, adjacent to loading areas so as to interfere in
any way with the use of such areas, nor shall Tenant at any time park or
permit the parking of Tenant's vehicles or trucks, or the vehicles or
trucks of Tenant's suppliers or others, in any portion of the Common Area
not designated by Landlord for such use by Tenant. Tenant shall not
abandon any inoperative vehicles or equipment on any portion of the Common
Area. Tenant shall make no alterations, improvements or additions to the
Common Area.
Landlord shall operate, manage, insure, maintain and repair the Common
Area in good order, condition and repair. The manner in which the Common
Area shall be maintained and the expenditures for such maintenance shall
be at the discretion of Landlord. The cost of such repair, maintenance,
operation, insurance and management, including without limitation,
maintenance and repair of landscaping, irrigation systems, paving,
sidewalks, fences, and lighting, shall be a Common Area Charge and Tenant
shall pay to Landlord its share of such costs as provided in Paragraph 12
below.
12. Common Area Charges. Tenant shall pay to Landlord, as additional rent,
-------------------
upon demand but not more often than once each calendar month, an amount
equal to its Pro Rata Share of the Common Area Charges as defined in
Paragraphs 8.C, 9, 11 of this Lease. Tenant acknowledges and agrees that
the Common Area Charges shall include an. additional five percent (5%) of
the actual expenditures in order to compensate Landlord for accounting,
management and processing services.
13. Alterations. It is acknowledged by Landlord that Tenant is constructing
-----------
those certain Improvements as outlined in Exhibit C and C-1. Tenant shall
not be required to remove the Improvements outlined in Exhibits C and C-1
upon termination of this Lease. Tenant shall not make, or suffer to be
made, any alterations, improvements or additions in, on, about or to the
Premises or any part thereof, without the prior written consent of
Landlord and without a valid building permit issued by the appropriate
governmental authority. As a condition to giving such consent, Landlord
may require that Tenant agree to remove any such alterations, improvements
or additions at the termination of this Lease, and to restore
-7-
<PAGE>
the Premises to their prior condition. Unless Landlord requires that
Tenant remove any such alterations, improvement or addition, any
alteration, addition or improvement to the Premises, except movable
furniture and trade fixtures not affixed to the Premises, shall become the
property of Landlord upon termination of the Lease and shall remain upon
and be surrendered with the Premises at the termination of this Lease.
Without limiting the generality of the foregoing, all heating, lighting,
electrical (including all wiring, conduit, outlets, drops, buss ducts,
main and subpanels), air conditioning, partitioning, drapery, and carpet
installations made by Tenant regardless of how affixed to the Premises,
together with all other additions, alterations and improvements that have
become an integral part of the Building, shall be and become the property
of the Landlord upon termination of the Lease, and shall not be deemed
trade fixtures, and shall remain upon and be surrendered with the Premises
at the termination of this Lease.
If, during the term hereof, any alteration, addition or change of any sort
to all or any portion of the Premises is required by law, regulation,
ordinance or order of any public agency, Tenant shall promptly make the
same at its sole cost and expense. If during the term hereof, any
alteration, addition, or change to the Common Area is required by law,
regulation, ordinance or order of any public agency, Landlord shall make
the same and the cost of such alteration, addition or change shall be a
Common Area Charge and Tenant shall pay is share of said cost to Landlord
as provided in Paragraph 12 above.
14. Acceptance of the Premises. By entry and taking possession of the
--------------------------
Premises pursuant to this Lease, Tenant accepts the Premises as being in
good and sanitary order, condition and repair and accepts the Premises in
their condition existing as of the date of such entry, and Tenant further
accepts the tenant improvements to be constructed by Landlord, if any, as
being completed in accordance with the plans and specifications for such
improvements, except for punch list items. Tenant acknowledges that
neither the Landlord nor Landlord's agents has made any representation or
warranty as to the suitability of the Premises to the conduct of Tenant's
business. Any agreements, warranties or representations not expressly
contained herein shall in no way bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of
any statement, representation, warranty, promise or agreement, if any, not
contained in this Lease. This Lease constitutes the entire understanding
between the parties hereto and no addition to, or modification of, any
term or provision of this Lease shall be effective until set forth in a
writing signed by both Landlord and Tenant.
15. Default.
-------
A. Events of Default. A breach of this Lease shall exist if any of the
-----------------
following events (hereinafter referred to as "Event of Default")
shall occur:
1. Default in the payment when due of any installment of rent or
other payment required to be made by Tenant hereunder, where
such default shall not have been cured within three (3) days
after written notice of such default is given to Tenant;
2. Tenant's failure to perform any other term, covenant or
condition contained in this Lease where such failure shall have
continued for twenty (20) days after written notice of such
failure is given to Tenant;
3. Tenant's vacating or abandonment of the Premises;
4. Tenant's assignment of its assets for the benefit of its
creditors;
5. The sequestration of, attachment of, or execution on, any
substantial part of the property of Tenant or on any property
essential to the conduct of Tenant's business shall have
occurred and Tenant shall have failed to obtain a return or
release of such property within thirty (30) days thereafter, or
prior to sale pursuant to such sequestration, attachment or
levy, whichever is earlier;
-8-
<PAGE>
6. Tenant or any guarantor of Tenant's obligations hereunder shall
commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seek appointment of a receiver, trustee, custodian,
or other similar official for it or for all or any substantial
part of its property;
7. Tenant or any such guarantor shall take any corporate action to
authorize any of the actions set forth in Clause 6 above; or
8. Any case, proceeding or other action against Tenant or any
guarantor of Tenant's obligations hereunder shall be commenced
seeking to have an order for relief entered against it as
debtor, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all
or any substantial part of its property, and such case,
proceeding or other action (i) results in the entry of an order
for relief against it which is not fully staved within seven (7)
business days after the entry thereof or (ii) remains
undismissed for a period of forty-five (45) days.
B. Remedies. Upon any Event of Default, Landlord shall have the
--------
following remedies, in addition to all other rights and remedies
provided by law, to which Landlord may resort cumulatively, or in the
alternative:
1. Recovery of Rent. Landlord shall be entitled to keep this Lease
----------------
in full force and effect (whether or not Tenant shall have
abandoned the Premises) and to enforce all of its rights and
remedies under this Lease, including the right to recover rent
and other sums as they become due, plus interest at the
Permitted Rate (as defined in Paragraph 33 below) from the due
date of each installment of rent or other sum until paid.
2. Termination. Landlord may terminate this Lease by giving Tenant
-----------
written notice of termination. On the giving of the notice all
of Tenant's rights in the Premises and the Building and Parcel
shall terminate. Upon the giving of the notice of termination,
Tenant shall surrender and vacate the Premises in the condition
required by Paragraph 34, and Landlord may re-enter and take
possession of the Premises and all the remaining improvements or
property and eject Tenant or any of Tenant's subtenants,
assignees or other person or persons claiming any right under or
through Tenant or eject some and not others or eject none. This
Lease may also be terminated by a judgment specifically
providing for termination. Any termination under this paragraph
shall not release Tenant from the payment of any sum then due
Landlord or from any claim for damages or rent previously
accrued or then accruing against Tenant. In no event shall any
one or more of the following actions by Landlord constitute a
termination of this Lease:
a. maintenance and preservation of the Premises;
b. efforts to relet the Premises;
c. appointment of a receiver in order to protect Landlord's
interest hereunder;
d. consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to provisions hereof
concerning subletting and assignment or otherwise; or
-9-
<PAGE>
e. any other action by Landlord or Landlord's agents intended
to mitigate the adverse effects from any breach of this
Lease by Tenant.
3. Damages. In the event this Lease is terminated pursuant to
-------
Subparagraph 15.B.2 above, or otherwise, Landlord shall be
entitled to damages in the following sums:
a. the worth at the time of award of the unpaid rent which has
been earned at the time of termination; plus
b. the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided;
plus
c. the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; and
d. any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which in the
ordinary course of things would be likely to result
therefrom including, without limitation, the following:
(i) expenses for cleaning, repairing or restoring the
Premises; (ii) expenses for altering, remodeling or
otherwise improving the Premises for the purpose of
reletting, including installation of leasehold improvements
(whether such installation be funded by a reduction of
rent, direct payment or allowance to the succeeding lessee,
or otherwise); (iii) real estate broker's fees, advertising
costs and other expenses of reletting the Premises; (iv)
costs of carrying the Premises such as taxes and insurance
premiums thereon, utilities and security precautions; (v)
expenses in retaking possession of the Premises; (vi)
attorneys' fees and court costs; and (vii) any unamortized
real estate brokerage commission paid in connection with
this Lease.
e. The "worth at the time of award" of the amounts referred to
in Subparagraphs (a) and (b) of this Paragraph, is computed
by allowing interest at the Permitted Rate. The "worth at
the time of award" of the amounts referred to in
Subparagraph (c) of this Paragraph is computed by
discounting such amount at the discount rate of the Federal
Reserve Board of San Francisco at the time of award plus
one percent (1%). The term "rent" as used in this
Paragraph shall include all sums required to be paid by
Tenant to Landlord pursuant to the terms of this Lease.
16. Destruction. In the event that any portion of the Premises are destroyed
-----------
or damaged by an uninsured peril, Landlord or Tenant may, upon written
notice to the other, given within thirty (30) days after the occurrence of
such damage or destruction, elect to terminate this Lease; provided,
however, that either party may, within thirty (30) days after receipt of
such notice, elect to make any required repairs and/or restoration at such
party's sole cost and expense, in which event this Lease shall remain in
full force and effect, and the party having made such election to restore
or repair shall thereafter diligently proceed with such repairs and/or
restoration.
In the event the Premises are damaged or destroyed from any insured peril
to the extent of fifty percent (50%) or more of the then replacement cost
of the Premises, Landlord may, upon written notice to Tenant, given within
thirty (30) days after the occurrence of such damage or destruction, elect
to terminate this Lease. If Landlord does not give such notice in writing
within such period, Landlord shall
-10-
<PAGE>
be deemed to have elected to rebuild or restore the Premises, in which
event Landlord shall, at its expense, promptly rebuild or restore the
Premises to their condition prior to the damage or destruction and Tenant
shall pay to Landlord upon commencement of reconstruction the amount of
any deductible from the insurance policy.
In the event the Premises are damaged or destroyed from any insured peril
to the extent of less than fifty percent (50%) of the then replacement
cost of the Premises, Landlord shall, at Landlord's expense, promptly
rebuild or restore the Premises to their condition prior to the damage or
destruction and Tenant shall pay to Landlord upon commencement of
reconstruction the amount of any deductible from the insurance policy.
In the event that, pursuant to the foregoing provisions, Landlord is to
rebuild or restore the Premises, Landlord shall, within thirty (30) days
after the occurrence of such damage or destruction, provide Tenant with
written notice of the time required for such repair or restoration. If
such period is longer than one hundred eighty (180) days from the issuance
of a building permit, Tenant may, within thirty (30) days after receipt of
Landlord's notice, elect to terminate the Lease by giving written notice
to Landlord of such election, whereupon the Lease shall immediately
terminate. The period of time for Landlord to complete the repair or
restoration shall be extended for delays caused by the fault or neglect of
Tenant or because of acts of God, acts of publication, labor disputes,
strikes, fires, freight embargoes, rainy or stormy weather, inability to
obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of contractors or subcontractors due to such
causes, or other contingencies beyond the control of Landlord. Landlord's
obligation to repair or restore the Premises shall not include restoration
of Tenant's trade fixtures, equipment, merchandise, or any improvements,
alterations or additions made by Tenant to the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect; provided, however, that
during any period of repairs or restoration, rent and all other amounts to
be paid by Tenant on account of the Premises and this Lease shall be
abated in proportion to the area of the Premises rendered not reasonably
suitable for the conduct of Tenant's business thereon. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2 and Section
1933, Subdivision 4 of the California Civil Code.
17. Condemnation.
------------
A. Definition of Terms . For the purposes of this Lease, the term (1)
--------------------
"Taking" means a taking of the Premises or damage to the Premises
related to the exercise of the power of eminent domain and includes a
voluntary conveyance, in lieu of court proceedings, to any agency,
authority, public utility, person or corporate entity empowered to
condemn property; (2) "Total Taking" means the taking of the entire
Premises or so much of the Premises as to prevent or substantially
impair the use thereof by Tenant for the uses herein specified;
provided, however, in no event shall a Taking of less than ten
percent (10%) of the Premises be deemed a Total Taking; (3) "Partial
Taking" means the taking of only a portion of the Premises which does
not constitute a Total Taking; (4) "Date of Taking" means the date
upon which the title to the Premises, or a portion thereof, passes to
and vests in the condemnor or the effective date of any order for
possession if issued prior to the date title vests in the condemnor;
and (5) "Award" means the amount of any award made, consideration
paid, or damages ordered as a result of a Taking.
B. Rights. The parties agree that in the event of a Taking all rights
------
between them or in and to an Award shall be as set forth herein and
Tenant shall have no right to any Award except as set forth herein.
C. Total Takings. In the event of a Total Taking during the term hereof
-------------
(1) the rights of Tenant under the Lease and the leasehold estate of
Tenant in and to the Premises shall cease and
-11-
<PAGE>
terminate as of the Date of Taking; (2) Landlord shall refund to
Tenant any prepaid rent; (3) Tenant shall pay Landlord any rent or
charges due Landlord under the Lease, each prorated as of the Date of
Taking; (4) Tenant shall receive from Landlord those portions of the
Award attributable to trade fixtures of Tenant and for moving
expenses of Tenant; and (5) the remainder of the Award shall be paid
to and be the property of Landlord.
D. Partial Takings. In the event of a Partial Taking during the term
---------------
hereof (1) the rights of Tenant under the Lease and leasehold estate
of Tenant in and to the portion of the Premises taken shall cease and
terminate as of the Date of Taking; (2) from and after the Date of
Taking the Monthly Installment of rent shall be an amount equal to
the product obtained by multiplying the Monthly Installment of rent
immediately prior to the Taking by a fraction, the numerator of which
is the number of square feet contained in the Premises after the
Taking and the denominator of which is the number of square feet
contained in the Premises prior to the Taking; (3) Tenant shall
receive from the Award the portions of the Award attributable to
trade fixtures of Tenant; and (4) the remainder of the Award shall be
paid to and be the property of Landlord.
18. Mechanics' Lien. Tenant shall (A) pay for all labor and services
---------------
performed for, materials used by or furnished to, Tenant or any contractor
employed by Tenant with respect to the Premises; (B) indemnify, defend,
protect and hold Landlord and the Premises harmless and free from any
liens, claims, liabilities, demands, encumbrances, or judgments created or
suffered by reason of any labor or services performed for, materials used
by or furnished to, Tenant or any contractor employed by Tenant with
respect to the Premises; (C) give notice to Landlord in writing five (5)
days prior to employing any laborer or contractor to perform services
related to, or receiving materials for use upon the Premises; and (D)
permit Landlord to post a notice of nonresponsibility in accordance with
the statutory requirements of California Civil Code Section 3094 or any
amendment thereof. In the event Tenant is required to post an improvement
bond with a public agency in connection with the above, Tenant agrees to
include Landlord as an additional obligee.
19. Inspection of the Premises. Tenant shall permit Landlord and its agents
--------------------------
to enter the Premises at any reasonable time for the purpose of inspecting
the same, performing Landlord's maintenance and repair responsibilities,
posting a notice of non-responsibility for alterations, additions or
repairs and at any time within one hundred eighty (180) days prior to
expiration of this Lease, to place upon the Premises, ordinary "For Lease"
or "For Sale" signs.
20. Compliance with Laws. Tenant shall, at its own cost, comply with all of
--------------------
the requirements of all municipal, county, state and federal authorities
now in force, or which may hereafter be in force, pertaining to the use
and occupancy of the Premises, and shall faithfully observe all municipal,
county, state and federal law, statutes or ordinances now in force or
which may hereafter be in force. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action or proceeding
against Tenant, whether Landlord be a party thereto or not, that Tenant
has violated any such ordinance or statute in the use and occupancy of the
Premises shall be conclusive of the fact that such violation by Tenant has
occurred.
21. Subordination. The following provisions shall govern the relationship of
-------------
this Lease to any underlying lease, mortgage or deed of trust which now or
hereafter affects the Premises, the Building and/or the Parcel, or
Landlord's interest or estate therein (the "Project") and any renewal,
modification, consolidation, replacement, or extension thereof (a
"Security Instrument").
A. Priority. This Lease is subject and subordinate to Security
--------
Instruments existing as of the Commencement Date. However, if any
Lender so requires, this Lease shall become prior and superior to any
such Security Instrument.
-12-
<PAGE>
B. Subsequent Security Instruments. At Landlord's election, this Lease
-------------------------------
shall become subject and subordinate to any Security Instrument
created after the Commencement Date. Notwithstanding such
subordination, Tenant's right to quiet possession of the Premises
shall not be disturbed so long as Tenant is not in default and
performs all of its obligations under this Lease, unless this Lease
is otherwise terminated pursuant to its terms.
C. Documents. Tenant shall execute any document or instrument required
---------
by Landlord or any Lender to make this Lease either prior or
subordinate to a Security Instrument, which may include such other
matters as the Lender customarily requires in connection with such
agreements, including provisions that the Lender not be liable for
(1) the return of the Security Deposit unless the Lender receives it
from Landlord, and (2) any defaults on the part of Landlord occurring
prior to the time that the Lender takes possession of the Project in
connection with the enforcement of its Security Instrument. Tenant's
failure to execute any such document or instrument within ten (10)
days after written demand therefor shall constitute a default by
Tenant or, at Landlord's option, Landlord may execute such documents
on behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby
make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact to, execute such documents in accordance with this
Paragraph.
D. Tenant's Attornment. Tenant shall attorn (1) to any purchaser of the
-------------------
Premises at any foreclosure sale or private sale conducted pursuant
to any Security Instrument encumbering the Project; (2) to grantee or
transferee designated in any deed given in lieu of foreclosure; or
(3) to the lessor under any underlying ground lease should such
ground lease be terminated.
E. Lender. The term "Lender" shall mean (l) any beneficiary, mortgagee,
------
secured party, or other holder of any deed of trust, mortgage, or
other written security device or agreement affecting the Project; and
(2) any lessor under any underlying lease under which Landlord holds
its interest in the Project.
22. Holding Over. This Lease shall terminate without further notice at the
------------
expiration of the Lease Term. Any holding over by Tenant after expiration
shall not constitute a renewal or extension or give Tenant any rights in
or to the Premises except as expressly provided in this Lease. Any
holding over after the expiration with the consent of Landlord shall be
construed to be a tenancy from month to month, at one hundred twenty-five
percent (125%) of the monthly rent for the last month of the Lease Term,
and shall otherwise be on the terms and conditions herein specified
insofar as applicable.
23. Notices. Any notice required or desired to be given under this Lease
-------
shall be in writing with copies directed as indicated below and shall be
personally served or given by mail or generally accepted overnight mail
delivery service, (i.e., Federal Express mail). Any notice given by mail
shall be deemed to have been given when forty-eight (48) hours have
elapsed from the time such notice was deposited in the United States
mails, certified and postage prepaid, addressed to the party to be served
with a copy as indicated herein at the last address given by that party to
the other party under the provisions of this Paragraph. At this date of
execution of this Lease, the address of Landlord is:
c/o South Bay Development
511 Division Street
Campbell, CA 95008
and the address of Tenant is:
252-254 Hacienda Avenue
Campbell, CA 95008
-13-
<PAGE>
24. Attorneys' Fees. In the event either party shall bring any action or
---------------
legal proceeding for damages for any alleged breach of any provision of
this Lease, to recover rent or possession of the Premises, to terminate
this Lease, or to enforce, protect or establish any term or covenant of
this Lease or right or remedy of either party, the prevailing party shall
be entitled to recover as a part of such action or proceeding, reasonable
attorneys' fees and court costs, including attorneys' fees and costs for
appeal, as may be fixed by the court or jury. The term "prevailing party"
shall mean the party who received substantially the relief requested,
whether by settlement, dismissal, summary judgment, judgment, or
otherwise.
25. Nonassignment.
-------------
A. Landlord's Consent Required. Tenant's interest in this Lease is not
---------------------------
assignable, by operation of law or otherwise, nor shall Tenant have
the right to sublet the Premises, transfer any interest of Tenant
therein or permit any use of the Premises by another party, without
the prior written consent of Landlord to such assignment, subletting,
transfer or use, which consent Landlord agrees not to withhold
unreasonably subject to the provisions of Subparagraph B below. A
consent to one assignment, subletting, occupancy or use by another
party shall not be deemed to be a consent to any subsequent
assignment, subletting, occupancy or use by another party. Any
assignment or subletting without such consent shall be void and
shall, at the option of Landlord, terminate this Lease.
Landlord's waiver or consent to any assignment or subletting
hereunder shall not relieve Tenant from any obligation under this
Lease unless the consent shall so provide.
B. Transferee Information Required. If Tenant desires to assign its
-------------------------------
interest in this Lease or sublet the Premises, or transfer any
interest of Tenant therein, or permit the use of the Premises by
another party (hereinafter collectively referred to as a "Transfer"),
Tenant shall give Landlord at least fifteen (15) days prior written
notice of the proposed Transfer and of the terms of such proposed
Transfer, including, but not limited to, the name and legal
composition of the proposed transferee, a financial statement of the
proposed transferee, the nature of the proposed transferee's business
to be carried on in the Premises, the payment to be made or other
consideration to be given to Tenant on account of the Transfer, and
such other pertinent information as may be requested by Landlord, all
in sufficient detail to enable Landlord to evaluate the proposed
Transfer and the prospective transferee. It is the intent of the
parties hereto that this Lease shall confer upon Tenant only the
right to use and occupy the Premises, and to exercise such other
rights as are conferred upon Tenant by this Lease. The parties agree
that this Lease is not intended to have a bonus value nor to serve as
a vehicle whereby Tenant may profit by a future Transfer of this
Lease or the right to use or occupy the Premises as a result of any
favorable terms contained herein, or future changes in the market for
leased space. It is the intent of the parties that any such bonus
value that may attach to this Lease shall be and remain the exclusive
property of Landlord. Accordingly, in the event Tenant seeks to
Transfer its interest in this Lease or the Premises, Landlord shall
have the following options, which may be exercised at its sole choice
without limiting Landlord in the exercise of any other right or
remedy which Landlord may have by reason of such proposed Transfer:
(1) Landlord may elect to terminate this Lease effective as of the
proposed effective date of the proposed Transfer and release
Tenant from any further liability hereunder accruing after such
termination date by giving Tenant written notice of such
termination within ten (10) days after receipt by Landlord of
Tenant's notice of intent to transfer as provided above. If
Landlord makes such election to terminate this Lease, Tenant
shall surrender the Premises, in accordance with Paragraph 34,
on or before the effective termination date; or
-14-
<PAGE>
(2) Landlord may consent to the proposed Transfer on the condition
that Tenant agrees to pay to Landlord, as additional rent, any
and all rents or other consideration (including key money)
received by Tenant from the transferee by reason of such
Transfer in excess of the rent payable by Tenant to Landlord
under this Lease (net of Tenant's direct expenses). The rent
payable to Landlord shall be valued at the current rent payable
under Paragraph 4 above plus any value remaining for unamortized
tenant improvement dollars (not to exceed $.06 per square foot
per month). Tenant expressly agrees that the foregoing is a
reasonable condition for obtaining Landlord's consent to any
Transfer; or
(3) Landlord may reasonably withhold its consent to the proposed
Transfer.
26. Successors. The covenants and agreements contained in this Lease shall be
----------
binding on the parties hereto and on their respective heirs, successors
and assigns (to the extent the Lease is assignable).
27. Mortgagee Protection. In the event of any default on the part of
--------------------
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage encumbering the
Premises, whose address shall have been furnished to Tenant, and shall
offer such beneficiary or mortgagee a reasonable opportunity to cure the
default, including time to obtain possession of the Premises by power of
sale or judicial foreclosure, if such should prove necessary to effect a
cure.
28. Landlord Loan or Sale. Tenant agrees promptly following request by
---------------------
Landlord to (A) execute and deliver to Landlord any documents, including
estoppel certificates presented to Tenant by Landlord, (i) certifying that
this Lease is unmodified and in full force and effect and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, and (iii) evidencing the
status of the Lease as may be required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage covering the
Premises or a purchaser of the Premises from Landlord and (B) to deliver
to Landlord the financial statement of Tenant with an opinion of a
certified public accountant, including a balance sheet and profit and loss
statement, for the last completed fiscal year all prepared in accordance
with generally accepted accounting principles consistently applied.
Tenant's failure to deliver an estoppel certificate promptly following
such request shall be an Event of Default under this Lease.
29. Surrender of Lease Not Merger. The voluntary or other surrender of this
-----------------------------
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger
and shall, at the option of Landlord, terminate all or any existing
subleases or subtenants, or operate as an assignment to Landlord of any or
all such subleases or subtenants.
30. Waiver. The waiver by Landlord or Tenant of any breach of any term
------
covenant or condition herein contained shall not be deemed to be a waiver
of any preceding or succeeding breach of the same or any other covenant or
condition herein contained.
31. General.
-------
A. Captions. The captions and paragraph headings used in this Lease are
--------
for the purposes of convenience only. They shall not be construed to
limit or extend the meaning of any part of this Lease, or be used to
interpret specific sections. The word (s) enclosed in quotation
marks shall be construed as defined terms for purposes of this Lease.
As used in this Lease, the masculine, feminine and neuter and the
singular or plural number shall each be deemed to include the other
whenever the context so requires.
-15-
<PAGE>
B. Definition of Landlord. The term "Landlord" as used in this Lease,
----------------------
so far as the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the
time in question of the fee title of the Premises, and in the event
of any transfer or transfers of the title of such fee, the Landlord
herein named (and in case of any subsequent transfers or conveyances,
the then grantor) shall after the date of such transfer or conveyance
be automatically freed and relieved of all liability with respect to
performance of any covenants or obligations on the part of Landlord
contained in this Lease, thereafter to be performed; provided that
any funds in the hands of Landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be turned over
to the grantee. It is intended that the covenants and obligations
contained in this Lease on the part of Landlord shall, subject as
aforesaid, be binding upon each Landlord, its heirs, personal
representatives, successors and assigns only during its respective
period of ownership.
C. Time of Essence. Time is of the essence for the performance of each
---------------
term, covenant and condition of this Lease.
D. Severability. In case any one or more of the provisions contained
------------
herein, except for the payment of rent, shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained
herein. This Lease shall be construed and enforced in accordance
with the laws of the State of California.
E. Joint and Several Liability. If Tenant is more than one person or
---------------------------
entity, each such person or entity shall be jointly and severally
liable for the obligations of Tenant hereunder.
F. Law. The term "law" shall mean any judicial decision, statute,
---
constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any government agency or authority
having jurisdiction over the parties to this Lease or the Premises or
both, in effect at the Commencement Date of this Lease or any time
during the Lease Term, including, without limitation, any regulation,
order, or policy of any quasi-official entity or body (e.g., board of
fire examiners, public utility or special district).
32. Sign. Tenant shall have the same signage location and size as was
----
available to the prior tenant in 254 Hacienda. Tenant shall not place or
permit to be placed any sign or decoration on the land or the exterior of
the Building without the prior written consent of Landlord. Tenant, upon
written notice by Landlord, shall immediately remove any sign or
decoration that Tenant has placed or permitted to be placed on the land or
the exterior of the Building without the prior written consent of
Landlord, and if Tenant fails to so remove such sign or decoration within
five (5) days after Landlord's written notice, Landlord may enter upon the
Premises and remove said sign or decoration and Tenant agrees to pay
Landlord, as additional rent upon demand, the cost of such removal. At
the termination of this Lease, Tenant shall remove any sign which it has
placed on the Parcel or Building and shall repair any damage caused by the
installation or removal of such sign.
33. Interest on Past Due Obligations. Any Monthly Installment of rent or any
--------------------------------
other sum due from Tenant under this Lease which is received by Landlord
after the date the same is due shall bear interest from said due date
until paid, at an annual rate equal to the lesser of (the "Permitted
Rate"): (1) twelve percent (12%); or (2) five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the
twenty-fifth (25th) day of the month immediately preceding the due date,
on advances to member banks under Section 13 and 13(a) of the Federal
Reserve Act, as now in effect or hereafter from time to time amended.
Payment of such interest shall not excuse or cure any default by Tenant.
In addition, Tenant shall pay all costs and attorneys' fees incurred by
Landlord in collection of such amounts.
-16-
<PAGE>
34. Surrender of the Premises. On the last day of the term hereof, or on the
-------------------------
sooner termination of this Lease, Tenant shall surrender the Premises to
Landlord in their condition existing as of the Commencement Date of this
Lease, ordinary wear and tear excepted, with all originally painted
interior walls washed, and other interior walls cleaned, and repaired or
replaced, all carpets shampooed and cleaned, the air conditioning and
heating equipment serviced and repaired by a reputable and licensed
service firm, all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove all of Tenant's personal
property and trade fixtures from the Premises, and all property not so
removed shall be deemed abandoned by Tenant. Tenant, at its sole cost,
shall repair any damage to the Premises caused by the removal of Tenant's
personal property, machinery and equipment, which repair shall include,
without limitation, the patching and filling of holes and repair of
structural damage. If the Premises are not so surrendered at the
termination of this Lease, Tenant shall indemnify, defend, protect and
hold Landlord harmless from and against loss or liability resulting from
delay by Tenant in so surrendering the Premises including without
limitation, any claims made by any succeeding tenant or losses to Landlord
due to lost opportunities to lease to succeeding tenants.
35. Authority. The undersigned parties hereby warrant that they have proper
---------
authority and are empowered to execute this Lease on behalf of Landlord
and Tenant, respectively.
36. Public Record. This Lease is made subject to all matters of public record
-------------
affecting title to the property of which the Premises are a part. All
assessments and charges which are imposed, levied or assessed against the
Parcel and Buildings pursuant to any matters of public record shall be a
Common Area Charge and Tenant shall pay its share of such assessments and
charges to Landlord as provided in Paragraph 12 above.
37. Brokers. Tenant represents and warrants to Landlord that it has dealt
-------
with Cornish & Carey, Oncor International ("Broker") with respect to this
transaction, as its exclusive agent. Landlord shall pay Broker a
commission based on separate negotiations between Landlord and Broker.
38. Limitation on Landlord's Liability. Tenant, for itself and its successors
----------------------------------
and assigns (to the extent this Lease is assignable), hereby agrees that
in the event of any actual, or alleged, breach or default by Landlord
under this Lease that:
A. Tenant's sole and exclusive remedy against Landlord shall be as
against Landlord's interest in the Building;
B. No partner or officer of any partner of Landlord shall be sued or
named as a party in a suit or action (except as may be necessary to
secure jurisdiction of the partnership);
C. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);
D. No partner of Landlord shall be required to answer or otherwise plead
to any service of process;
E. No judgment will be taken against any partner of Landlord;
F. Any judgment taken against any partner of Landlord maybe vacated and
set aside at any time nunc pro tunc;
G. No writ of execution will ever be levied against the assets of any
partner of Landlord;
H. The covenants and agreements of Tenant set forth in this Section 38
shall be enforceable by Landlord and any partner of Landlord.
-17-
<PAGE>
39. Hazardous Material.
------------------
A. Definitions. As used herein, the term "Hazardous Material" shall
-----------
mean any substance or material which has been determined by any
state, federal or local governmental authority to be capable of
posing a risk of injury to health, safety or property including all
of those materials and substances designated as hazardous or toxic by
the Environmental Protection Agency, the California Water Quality
Control Board, the Department of Labor, the California Department of
Industrial Relations, the Department of Transportation, the
Department of Agriculture, the Consumer Product Safety Commission,
the Department of Health and Human Services, the Food and Drug Agency
or any other governmental agency now or hereafter authorized to
regulate materials and substances in the environment. Without
limiting the generality of the foregoing, the term "Hazardous
Material" shall include all of those materials and substances defined
as "Toxic Materials" in Sections 66680 through 66685 of Title 22 of
the California Code of Regulations, Division 4, Chapter 30, as the
same shall be amended from time to time.
B. Use Restriction. Subject to the terms and conditions set forth
---------------
herein, Landlord acknowledges that so long as Tenant is under this
Lease, Tenant shall be permitted to use and store in the Premises
those materials described in Paragraph G below, in the quantities set
forth in said Paragraph. Except as specifically allowed in this
Lease, Tenant shall not cause or permit any Hazardous Material to be
used, stored, generated, discharged, transported to or from, or
disposed of in or about the Premises, or any other land or
improvements in the vicinity of the Premises. The appearance of any
Hazardous Material that is not permitted by this Lease in or about
the Premises shall be deemed an Event of Default under Paragraph 16
above. Without limiting the generality of the foregoing, Tenant, at
its sole cost, shall comply with all laws relating to the storage,
use, generation, transport, discharge and disposal of Hazardous
Materials. If the presence of Hazardous Materials on the premises
caused or permitted by Tenant results in contamination of the
Premises or any soil, air, ground or surface waters under, through,
over, on, in or about the Premises, Tenant, at its expense shall
promptly take all actions necessary to return the Premises and/or
the surrounding real and personal property to the condition existing
prior to the appearance of such Hazardous Material.
Tenant shall defend, protect, hold harmless and indemnify Landlord
and its agents and employees with respect to all actions, claims,
losses, fines, penalties, fees, costs, damages and liabilities
(including but not limited to attorneys' and consultants' fees)
arising out of or in connection with any Hazardous Material used,
generated, discharged, transported to or from, stored, or disposed of
in, on, under, through or about the Premises and/or the
surrounding real and personal property. Tenant shall not suffer any
lien to be recorded against the Premises as a consequence of a
Hazardous Material, including any so called state, federal or local
"super fund" lien related to the "clean up" of a Hazardous Material
in, over, on, under, through, or about the Premises.
C. Compliance. Tenant shall immediately notify Landlord of any inquiry,
----------
test, investigation, enforcement proceeding by or against Tenant or
the Premises concerning a Hazardous Material. Tenant acknowledges
that Landlord, as the owner of the Property, at its election, shall
have the sole right, at Tenant's expense, to negotiate, defend,
approve and appeal any action taken or order issued with regard to
any Hazardous Material(s) by any applicable governmental authority.
Landlord shall have the right to appoint a consultant, at Tenant's
expense, to conduct an investigation to determine whether Hazardous
Materials are being used, generated, discharged, transported to or
from, stored or disposed of in, on, over, through, or about the
Premises, in an appropriate and lawful manner. Tenant, at its
expense, shall comply with all recommendations of the consultant.
-18-
<PAGE>
D. Assignment and Subletting. It shall not be unreasonable for Landlord
-------------------------
to withhold it consent to any proposed assignment or subletting if
(1) the proposed assignee's or subtenant's anticipated use of the
Premises involves the storage, generation, discharge, transport, use
or disposal of any Hazardous Material; (2) if the proposed assignee
or subtenant has been required by any prior landlord, lender or
governmental authority to "clean up" or remediate any Hazardous
Material; (3) if the proposed assignee or subtenant is subject to
investigation or enforcement order or proceeding by any governmental
authority in connection with the use, generation, discharge,
transport, disposal or storage of any Hazardous Material.
E. Surrender. Upon the expiration or earlier termination of the Lease,
---------
Tenant, at its sole cost, shall remove all Hazardous Materials from
the Premises and the surrounding real and personal property and shall
provide a certificate to Landlord from a registered soils engineer
certifying that there is no contamination of soil or ground or
surface waters in, under, on, through, over or about the Premises and
that there is no other contamination of Hazardous Materials in the
Premises. If Tenant fails to so surrender the Premises, Tenant shall
indemnify, protect, defend and hold Landlord harmless from and
against all damages resulting from Tenant's failure to surrender the
Premises as required by this Paragraph, including, without
limitation, any actions, claims, losses, liabilities, fees (including
but not limited to attorneys' and consultants' fees), fines, costs,
penalties, or damages in connection with the condition of the
Premises including, without limitation, damages occasioned by the
inability to relet the Premises or a reduction in the fair market
and/or rental value of the Premises by reason of the existence of any
Hazardous Materials in, on, over, under, through or around the
Premises.
F. Holding Over. If any action of any kind is required to be taken by
------------
any governmental authority to clean-up, remove, remediate or monitor
Hazardous Materials from the Premises and such action is not
completed prior to the expiration or earlier termination of the
Lease, Tenant shall be deemed to have impermissibly held over until
such time as such required action is completed, and Landlord shall be
entitled to all damages directly or indirectly incurred in connection
with such holding over, including without limitation, damages
occasioned by the inability to re-let the Premises or a reduction of
the fair market and/or rental value of the Premises.
G. Materials. Write "none," if applicable and initial here: none .
--------- --------
Materials: Quantity:
__________ __________
__________ __________
__________ __________
H. Provisions Survive Termination. The provisions of this Paragraph 39
------------------------------
shall survive the expiration or termination of this Lease.
I. The provisions of this Paragraph 39 are intended to govern the rights
and liabilities of the Landlord and Tenant hereunder respecting
Hazardous Materials to the exclusion of any other provisions in this
Lease that might otherwise be deemed applicable. The provisions of
this Paragraph 39 shall be controlling with respect to any provisions
in this Lease that are inconsistent with this Paragraph 39.
-19-
<PAGE>
40. Upon final execution and commencement of this Lease, Tenant's lease dated
March 16, 1988, with MJHM II, a California general partnership, as later
assigned to MP Hacienda, Inc., a Delaware corporation, shall be
terminated. Tenant shall be responsible for all the terms under the
aforementioned lease until actual commencement of this Lease.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set
forth below.
LANDLORD TENANT
- -------- ------
MP HACIENDA, INC., a WESTERN MICRO TECHNOLOGY, a
Delaware corporation California corporation
By /s/ [Landlord] By /s/ Philip H. Fleschler
-------------------------------- -------------------------------------
Title Vice President Title Philip H. Fleschler
----------------------------- ----------------------------------
Dated 7/6/95 Dated 30 June 1995
----------------------------- ----------------------------------
-20-
<PAGE>
EXHIBIT 10.22
Coast
AMENDMENT TO LOAN DOCUMENTS
Borrower: Western Micro Technology, Inc.
Address: 254 East Hacienda Avenue
Campbell, California 95008
Date: November 20, 1995
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between Coast Business
Credit, a division of Southern Pacific Thrift & Loan Association (successor by
merger to CoastFed Business Credit Corporation) ("Coast"), whose address is
12121 Wilshire Blvd., Suite 1111, Los Angeles, California 90025 and the borrower
named above (the "Borrower").
Reference is made to the Loan and Security Agreement between the parties,
dated January 29, 1992 (the "Loan Agreement"), and the Letter Agreement dated
January 29, 1992 (the "Letter Agreement"), as the same have been from time to
time amended, including, without limitation, pursuant to the Amendment to Loan
Documents dated March 21, 1994 and the Amending Letter Agreement dated November
30, 1994. (This Amendment, the Loan Agreement, the Letter Agreement, any prior
written amendments to said agreements signed by Coast and the Borrower, and all
other written documents and agreements between Coast and the Borrower are
referred to herein collectively as the "Loan Documents". Capitalized terms used
but not defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
1. Removal of Financial Covenants. Effective immediately, the financial
------------------------------
covenants set forth in Section 2 of the Letter Agreement, as amended, are hereby
deleted in their entirety.
2. Initial Renewal Date. Effective immediately, the "initial renewal
--------------------
date" set forth in Section 8 of the Loan Agreement is amended to be "April 30,
1998".
3. Amendment to Interest Rate. Effective April 30, 1996, Section 1.2 of
--------------------------
the Loan Agreement is amended in its entirety to read as follows:
1.2 Interest. Unless specifically provided to the contrary in
--------
any Collateral Agreement, all Loans shall bear interest at a rate
equal to the "Prime Rate" (as hereinafter defined), plus 0.5% per
annum, calculated on the basis of a 360-day year for the actual number
of days elapsed. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest
to be charged for that month shall be based on the highest "Prime
Rate" in effect during said month, but in no event shall the rate of
interest charged on any Loans in any month be less than 8% per annum.
"Prime Rate" is defined as the actual "Reference Rate" or the
substitute therefor of the Bank of America NT & SA ("B of A") whether
or not that rate is the lowest interest rate charged by B of A. If
the Prime Rate, as defined, is unavailable, "Prime Rate" shall mean
the highest of the prime rates published in the Wall Street Journal on
the first business day of the
-1-
<PAGE>
month, as the base rate on corporate loans at large U.S. money center
commercial banks.
4. Inventory Sub-Line. Borrower and Coast are concurrently entering into
------------------
an Inventory Collateral Security Agreement (the "Inventory Agreement") providing
for inventory loans to the Borrower on the terms and conditions provided therein
and in the other Loan Documents. Without limiting the terms of the Inventory
Agreement and the other Loan Documents, Borrower represents and warrants that
(i) all of its Inventory is located at 254 East Hacienda Avenue, Campbell,
California 95008 and 341 Shore Drive, Burr Ridge, Illinois 60521 and (ii) all of
such Inventory is free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, other than the security interest of
IBM Credit Corporation ("IBMC") which is the subject of the Intercreditor
Agreement dated July 1, 1993 between Coast and IBMC. Without limitation upon
the Inventory Agreement or the other Loan Documents, Borrower agrees that it
shall not borrow, and shall not request any Loan, based on Inventory located
other than at its Campbell, California location, unless and until Coast has
confirmed in writing that Coast's security interest in the Collateral at such
other location has been perfected and protected in accordance with the Loan
Documents.
5. Representations True. Borrower represents and warrants to Coast that
--------------------
all representations and warranties set forth in the Loan Agreement and the other
Loan Documents, as amended hereby, are true and correct.
6. General Provisions. This Amendment, the Loan Agreement, the Letter
------------------
Agreement, the Inventory Agreement, any prior written amendments to said
agreements signed by Coast and the Borrower, and the other written documents and
agreements between Coast and the Borrower, set forth in full all of the
representations and agreements of the parties with respect to the subject matter
hereof and supersede all prior discussions, representations, agreements and
understandings between the parties with respect to the subject hereof. Except
as herein expressly amended, all of the terms and provisions of the Loan
Agreement, the Letter Agreement, the Inventory Agreement and all other documents
and agreements between Coast and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
Borrower: Coast:
Western Micro Technology, Inc. Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association
(successor by merger to CoastFed Business
Credit Corporation)
By /s/ Donald K. Cochrane By /s/ Edit Kondorosi
------------------------------- --------------------------------------
President or Vice President
By /s/ James W. Dorst Title Vice President
------------------------------- -----------------------------------
Secretary or Ass't Secretary
-2-
<PAGE>
INVENTORY COLLATERAL SECURITY AGREEMENT
Borrower: Western Micro Technology, Inc.
Address: 254 East Hacienda Avenue
Campbell, California 95008
Date: November 20, 1995
THIS INVENTORY COLLATERAL SECURITY AGREEMENT ("Inventory Agreement"), dated the
above date, is entered into between Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association (successor by merger to CoastFed
Business Credit Corporation) ("Coast") and the borrower named above
("Borrower"), and is one of the Collateral Agreements referred to in that
certain Loan and Security Agreement ("Loan Agreement") between Coast and
Borrower dated January 29, 1992. This Inventory Agreement is an integral part
of the Loan Agreement, and all of the terms and provisions of the Loan Agreement
are incorporated herein by this reference.
1. Grant of Security Interest. 2. Loans.
-------------------------- -----
* As collateral and security for the 2.1 Amount of Loans.
payment and performance of all Obliga- ---------------
tions (as defined in the Loan Agree- Provided no Event of Default (as
ment), Borrower hereby grants Coast an defined in the Loan Agreement) has
immediately effective, continuing occurred, Coast in its sole
security interest in, and assigns to discretion agrees to make Loans to
Coast, all of Borrower's interest in Borrower, repayable on demand, in the
the following types of property, amounts of up to the following
whether now owned or held or hereafter percentages of value of Borrower's
acquired, and wherever located: all eligible Inventory: 40% of finished
inventory, goods, merchandise, goods. As used in this Inventory
materials, raw materials, goods in Agreement, "value" means Borrower's
process, finished goods, advertising, cost or wholesale market value,
packaging and shipping materials, whichever is lower. Borrower shall
supplies, and all other tangible execute a Designation of Inventory
personal property which, is held for describing the Inventory and setting
sale or lease, furnished under forth the value thereof, in form and
contracts of service, or consumed in substance satisfactory to Coast, prior
Borrower's business, and all to any Loans being made pursuant to
replacements, accessions and additions this Paragraph 2.1.*
thereto, and all of the foregoing which
are returned, repossessed, reclaimed or * Without limiting the fact that
stopped in transit (collectively the determination of what Inventory is
"Inventory"), whether or not the eligible for borrowing is a matter of
Inventory be in the constructive or Coast's discretion, "IBM Credit
actual possession or custody of Collateral" (as defined in the
Borrower, Coast, or any third party; Intercreditor Agreement dated July 1,
and all negotiable and non-negotiable 1993 between Coast and IBM Credit
warehouse receipts and other documents Corporation) shall not be
now or hereafter issued, with respect eligible Inventory.
to any Inventory; and all proceeds,
insurance proceeds and products 2.2 Borrower's Inventory
thereof, including, without limitation, --------------------
all now owned and hereafter acquired Loan Balance. The aggregate amount of
accounts, instruments, documents, and ------------
chattel paper arising from the sale or Borrower's indebtedness to Coast on
other disposition of the Inventory; and account of Loans made pursuant to
all books and records pertaining to any Paragraph 2.1 of this Inventory
or all of the foregoing and all Agreement shall be referred to herein
equipment containing said books and as "Borrower's Inventory Loan
records. The term "Collateral" as used Balance." Borrower's Inventory Loan
in the Loan Agreement shall for all Balance shall not, at any time, exceed
purposes be deemed to include, without the lesser of (i) the total amount of
limitation, the Inventory and the other the percentages of value of Inventory
property described above. set forth in Paragraph 2.1, or (ii)
$4,000,000, unless Coast shall elect
to make advances in excess of said
* without limitation upon the amount. Only Inventory acceptable to
security interests granted in the Loan Coast, in its sole and absolute
Agreement, discretion and subject to Coast's
first priority, perfected security
interest, shall be considered in
determining
-1-
<PAGE>
compliance with the provisions of this qualities and quantities of the
Paragraph. If at any time, Coast Inventory and the cost and selling
determines, in its sole and absolute prices thereof, which records shall
discretion, that Borrower's Inventory also currently reflect the daily
Loan Balance exceeds the lesser of the withdrawals from, and additions to,
foregoing amounts, or that the the Inventory, all of which records
Inventory is not of the value shall be continuously available to
represented by Borrower or that Coast Coast for inspection and copying.
is not adequately secured, then
Borrower will repay to Coast upon 3.4 No Warehousing of
demand such amount of Borrower's -----------------
Inventory Loan Balance as will, in Inventory. None of the Inventory
Coast's sole judgment, place Coast in ---------
an adequately secured position. is or will be stored with any
warehouseman or other third party
2.3 Interest. Until without Coast's prior written consent.
--------
Borrower's Inventory Loan Balance is 4. No Liability. Coast shall
paid in full, Borrower shall pay ------------
interest thereon monthly at the rate not in any way or manner be liable or
provided in Paragraph 1.2 of the Loan responsible for the safekeeping of the
Agreement. The amount of such interest Inventory, or any loss or damage
payable hereunder shall be computed as thereof occurring or arising in any
of the close of business on the last manner or fashion from any cause, or
day of each calendar month, and shall any diminution in the value of the
be added to Borrower's Inventory Loan Inventory, or any act or default of
balance and shall thereafter bear like any carrier, warehouseman, bailee or
interest as the Loans. forwarding agent or other person
whomsoever. All risk of loss, damage
2.4 Statement of Account. and destruction of the Inventory shall
-------------------- be borne by Borrower.
Each month Coast shall send Borrower an
extract or statement of Borrower's 5. Relationship to Loan
account pertaining to Borrower's --------------------
Inventory Loan Balance prepared from Agreement. Coast's remedies under
Coast's records, which will be ---------
conclusively deemed correct and this Inventory Agreement and the Loan
accepted by Borrower unless Borrower Agreement are cumulative. If any
delivers to Coast a written statement provision of this Inventory Agreement
of exceptions within thirty (30) days modifies or conflicts with any
after delivery of such extract or provision of the Loan Agreement, those
statement. provisions in either agreement that
give greater rights and remedies to
3. Representations, Warranties Coast shall control. All capitalized
--------------------------- terms used herein, which are not
and Covenants of Borrower. Borrower defined herein, shall have the
- ------------------------- meanings ascribed to them in the Loan
represents, warrants and covenants that Agreement.
now and throughout the term of this
Inventory Agreement: 6. Effective Date. This
--------------
3.1 Condition of Inventory. Inventory Agreement, when executed by
---------------------- Borrower and accepted by a duly
All of the Inventory is, and will authorized officer of Coast, shall be
continue to be, new, in good condition, effective as of the date first above
of merchantable quality, free from written.
latent and patent defects, and not
obsolete. Borrower:
3.2 Possession and Use of WESTERN MICRO TECHNOLOGY, INC.
---------------------
Inventory. Borrower shall not sell,
- --------
lease or otherwise transfer or dispose By /s/ Donald A. Cochrane
of any of the Inventory, other than ----------------------------
sales in the ordinary course of its President or Vice President
business; provided that in no event
shall Borrower make any sales of By /s/ James W. Dorst
Inventory which would result in a ----------------------------
breach of Paragraph 2.2 above or would Secretary or Ass't Secretary
result in Borrower's Inventory Loan
Balance exceeding the percentages of Coast:
value of the Inventory set forth in
Paragraph 2.1. Borrower shall use and Accepted at Los Angeles, California:
deal with the Inventory only in a
manner consistent with the terms of the COAST BUSINESS CREDIT, A
insurance policies relating thereto. DIVISION OF SOUTHERN PACIFIC
None of the Inventory will be sold, THRIFT & LOAN ASSOCIATION
leased or otherwise disposed of in (SUCCESSOR BY MERGER TO
partial or complete satisfaction of any COASTFED BUSINESS CREDIT
debt owed by Borrower. Borrower will CORPORATION)
keep all the Inventory separate from
its other property and assets and
capable or identification so far as may
be practicable. By /s/ Edit Kondorosi
----------------------------
3.3 Records. Borrower has
------- Title Vice President
kept and shall hereafter keep, at -------------------------
Borrower's Address, true, correct and
accurate current stock, cost and sales
records of the Inventory, itemizing
describing the kinds, types,
-2-
<PAGE>
EXHIBIT 21.0
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary State of Incorporation
------------------ ----------------------
International Parts, Inc. Texas
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Western Micro Technology, Inc. on Form S-8 (File Nos. 33-64279, 33-60784,
33-39876 and 33-33582) of our reports dated February 2, 1996, on our audits of
the consolidated financial statements and financial statement schedules of
Western Micro Technology, Inc. and subsidiaries as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
which reports are included or incorporated by reference in this Annual Report on
Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary information extracted from Western Micro
Technology, Inc.'s Consolidated Condensed Statements of Income (Loss) and
Consolidated Balance Sheets and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 546
<SECURITIES> 0
<RECEIVABLES> 14,638
<ALLOWANCES> 380
<INVENTORY> 15,251
<CURRENT-ASSETS> 31,760
<PP&E> 4,924
<DEPRECIATION> 3,204
<TOTAL-ASSETS> 35,899
<CURRENT-LIABILITIES> 24,448
<BONDS> 0
<COMMON> 15,587
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,899
<SALES> 106,462
<TOTAL-REVENUES> 106,462
<CGS> 93,416
<TOTAL-COSTS> 13,703
<OTHER-EXPENSES> 3,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 850
<INCOME-PRETAX> (5,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,098)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
</TABLE>
