Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/_/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to section 240.14a-11(c) or section
240.14a-12
WESTERN MICRO TECHNOLOGY, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
____________________________________________________________________
2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
____________________________________________________________________
4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
5) Total fee paid:
____________________________________________________________________
/_/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________________________
3) Filing Party:
____________________________________________________________________
4) Date Filed:
____________________________________________________________________
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of WESTERN MICRO TECHNOLOGY, INC.:
The Annual Meeting of Shareholders of Western Micro Technology, Inc. (the
"Company") will be held at 254 East Hacienda Avenue, Campbell, California 95008,
on August 1, 1997 at 10:30 a.m. for the purpose of considering and acting upon
the following proposals:
(1) To elect a Board of five (5) directors to hold office until
the next annual meeting of shareholders or until their respective
successors have been elected and qualified;
(2) To approve certain amendments to the Company's 1994 Stock
Option Plan;
(3) To approve the amendment of the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Common
Stock;
(4) To authorize the Board of Directors and Officers of the
Company to change the state of incorporation of the Company from
California to Delaware;
(5) To ratify the designation of Coopers & Lybrand L.L.P. as
independent accountants for the period ending December 31, 1997; and
(6) To transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on June 20, 1997
as the record date for determination of shareholders entitled to notice of and
to vote at the Annual Meeting and at any postponements or adjournments thereof.
A list of shareholders entitled to vote will be available at 254 East Hacienda
Avenue, Campbell, California 95008 for ten days prior to the Annual Meeting.
The Company's December 31, 1996 Annual Report to Shareholders and
Quarterly Report on Form 10-Q accompany this Notice of Annual Meeting of
Shareholders and Proxy Statement.
By Order of the Board of Directors
P. Scott Munro
Secretary
Campbell, California
June 27, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
WESTERN MICRO TECHNOLOGY, INC.
254 EAST HACIENDA AVENUE
CAMPBELL, CA 95008
(408) 374-6919
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 1, 1997
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Western Micro Technology, Inc. (the "Company") of
proxies for use at the Annual Meeting of Shareholders of the Company to be held
on August 1, 1997 at 10:30 a.m. at the principal executive offices of the
Company located at 254 East Hacienda Avenue, Campbell, California 95008. This
proxy statement and the accompanying form of proxy are being mailed to
shareholders on or about June 27, 1997.
VOTING RIGHTS
Shareholders of record of the Company as of the close of business on June
20, 1997 have the right to receive notice of and to vote at the Annual Meeting.
On June 20, 1997, the Company had issued and outstanding ______________ shares
of Common Stock, the only class of voting securities outstanding. Each share of
Common Stock is entitled to one vote for as many separate nominees as there are
directors to be elected and for or against all other matters presented. For
action to be taken at the Annual Meeting, the majority of the shares entitled to
vote must be represented at the meeting in person or by proxy. Director nominees
receiving the highest number of affirmative votes up to the number of directors
to be elected will be elected. Votes withheld with respect to director nominees
have no legal effect. Cumulative voting is not available in the election of
directors at the Annual Meeting, as cumulative voting was eliminated by the vote
of the shareholders at the 1994 Annual Meeting. The affirmative vote of a
majority of the shares voting and a majority of the required quorum is the
minimum approval necessary and is required to approve amendments to the
Company's 1994 Stock Option Plan, to approve the amendment to the Restated
Articles of Incorporation to increase the number of authorized shares of Common
Stock and the ratification of Coopers & Lybrand L.L.P. as independent
accountants. The affirmative vote of a majority of the shares of the Company's
outstanding Common Stock is required to approve the reincorporation of the
Company from California to Delaware. Because abstentions with respect to any
matter are treated as shares present or represented and entitled to vote for the
purposes of determining whether that matter has been approved by the
Shareholder, abstentions have the same effect as negative votes. If the number
of abstentions is such that the affirmative votes do not constitute the
requisite vote, the proposal will be defeated. Broker non-votes and shares as to
which proxy authority has been withheld with respect to any matter are not
deemed to be present or represented for purposes of determining whether
Shareholder approval of that matter has been obtained.
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Board
of Directors of the Company from its shareholders.
Shares represented by properly executed proxies received by the Company
will be voted at the Annual Meeting in accordance with the instructions thereon.
It is intended that shares represented by proxies received by the Company with
no instructions will be voted in favor of all proposals set forth in the Notice
of Meeting and for the nominees as described below.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it at any time before its exercise by (i) filing with
the Secretary of the Company a signed written statement revoking his or her
proxy or (ii) submitting an executed proxy bearing a date later than that of the
proxy being revoked. A proxy may also be revoked by attendance at the Annual
Meeting and the election to vote in person. Attendance at the Annual Meeting
will not by itself constitute the revocation of a proxy.
-1-
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, a Board of five (5) directors will be elected.
The Board of Directors currently consists of six (6) directors. Except as set
forth below, unless otherwise instructed, the proxy holders will vote the
proxies received by them for Management's nominees named below. Four (4) of the
nominees are presently directors of the Company. Mr. Mertens shall become a
member of the Board of Directors upon Shareholder approval; provided, however,
that the contemplated acquisition of Star Management Services, Inc. closes. In
the event that any Management nominee shall become unavailable, the proxy
holders will vote in their discretion for a substitute nominee. It is not
expected that any nominee will be unavailable. The term of office of each person
elected as a director will continue until the next Annual Meeting of
Shareholders or until a successor has been elected and qualified.
THE NAME AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE DIRECTORS
NOMINATED BY MANAGEMENT ARE:
JAMES J. HEFFERNAN, 54, was elected as a Director of the Company in
October 1995. Since January 1996 he has been Chief Financial Officer and a
Director of US Web Corporation, a franchisor of World Wide Web developers. He
was Chief Financial Officer of Interlink Computer Sciences, a software company,
from March 1995 to January 1996. Prior to such time, Mr. Heffernan was Chairman
of the Board and Chief Financial Officer of Panoramic, Inc., a software company.
Panoramic filed for Chapter 11 bankruptcy in May 1991 and all of its assets were
sold to Computer Associates, Inc. From June 1994 to June 1995, Mr. Heffernan was
a board member of International Microcomputer Software, Inc. He was Vice
President of Finance and Chief Financial Officer of Software Publishing, Inc., a
position he held from 1987 through 1989.
CARLTON J. MERTENS, II, [Biography to follow.]
P. SCOTT MUNRO, 39, was appointed as a Director of the Company in July
1995 and has been the President, Chief Executive Officer and Secretary of the
Company since 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.
K. WILLIAM SICKLER, 46, was elected as a Director of the Company in
July 1993. Currently, Mr. Sickler is Executive Director of Software Business
Development for Seagate Technology, a manufacturer of disk drives and software
developer, with responsibility for analysis of potential software company
acquisitions. Until July 1995, Mr. Sickler was President and Chief Executive
Officer of Network Computing, Inc., a provider of network management software
for local area networks. From 1980 to 1992, he was employed by Ungermann-Bass,
Inc., a provider of networking products and services. His most recent position
was that of Chief Operating Officer. Prior to that, he held the positions of
Vice President of Operations and Vice President of Manufacturing and Quality.
J. LARRY SMART, 48, was elected as a Director of the Company and was
appointed as Chairman of the Board in October 1995. He has been Chairman of the
Board, President and Chief Executive Officer of Micropolis Corporation, a data
storage company, since July 1995. From March 1994 to February 1995, Mr. Smart
was President and Chief Executive Officer of Maxtor Corporation, a data storage
company. From July 1991 to February 1995, Mr. Smart was President and Chief
Executive Officer of Southwall Technologies, Inc., a material science company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S
NOMINEES.
-2-
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The total number of regular and special meetings of the Board of
Directors held in the last fiscal year was ten (10). All directors attended at
least seventy-five percent (75%) of the Board meetings and the meetings of the
committees of the Board on which such director served.
The Audit Committee of the Board, which presently consists of Messrs.
Welling and Heffernan, met once during the last fiscal year. The Audit Committee
has the responsibility to review the scope of the annual audit, recommend to the
Board of Directors the appointment of the independent accountants, and meet with
the independent accountants for review and analysis of the Company's systems,
the adequacy of controls and the sufficiency of financial reporting and legal
accounting compliance.
The Executive Compensation Committee of the Board, which presently
consists of Messrs. Martin and Sickler, met twice during the last fiscal
year. The Executive Compensation Committee has the responsibility for
determining the compensation to be paid to each of the Company's executive
officers.
The Stock Option Committee, which presently consists of Messrs.
Heffernan and Smart, met once during the last fiscal. The Stock Option Committee
administers the Company's Amended and Restated Incentive and Non-Incentive Stock
Option Plans and the 1994 Stock Option Plan (collectively, the "Stock Options
Plans").
The Nominating Committee, which presently consists of Messrs.
Heffernan, Martin, Munro, Sickler, Smart and Welling, met once during the last
fiscal year. The Nominating Committee recommends to the Board of Directors
persons for nomination to the Board. The Nominating Committee will consider
recommendations from shareholders which should be addressed to the attention of
the Secretary, Western Micro Technology, Inc., 254 East Hacienda Avenue,
Campbell, California 95008.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's executive officers, directors and
certain shareholders to file reports of ownership and changes in ownership of
the Company's Common Stock with the Commission. Based upon a review of such
reports, the Company believes that all reports required by Section 16(a) of the
Exchange Act to be filed by its executive officers and directors during the last
fiscal year were filed on time, except that Jerome Martin reported the sale of
10,000 shares of Common Stock approximately ten months late and Messrs. Munro
and Cochrane reported the purchase of 2,019 and 1,333 shares, respectively, of
Common Stock under the Company's employee stock purchase plan approximately nine
months late.
-3-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock as of May 30, 1997 by: (i) each person
known to the Company to beneficially own more than five percent (5%) of the
Company's Common Stock, (ii) each director, (iii) each of the Named Executive
Officers (as defined on page 6 of this Proxy Statement, and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Name of Beneficial Owner(1) Owned Percent
--------------------------- ------------ -------
<S> <C> <C>
Bernard T. Marren 371,400 7.7%
20823 Stevens Creek Blvd., Ste. 400
Cupertino, CA 95014
ROI Capital Management, Inc. ("ROI") 323,600 6.7
and affiliates(2)
One Bush Street, Ste. 1150
San Francisco, CA 94104
Donald A. Cochrane(3) 48,098 *
James W. Dorst(4) 41,312 *
James J. Heffernan(5) 3,125 *
Jerome A. Martin(6) 31,842 *
P. Scott Munro(7) 102,598 2.1
K. William Sickler(8) 19,875 *
J. Larry Smart(9) 17,125 *
William H. Welling(10) 18,665 *
All Executive Officers and Directors as a Group 282,640 5.7
(8 persons)(11)
- ----------
* Less than one percent (1%).
(1) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power over the shares reported in the table.
(2) Based on Amendment Number 1 to Schedule 13D dated January 26, 1996
filed jointly by ROI, ROI Partners, L.P. ("PTRS"), ROI & Lane, L.P.
("R&L"), Mark T. Boyer and Mitchell J. Soboleski reporting beneficial
ownership as follows:
Shares Shared Voting and
Beneficially Owned Dispositive Power
------------------ -----------------
ROI 323,600 323,600
PTRS 201,000 201,000
R&L 24,000 24,000
Mr. Boyer 201,000 201,000
Mr. Soboleski 201,000 201,000
-4-
<PAGE>
Messrs. Boyer and Soboleski are the sole shareholders, and President
and Secretary, respectively, of ROI. Messrs. Boyer and Soboleski and
ROI are the general partners of PTRS, which is an investment limited
partnership. ROI is the managing general partner of R&L, which is an
investment partnership.
(3) Includes 26,875 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997. See also "Change in Control" on page 8 of this Proxy Statement.
(4) Includes 25,000 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997. See also "Change in Control" on page 8 of this Proxy Statement.
(5) Includes 3,125 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
(6) Includes 3,125 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
(7) Includes 94,218 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997. See also "Change in Control" on page 8 of this Proxy Statement.
(8) Includes 14,375 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
(9) Includes 3,125 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
(10) Includes 14,375 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
(11) Includes 184,218 Shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of May 30,
1997.
</TABLE>
-5-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer, and each of the
other two most highly compensated executive officers who were serving as
executive officers on December 31, 1996 (the "Named Executive Officers"), for
the fiscal years ended December 31, 1996, 1995 and 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ----------
------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)
- --------------------------- ---- --------- -------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
P. Scott Munro 1996 $221,286 $122,564 -- 125,000 --
President, Chief Executive Officer1995 173,660 152,530 -- 60,000 --
and Secretary 1994 161,234 75,550 -- 100,000(1) $3,414(2)
Donald A. Cochrane(3) 1996 150,000 66,384 -- 40,000 --
Former Senior Vice President, 1995 106,980 82,629 -- 37,500 --
Sales and Marketing
James W. Dorst 1996 150,000 47,867 -- 20,000 --
Chief Financial Officer 1995 100,000 30,640 20,833(4) 50,000 --
- ----------
(1) Certain of the Company's executive officers received stock options in
1994, which options were subsequently repriced later in the year. The
rules of the Securities and Exchange Commission require that both the
original option grant and the repriced option be reported as separate
grants of stock options. However, since the original options received
in 1994 were canceled at the time of repricing, the grantees were
entitled only to the amount of the shares covered by the repriced
options. See also "Change in Control" on page of this Proxy Statement.
(2) Consists of medical costs covered by the Company's medical
reimbursement plan.
(3) Mr. Cochrane became an executive officer of the Company in July 1995
and resigned from the Company effective April 21, 1997.
(4) Mr. Dorst served as a consultant to the Company until he was hired by
the Company in May 1995. During his consultancy with the Company he
was paid $20,833.
</TABLE>
-6-
<PAGE>
<TABLE>
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 to the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to for Option Term(2)
Options Employees in Exercise or Base Expiration ---------------------------------
Granted(#) Fiscal Year(1) Price ($/Share) Date 5% 10%
------------ --------------- ---------------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
P. Scott Munro 40,000(3) 9.6% $5.00 01/18/06 $125,778.93 $318,748.49
85,000(3) 20.3% 9.00 09/27/06 481,104.49 1,219,212.98
Donald A. Cochrane 20,000(3) 4.8% 5.00 01/18/06 62,889.46 159,374.25
20,000(4) 4.8% 9.00 09/27/06 113,201.03 286,873.64
James W. Dorst 20,000(3) 4.8% 9.00 09/27/06 113,201.03 286,873.64
- ----------
(1) Based on options to purchase an aggregate of 421,000 shares of Common
Stock granted during fiscal 1996.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted
to their expiration date and are not presented to forecast possible
future appreciation, if any, in the price of the Common Stock. The
gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of
the options or the sale of the underlying shares. The actual gains, if
any, on the stock option exercises will depend on the future
performance of the Common Stock, the optionee's continued employment
through applicable vesting periods and the date on which the options
are exercised.
(3) These options vest twenty-five percent (25%) over a four year period.
See also "Change in Control" at page of this Proxy Statement.
(4) These options vest twenty-five percent (25%) over a four year period
beginning two years from the date of grant. See also "Change in
Control" at page of this Proxy Statement.
</TABLE>
<TABLE>
The following table shows stock options exercised by the Named Executive
Officers as of December 31, 1996. In addition, this table indicates the number
of shares of Common Stock represented by outstanding stock options held by each
of the Named Executive Officers as of December 31, 1996. The Company's Common
Stock price as at close of business on December 31, 1996 was $12.25.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR1
AND FY-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End(#) Options at FY-End($)
------------------------------ -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
P. Scott Munro 79,218 207,500 $633,957.25 $1,250,625.00
Donald A. Cochrane 24,375 78,125 187,500.00 553,750.00
James W. Dorst 12,500 57,500 125,000.00 440,000.00
- ----------
(1) None of the Named Executive Officers exercised options during the
fiscal year ended December 31, 1996.
</TABLE>
-7-
<PAGE>
COMPENSATION OF DIRECTORS
Outside directors (i.e., those who are not employees of the Company)
receive an annual retainer of $20,000, plus $750 for each board meeting
attended. The Company pays for directors' liability insurance and has entered
into indemnification agreements with each of the directors.
At the 1994 Annual Meeting, the shareholders approved the adoption of
the Company's 1994 Stock Option Plan, which has on several occasions thereafter
been amended. Among many other benefits, the 1994 Stock Option Plan, as amended,
provides for the grant of an option of 15,000 shares of the Company's Common
Stock to certain directors who are not employees following their initial
election or appointment and an option for 4,000 shares at every regular annual
meeting thereafter at which they are elected. The exercise price is the fair
market value of the shares on the date of each respective grant and the options
vest over a four-year period. In April of 1997, the Board of Directors made
discretionary grants of nonstatutory stock options to the outside directors to
each purchase 6,250 shares.
CHANGE IN CONTROL
Stock options held by the Company's directors and Named Executive
Officers under the Company's Stock Option Plans will become fully vested and
exercisable following a change in control of the Company. A "change in control"
means the occurrence of any of the following events: (1) shareholder approval of
a merger or consolidation of the Company with any other corporation resulting in
a change in fifty percent (50%) or more of the total voting power of the
Company; (2) shareholder approval of a plan of complete liquidation of the
Company or an agreement for the sale or disposition of all or substantially all
of the Company's assets; or (3) any person becomes the beneficial owner of more
than fifty percent (50%) of the Company's total outstanding securities.
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with P. Scott Munro
dated January 1, 1996. Pursuant to the terms of the Agreement, Mr. Munro
receives a base salary of $203,000 per year and is eligible to receive a bonus
of up to $125,000 a year (up to $25,000 of which is payable quarterly pursuant
to certain quarterly performance goals and $25,000 of which is paid annually
pursuant to certain annual performance goals). Effective July 1, 1996, Mr.
Munro's base salary was increased to $260,000 and his annual incentive bonus was
increased to $30,000. If Mr. Munro is terminated for cause, he will be entitled
to receive his base salary and bonus due through the date of his termination. If
Mr. Munro is terminated without cause, he will be entitled to receive his base
salary for twelve (12) months following his termination. If Mr. Munro's
responsibilities are reduced within twelve (12) months following a change in
control, as defined above, and such reduction in responsibilities is not for
cause, any resignation of employment by Mr. Munro as a consequence of such
reduction in responsibilities will be treated as a termination of employment
without cause.
The Company entered into an Employment Agreement with James W. Dorst
dated June 12, 1995. Pursuant to the terms of the Agreement, Mr. Dorst receives
a base salary of $150,000 per year and is eligible to receive a bonus of up to
$50,000 per year, subject to certain performance goals. If Mr. Dorst is
terminated for cause, he will be entitled to receive his base salary and bonus
due through the date of his termination. If Mr. Dorst is terminated without
cause, he will be entitled to receive his base salary for nine (9) months
following his termination in accordance with the Company's severance policy. If
Mr. Dorst's responsibilities are reduced within twelve (12) months following a
change in control, as defined above, and such reduction in responsibilities is
not for cause, any resignation of employment by Mr. Dorst as a consequence of
such reduction in responsibilities will be treated as a termination of
employment without cause.
The Company entered into an Employment Agreement with Donald A. Cochrane
dated January 1, 1996. Pursuant to the terms of the Agreement, until the date of
his resignation from the Company in April 1997, Mr. Cochrane received a base
salary of $150,000 per year and was eligible to receive a bonus of up to $70,000
a year (up to $15,000 of which was payable quarterly pursuant to certain
quarterly performance goals and up to $10,000 of which was payable annually
based on the achievement of certain annual performance goals). Mr. Cochrane's
Agreement provided that if he was terminated for cause, he would be entitled to
receive his base
-8-
<PAGE>
salary and bonus due through the date of his termination and if he was
terminated without cause, he would be entitled to receive his base salary for
nine (9) months following his termination. Pursuant to the Agreement, Mr.
Cochrane will continue to receive his base salary for nine months beginning on
April 21, 1997. In addition, Mr. Cochrane will continue to vest in his stock
options throughout the term of his Consultant Agreement in accordance with the
terms of his Incentive Stock Option Agreement and the 1994 Stock Option Plan.
Mr. Cochrane entered into an Independent Consultant Agreement with the Company
which will automatically terminate on January 15, 1998 or earlier upon the
occurrence of (1) Mr. Cochrane's death, (2) thirty (30) days notice from the
Company terminating the Consulting Agreement, or (3) a material breach of the
Consultant Agreement, which includes but is not limited to failure to,
completing the consulting services in a timely fashion, habitual neglect,
failure to work cooperatively with the Company staff, negligence or wrongdoing
in the performance of his duties, or a breach of rules regarding Confidential
Information.
-9-
<PAGE>
EXECUTIVE COMMITTEE REPORT ON COMPENSATION
The compensation of the Company's executive officers is determined by
the Executive Compensation Committee of the Board of Directors (the
"Compensation Committee") on an annual basis. The Chief Executive Officer's
recommendations of compensation to be paid to other executive officers of the
Company are considered by the Compensation Committee in its decision-making
process. The Compensation Committee is currently composed of two (2)
non-employee directors.
The Stock Option Committee of the Board of Directors administers the
Company's Stock Option Plans and determines grants to executive officers. The
Stock Option Committee is composed of two "disinterested" directors, as defined
by Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
The Compensation Committee's policy on executive compensation is to
attract and retain highly qualified personnel while tying compensation to
performance. Consequently, the Compensation Committee seeks to establish
compensation that will reward individuals for Company performance as well as
individual performance and motivate and reward executives for achievement of
strategic business objectives.
The primary factors used by the Compensation Committee in determining
the compensation of the Company's executive officers are as follows:
1. The executive officer's individual performance and contributions to
the Company;
2. The financial results of the Company, including return on assets;
and
3. The compensation of executive officers employed by companies in
similar industries with similar revenue levels. The Compensation
Committee takes into account surveys of competitive pay practices
prepared by independent consulting firms.
EXECUTIVE COMPENSATION GENERALLY
- --------------------------------
The compensation of executive officers is composed of (i) base salary,
(ii) a cash bonus and (iii) stock options.
Base Salary. The base salaries of the Company's executive officers are
-----------
set forth on the employment agreements negotiated by each such officer. See
"Employment Agreements" on page 8 of this Proxy Statement. In each case, the
Compensation Committee utilized the surveys of independent consulting firms to
help it determine the appropriate amount of competitive base pay.
Bonus. All of the executive officers were eligible to receive a cash
-----
bonus. The bonus amount was based on the degree to which specific financial
performance, e.g., return on assets, was achieved in relation to targeted goals.
The target bonus amounts for these executive officers was designed to represent
between 33% (for Mr. Dorst), 47% (for Mr. Cochrane) and 50% (for Mr. Munro) of
annual base salary. As a result of the Company's performance in 1996, these
executive officers received cash bonuses in the aggregate amount of $236,815.
Stock Options. In January and September 1996, the Company's current
-------------
executive officers received stock options which are set forth in the Summary
Compensation Table on page 6 of this Proxy Statement. Stock options were granted
to the Company's current executive officers on the basis of a survey of
competitive practices of a majority of the companies in the Company's peer group
prepared by Watson Wyatt Worldwide.
CHIEF EXECUTIVE OFFICER COMPENSATION
- ------------------------------------
Effective January 1, 1996, Mr. Munro's base salary was increased to
$203,000 based on a compensation survey conducted by Alexander & Alexander
Consulting Group and Radford Associates of fourteen public
-10-
<PAGE>
companies, of which four such companies are included in the Company's
Self-Determined Peer Group. The other ten companies were of a similar size, in a
similar location and bear other characteristics similar to the Company. At such
time, the Company entered into a new employment agreement with Mr. Munro, which
supersedes his employment agreement. Effective July 1, 1996, Mr. Munro's base
salary was increased to $260,000. See "Employment Agreements" on page 8 of this
Proxy Statement.
Based on the Company's 1996 performance, Mr. Munro was paid a bonus of
$122,564. Mr. Munro's annual incentive maximum bonus is $125,000.
Based on a survey of median competitive annual stock option grants,
regarded by Watson Wyatt Worldwide, Mr. Munro executed options in 1996 to
purchase 125,000 shares of Company stock that vest over four years.
OTHER
- -----
The Company generally intends to qualify compensation under Section
162(m) of the Internal Revenue Code of 1986, as amended, however, the Company
reserves the right to pay compensation that may not be deductible.
EXECUTIVE COMPENSATION COMMITTEE
K. WILLIAM SICKLER
JAMES J. HEFFERNAN
-11-
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company
include in this Proxy Statement a line-graph presentation comparing cumulative,
five (5) year shareholder returns on an indexed basis with (i) a broad equity
market index and (ii) an industry index or peer group. Set forth below is a line
graph comparing cumulative total shareholder return on the Company's Common
Stock against the Center for Research in Security Prices ("CRSP") Index for the
Nasdaq Stock Market (U.S. companies) and a Self-Determined Peer Group. "Total
return," for the purpose of this graph, assumes reinvestment of all dividends.
[GRAPHIC OMITTED]
LEGEND
<TABLE>
Symbol CRSP Total Returns Index for: 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ------ ---------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
_____ Western Micro Technology, Inc. 100.0 137.5 308.3 212.5 175.0 408.3
- ------ Nasdaq Stock Market (US Companies) 100.0 116.4 133.6 130.6 184.7 227.2
- ----- Self-Determined Peer Group 100.0 99.4 179.9 101.1 107.1 200.6
</TABLE>
Companies in Self-Determined Peer Group
AMERIQUEST TECHNOLOGIES INC. COMPUCOM SYSTEMS INC.
INACOM CORP. INTELLIGENT ELECTRONICS INC.
MICROAGE INC. POMEROY COMPUTER RESOURCES INC.
TECH DATA CORP. VANSTAR CORP.
Notes:
A. The lines represent monthly index levels derived from compounding
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/31/91.
-12-
<PAGE>
PROPOSAL NUMBER 2
CERTAIN AMENDMENTS TO THE
COMPANY'S 1994 STOCK OPTION PLAN
The 1994 Stock Option Plan of Western Micro Technology, Inc. was adopted
by the Company's Board of Directors on April 22, 1994 and approved by the
shareholders at the 1994 Annual Meeting. Effective August 15, 1996, the Board of
Directors amended and restated the 1994 Stock Option Plan (the "1994 Plan") to:
(1) comply with new rule 16(b)-3 promulgated under Section 16 of the Securities
Exchange Act of 1934, (2) change the formula for automatic grants of
nonstatutory stock options granted to non-employee directors and to permit
discretionary grants of nonstatutory stock options to such directors, and (3)
increase the number of shares available under the 1994 Plan by 200,000 shares.
On May 18, 1997, the Board of Directors amended and restated the 1994 Plan to:
(1) increase the number of shares available for grant thereunder by 500,000
shares, 125,000 of which would be available for incentive stock options subject
to approval by stockholders, (2) change the annual amount of nonstatutory stock
options granted automatically to non-employee directors and to credit service
for advisory directors, and (3) change the Internal Revenue Code section 162(m)
grant limit for optionees who are employees, subject to approval by
stockholders.
The text of the 1994 Plan is set forth in Exhibit A to this Proxy
Statement. The following summary of the 1994 Plan's principal features does not
purport to be complete. It is subject to and qualified in its entirety by
reference to Exhibit A.
SHARES SUBJECT TO THE 1994 PLAN
Prior to the amendment and restatement of the 1994 Plan, there are
1,021,801 shares of Common Stock authorized for option grants. There are
1,396,801 shares of Common Stock authorized for option grants under this
amendment and restatement. Upon approval of this amendment by the shareholders,
there will be a total of 1,521,801 shares authorized under the Plan. The
authorized shares issuable in connection with the 1994 Plan are subject to
adjustment in the event of stock splits, stock dividends and other situations.
As of May 30, 1997, the Company had options outstanding under the 1994
Plan to purchase an aggregate of _____ shares of Common Stock, at exercise
prices ranging from $_____ to $_____ per share, or a weighted average per share
exercise price of $_____. If any option granted under the 1994 Plan expires or
terminates for any reason without having been exercised in full, then the
unpurchased shares subject to that option will once again be available for
additional option grants. As of June 20, 1997, a total of _____ shares of Common
Stock were available for future issuance under the 1994 Plan.
PARTICIPANTS
Any person who is an employee of the Company is eligible to receive
options under the 1994 Plan. Optionees will be selected by the Stock Option
Committee.
The 1994 Plan also provides for formula grants for non-employee
directors that are designed to comply with the provisions of Rule 16b-3 under
the Exchange Act of 1934, as amended. Non-employee directors will automatically
receive nonstatutory options to purchase 15,000 shares of the Company's Common
Stock upon their initial appointment or election as a non-employee director and
will receive nonstatutory options to purchase 4,000 shares of the Company's
Common Stock for every regular annual meeting thereafter at which they are
elected. The non-employee director options will have ten (10) year terms and
will be exercisable ratably at twenty-five percent (25%) a year from the date of
the annual meeting of shareholders on which date the options are granted. Such
options will become one hundred percent (100%) vested upon death, disability or
a change in control of the Company. If a non-employee director or advisory
director dies or becomes disabled, his or her option shall be fully exercisable
during the twelve (12) months following the date of his or her death or
disablement. If a non-employee director or advisory director voluntarily retires
from service as a director or advisory director at or after age 60, his or her
options that are vested shall be exercisable for a period of twelve (12) months
following
-13-
<PAGE>
retirement. In all other cases, a non-employee director's or advisory director's
options that are vested upon termination of service shall remain exercisable for
ninety (90) days following the date of his or her termination of service. The
1994 Plan also permits discretionary grants of nonstatutory options to be made
to non-employee directors by the Board of Directors.
ADMINISTRATION
The 1994 Plan is administered by the Stock Option Committee. The Stock
Option Committee consists of two directors appointed by the Board of Directors
and has the power and authority to grant options to participants in the 1994
Plan. The Stock Option Committee may delegate certain of its responsibilities to
other persons; provided, however, the Stock Option Committee may not delegate
matters relating to the Company's Section 16 officers. The members of the Stock
Option Committee are non-employee directors as defined in Rule 16b-3. The Board
of Directors may fill vacancies on the Stock Option Committee and may from time
to time remove or add members, and may also administer the 1994 Plan.
The Stock Option Committee may periodically adopt rules and regulations
for carrying out the 1994 Plan. The Board of Directors may amend the 1994 Plan
as desired without further action by the Company's shareholders except as
required by applicable law.
TERMS OF STOCK OPTIONS
Awards under the 1994 Plan consist of nonstatutory stock options
("NSOs") and incentive stock options ("ISOs"). Except with respect to options
automatically granted to non-employee directors, options granted pursuant to the
1994 Plan need not be identical.
The purchase price under each option is established by the Stock Option
Committee but in no event can the option price for ISOs and non-employee
director options be less than one hundred percent (100%) of the fair market
value of the stock on the date of grant. The last sale price per share of the
Company's Common Stock as reported on the Nasdaq National Market on __________,
1997 was $__________. The option price must be paid in full at the time of
exercise. The price may be paid in cash or, if permitted by the Stock Option
Agreement, by delivery of an irrevocable direction to a securities broker to
sell shares and to deliver part of the sale proceeds to the Company, by the
surrender of shares of the Company owned by the participant exercising the
option and having a fair market value on the date of exercise equal to the
option price, or by any combination of the foregoing.
Except with respect to automatic options for non-employee directors,
options have such terms and are exercisable in such manner and at such times as
the Stock Option Committee may determine. In addition, no optionee may be
granted options in any calendar year in excess of 300,000 shares of the
Company's Common Stock; provided, however, that options granted to an optionee
in the calendar year in which he or she is newly hired shall in no event cover
more than 500,000 shares of the Company's Common Stock, subject to certain
adjustments. However, each option must expire within a period of not more than
ten (10) years from the grant date.
Unless the Option Agreement otherwise provides, each option is
transferable only by will or the law of descent and distribution and shall only
be exercisable by the participant during his or her lifetime.
The Stock Option Committee may modify, extend or renew outstanding
options or may accept the cancellation of outstanding options in return for the
grant of new options at the same or a different price, except the optionee must
consent to any modification, extension or renewal which impairs his or her
rights or increases his or her obligations under such option.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the
1994 Plan is intended to be a summary of applicable federal law. State and local
tax consequences may differ. Because the federal income tax
-14-
<PAGE>
rules governing options and related payments are complex and subject to frequent
change, optionees are advised to consult their tax advisors prior to exercise of
options or dispositions of stock acquired pursuant to option exercise.
ISOs and NSOs are treated differently for federal income tax purposes.
ISOs are intended to comply with the requirements of Section 422 of the Internal
Revenue Code. NSOs need not comply with such requirements.
An employee is not taxed on the grant or exercise of an ISO. The
difference between the exercise price and the fair market value on the exercise
date of the shares acquired under an ISO will, however, be a preference item for
purposes of the alternative minimum tax. If an optionee holds the shares
acquired upon exercise of an ISO for at least two (2) years following grant and
at least one (1) year following exercise, the optionee's gain, if any, upon a
subsequent disposition of such shares is long-term capital gain. The measure of
the gain is the difference between the proceeds received on disposition and the
optionee's basis in the shares (which generally equals the exercise price). If
an optionee disposes of stock acquired pursuant to exercise of an ISO before
satisfying the one (1) and two (2) year holding periods described above, the
optionee may recognize both ordinary income and capital gain in the year of
disposition. The amount of the ordinary income will be the lesser of (i) the
amount realized on disposition less the optionee's adjusted basis in the stock
(usually the option exercise price) or (ii) the difference between the fair
market value of the stock on the exercise date and the option exercise price.
The balance of the consideration received on such a disposition will be capital
gain (long-term capital gain if the stock had been held for at least one (1)
year following exercise of the ISO). The Company is not entitled to an income
tax deduction on the grant or exercise of an ISO or on the optionee's
disposition of the shares after satisfying the holding period requirement
described above. If the holding periods are not satisfied, the Company will be
entitled to a deduction in the year the optionee disposes of the shares, in an
amount equal to the ordinary income recognized by the optionee.
An employee is not taxed on the grant of an NSO. On exercise, however,
the optionee recognizes ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
The Company is entitled to an income tax deduction in the year of exercise in
the amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain if the shares are held for
at least one (1) year following exercise. The Company does not receive a
deduction for this gain.
NEW PLAN BENEFITS
With respect to all future grants, the Stock Option Committee has full
discretion to determine the number and amount of options to be granted to
employees under the 1994 Plan, subject to an annual limitation on the total
number of options that may be granted to any employee. Therefore, other than as
described in this paragraph, the benefits and amounts that will be received by
each of the officers named in the Summary Compensation Table above, the
executive officers as a group and all other employees under the 1994 Plan are
not presently determinable. The number of options to be received automatically
by each non-employee director is fixed under the 1994 Plan.
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of shares of Common
Stock represented and voting at a duly held meeting at which a quorum is present
is required to approve the amendment and restatement of the 1994 Plan as it
relates to the increase in the individual grant limitations of section 162(m) of
the Code and the 125,000 new shares available for the grant of ISOs. Unless
marked to the contrary, proxies received will be voted "FOR" approval of the
amendment and restatement of the Company's 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1994 PLAN.
-15-
<PAGE>
PROPOSAL NUMBER 3
TO AMEND THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
INTRODUCTION
The Company's Restated Articles of Incorporation currently authorizes
the issuance of ten million (10,000,000) shares of Common Stock, no par value,
and ten million (10,000,000) shares of Preferred Stock, no par value. The Board
of Directors in June 1997, adopted a resolution proposing that the Restated
Articles of Incorporation be amended to increase the authorized number of shares
of Common Stock to twenty million (20,000,000), subject to shareholder approval
of the amendment.
CURRENT USE OF SHARES. As of May 30, 1997, the Company has approximately
4,800,000 shares of Common Stock outstanding and approximately _________ shares
reserved for future issuance under the Company's employee stock plans, of which,
currently, approximately _________ are covered by outstanding options and
approximately _________ are available for grant or purchase. In addition, the
Company has approximately ________ shares of Common Stock reserved for issuance
pursuant to certain earn-out rights granted by the Company in connection with
business acquisitions. Based upon the foregoing number of outstanding and
reserved shares of Common Stock, the Company currently has approximately
_________ shares remaining available for other purposes.
PROPOSED AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
The Board of Directors has adopted resolutions setting forth (i) the
proposed amendment to the second sentence of Article 5 of the Company's Restated
Articles of Incorporation (the "Amendment"); (ii) the advisability of the
Amendment; and (iii) a call for submission of the Amendment for approval by the
Company's shareholders at the Meeting.
The following is the text of the second sentence of Article 5 of the
Restated Articles of Incorporation of the Company, as proposed to be amended:
The total number of Common shares authorized is 20,000,000 without par
value and the total number of Preferred shares authorized is 10,000,000
without par value.
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
The Board of Directors believes that the availability of additional
authorized but unissued shares will provide the Company with the flexibility to
issue Common Stock for other proper corporate purposes which may be identified
in the future, such as to raise equity capital, to adopt additional employee
benefit plans or reserve additional shares for issuance under such plans, and to
make acquisitions through the use of stock. Other than as permitted or required
under the Company's employee benefit plans and under outstanding options,
warrants, and other securities convertible into Common Stock, the Board of
Directors has no immediate plans, understandings, agreements, or commitments to
issue additional Common Stock for any purposes.
The Board of Directors believes that the proposed increase in the
authorized Common Stock will make available sufficient shares for use should the
Company decide to use its shares for one or more of such previously mentioned
purposes or otherwise. No additional action or authorization by the Company's
shareholders would be necessary prior to the issuance of such additional shares,
unless required by applicable law or the rules of any stock exchange or national
securities association trading system on which the Common Stock is then listed
or quoted. The Company reserves the right to seek a further increase in
authorized shares from time to time in the future as considered appropriate by
the Board of Directors.
-16-
<PAGE>
Under the Company's Restated Articles of Incorporation, the Company's
shareholders do not have preemptive rights with respect to Common Stock. Thus,
should the Board of Directors elect to issue additional shares of Common Stock,
existing shareholders would not have any preferential rights to purchase such
shares. In addition, if the Board of Directors elects to issue additional shares
of Common Stock, such issuance could have a dilutive effect on the earnings per
share, voting power, and share holdings of current shareholders.
The proposed amendment to increase the authorized number of shares of
Common Stock could, under certain circumstances, have an anti-takeover effect,
although this is not the intention of this proposal. For example, in the event
of a hostile attempt to take over control of the Company, it may be possible for
the Company to endeavor to impede the attempt by issuing shares of the Common
Stock, thereby diluting the voting power of the other outstanding shares and
increasing the potential cost to acquire control of the Company. The Amendment
therefore may have the effect of discouraging unsolicited takeover attempts. By
potentially discouraging initiation of any such unsolicited takeover attempt,
the proposed Amendment may limit the opportunity for the Company's shareholders
to dispose of their shares at the higher price generally available in takeover
attempts or that may be available under a merger proposal. The proposed
amendment may have the effect of permitting the Company's current management,
including the current Board of Directors, to retain its position, and place it
in a better position to resist changes that shareholders may wish to make if
they are dissatisfied with the conduct of the Company's business. However, the
Board of Directors is not aware of any attempt to take control of the Company
and the Board of Directors has not presented this proposal with the intent that
it be utilized as a type of anti-takeover device.
VOTE NECESSARY TO APPROVE THE AMENDMENT
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting, assuming a quorum is
present, is necessary for approval of the Amendment. Therefore, abstentions and
broker non-votes (which may occur if a beneficial owner of stock where shares
are held in a brokerage or bank account fails to provide the broker or the bank
voting instructions as to such shares) effectively count as votes against the
Amendment.
RECOMMENDATION OF THE BOARD
The Board of Directors recommends a vote "FOR" the proposal to amend the
Company's Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from ten million (10,000,000) to twenty
million (20,000,000). Unless a contrary choice is specified, proxies solicited
by the Board of Directors will be voted FOR approval of the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
-17-
<PAGE>
PROPOSAL 4
TO APPROVE THE REINCORPORATION OF THE COMPANY
FROM CALIFORNIA TO DELAWARE
With the unanimous recommendation of the Board of Directors, the Board
is submitting to shareholders for their approval a proposal to reincorporate the
Company in Delaware (the "Reincorporation"). The following discussion summarizes
certain aspects of the Reincorporation. This summary is not intended to be
complete and is subject to, and qualified in its entirety by, the Agreement and
Plan of Merger, in substantially the form attached hereto as Annex A (the
"Merger Agreement"), and the Certificate of Incorporation (the "Delaware
Certificate") of Western Micro Technology, Inc. ("Western Micro Delaware"), a
copy of which is attached hereto as Annex B. Copies of the Amended and Restated
Articles of Incorporation and the Bylaws, as amended to date, of the Company
(the "California Articles" and the "California Bylaws," respectively) as well as
the bylaws of Western Micro Delaware (the "Delaware Bylaws") are available for
inspection at the principal office of the Company and copies will be sent to
shareholders on written request.
REINCORPORATION OF THE COMPANY
The Reincorporation will be effected by merger (the "Merger") of the
Company, with and into Western Micro Delaware, a corporation formed by the
Company in preparation for the Reincorporation, as a wholly owned subsidiary of
the Company. Upon completion of the Merger, the Company will cease to exist and
Western Micro Delaware will continue to operate the business of the Company
under the name "Western Micro Technology, Inc." Shareholders of the Company will
automatically become stockholders of Western Micro Delaware and their rights
will be governed by Delaware law, the Delaware Certificate and the Delaware
Bylaws rather than by California law, the California Articles and the California
Bylaws. If approved by the shareholders of the Company and if certain other
conditions set forth in the Merger Agreement are satisfied, the Reincorporation
will become effective upon the filing of the Merger Agreement and related
documentation with the Secretary of State of each of Delaware and California
(the "Effective Date"). The Reincorporation is intended to be consummated as
soon as practicable following the Annual Meeting. However, pursuant to the
Merger Agreement, the Reincorporation may be abandoned or the Merger Agreement
may be amended by the Board of Directors (except that the principal terms may
not be amended without shareholder approval) either before or after
shareholders' approval has been obtained and prior to the Effective Date if, in
the opinion of the Board of Directors, circumstances arise which make such
action advisable.
Pursuant to the Merger Agreement, on the Effective Date, each
outstanding share of Common Stock of the Company, no par value ("Company Common
Stock"), will automatically be converted into one share of Common Stock of
Western Micro Delaware, $.01 par value ("Western Micro Delaware Common Stock")
(the adoption of a $.01 par value is primarily to reduce certain filing fees
applicable under Delaware law). There are no differences in the rights,
preferences or privileges of the Western Micro Delaware Common Stock from those
of the Company Common Stock. Each stock certificate representing issued and
outstanding shares of the Company Common Stock will continue to represent the
same number of shares of Western Micro Delaware Common Stock. IT WILL NOT BE
NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR
STOCK CERTIFICATES OF WESTERN MICRO DELAWARE COMMON STOCK. However, shareholders
may exchange their certificates if they so choose. Shares of Western Micro
Delaware Common Stock will continue to be quoted on the National Association of
Security Dealers Automatic Quotation System ("NASDAQ") under the symbol "WSTM"
without interruption, as shares of the Company Common Stock are now quoted and
traded, and delivery of existing Company Common Stock certificates will
constitute "good delivery" of shares of Western Micro Delaware Common Stock.
Under California law, the affirmative vote of a majority of the
outstanding shares of the Company Common Stock is required for approval of the
Merger Agreement and the other terms of the Reincorporation. See "Board
Recommendation and Vote Required." The Reincorporation has been approved by the
Company's Board of Directors, which unanimously recommends a vote in favor of
the Reincorporation Proposal.
-18-
<PAGE>
Except as set forth above, no federal or state regulatory requirements
must be complied with nor must approvals be obtained in connection with the
Reincorporation, except under federal securities laws applicable to proxy
solicitations.
Shareholders of the Company will have no dissenters' rights of appraisal
with respect to the Reincorporation. See "Other Significant Differences Between
the Corporation Laws of California and Delaware--Appraisal Rights in Mergers."
APPROVAL OF THE PROPOSED REINCORPORATION BY SHAREHOLDERS WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE DELAWARE CERTIFICATE AND THE DELAWARE
BYLAWS.
PRINCIPAL REASONS FOR THE REINCORPORATION
DELAWARE CORPORATION LAW. For many years Delaware has followed a policy
of encouraging incorporation in that state and, in furtherance of that policy,
has long been a leader in adopting, construing and implementing comprehensive
and flexible corporate laws which are periodically revised and updated in
response to the legal and business needs of corporations organized under its
laws. Many corporations have initially chosen Delaware for their state of
incorporation or have subsequently changed their corporate domicile to Delaware
in a manner similar to that proposed by the Company. Because of Delaware's
prominence as the state of incorporation for many major corporations, both its
legislature and courts have demonstrated an ability and a willingness to act
quickly and effectively to meet changing business needs. The Delaware courts
have acquired considerable expertise in dealing with corporate issues and a
substantial body of case law has been developed construing Delaware law and
establishing public policies with respect to corporate legal affairs, thus
providing greater predictability and guidance in the conduct of corporate legal
affairs of Delaware corporations.
ATTRACTION AND RETENTION OF QUALIFIED DIRECTORS. Both California and
Delaware law permit a corporation to include a provision in its articles or
certificate of incorporation which reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercise of their respective duties. The amount of time and
money required to respond to such claims and to defend such litigation can be
substantial. It is the Company's desire to reduce such risks to its directors
and officers and to limit situations in which monetary damages can be recovered
against directors so that the Company may continue to attract and retain
qualified directors who might otherwise be unwilling to serve because of the
increased risks involved.
In accordance with current California law, the California Articles
include a provision which limits director's liability in certain circumstances.
In general, however, the ability to limit liability is broader under Delaware
law, and Delaware case law is also more developed to provide guidance in this
regard. It should be noted, however, that neither California nor Delaware law
permits a corporation to limit or eliminate the liability of its directors for
intentional misconduct, conduct undertaken in bad faith or any transaction from
which the director derives an improper personal benefit, or for violations of
federal laws, such as securities laws.
REDUCED VULNERABILITY TO UNILATERAL TAKEOVER ATTEMPTS. The Board of
Directors believes the changes resulting from the Reincorporation will
discourage certain types of transactions which involve actual or threatened
changes of control of the Company and enhance the Board of Directors' ability to
negotiate effectively in connection with an unsolicited takeover proposal.
Accordingly, the Board of Directors has recommended the Reincorporation in order
to enable the Company to take advantage of certain provisions of the Delaware
General Corporation Law ("Delaware GCL") which the Board believes are in the
best interests of the shareholders and which are not provided for under the
California General Corporation Law (the "California GCL"). By means of example,
these provisions (i) eliminate cumulative voting, (ii) provide that directors
may be removed only for cause, and (iii) grant authority to the Board (without
stockholder approval) to establish the authorized number of directors.
-19-
<PAGE>
After the Reincorporation, these provisions, together with the general
acceptance of the Delaware anti-takeover statute (see "Certain Significant
Differences in Corporate Governance--Delaware Business Combination Law"), are
expected to make certain changes in control of Western Micro Delaware more
difficult and time consuming without the prior consent of the Board of
Directors, and to have the effect of encouraging hostile acquirors or persons
who acquire substantial blocks of Western Micro Delaware Common Stock to
negotiate with the Board of Directors acting on behalf of all shareholders,
thereby reducing the Company's vulnerability to an unsolicited proposal for the
takeover of the Company, particularly a proposal which does not contemplate the
acquisition of all of the Company's outstanding shares, or a proposal for the
restructuring or sale of all or part of the Company.
There has been a trend in recent years towards the accumulation of
substantial stock positions in public companies by third parties as a prelude to
proposing a takeover, restructuring or sale of all or part of a company or other
similar extraordinary corporation actions. Such actions are often undertaken by
a purchaser without advance notice to or consultation with the board of
directors of the target company. The Company believes that takeover attempts in
which the Board of Directors does not have the opportunity to negotiate in the
interests of all shareholders may result in certain coercive tactics, disruption
of business and unfairness to shareholders. For example, certain non-negotiated
takeover bids or accumulations of large blocks of stock may be timed to take
advantage of temporarily depressed stock prices, may be designed to foreclose or
minimize the possibility of competing bids and may involve the acquisition of
only a controlling interest in the Company's stock without affording all
shareholders the opportunity to receive the same economic benefits.
It is also the Company's view that the existence of anti-takeover
measures, although having the effect of making hostile takeovers more difficult,
will not necessarily ensure that bidders will only propose a merger or other
transaction at a price reflective of the true value of the Company and which is
in the best interests of all shareholders. Management is not aware of
any proposal or any effort to obtain control of the Company. See "Certain
Significant Differences in Corporate Governance." The Company is contemplating
issuing approximately 10.5% of its outstanding Common Stock in connection with
the Company's potential acquisition of Star Management Services, Inc.
POSSIBLE DISADVANTAGES. Despite the unanimous belief of the Board of
Directors that the Reincorporation is in the best interests of the Company and
its shareholders, it should be noted that some commentators are of the view that
Delaware law does not afford minority shareholders the same substantial rights
and protections as are available in a number of other states, including
California. The Delaware Certificate and Delaware Bylaws contain provisions that
are expected to have the overall effect of rendering more difficult the
accomplishment of unsolicited tender offers or mergers and proxy contests, or
the assumption of control by the holder of a large block of shares, and thus
make more difficult the removal of incumbent management, even if such a change
in control is desired by holders of a majority of the shares.
The Reincorporation, if adopted, could also have the effect of
discouraging a third party from attempting to obtain control of the Company,
even though such an attempt may be beneficial to the Company and its
shareholders. By discouraging certain Tender Offers, Mergers and accumulations
of large blocks of stock, it may also tend to reduce temporary upward
fluctuations in the market price of the Western Micro Delaware Common Stock,
thereby depriving its stockholders of opportunities which might otherwise exist
in the absence of the Reincorporation to sell their stock at a premium to
current market prices. However, the Company believes that certain non-negotiated
takeover bids or large block accumulations may be timed to take advantage of
temporarily depressed stock prices and, therefore, may not take account of
underlying and long-term values of the Company's assets and prospects for
favorable developments in the Company's business and, in addition, may not
ensure equal treatment of all shareholders. See "Certain Significant Differences
in Corporate Governance."
NO CHANGE IN THE BUSINESS, MANAGEMENT AND LOCATION OF THE COMPANY. The
Reincorporation will effect a change in the legal domicile of the Company from
California to Delaware and will produce only those changes resulting from the
difference between California and Delaware law and between the charters and
bylaws of the Company and Western Micro Delaware, and other changes of a legal
nature, certain of which are described in this Proxy Statement. The
Reincorporation will not result in any change in the name, business, management,
fiscal year, location of the principal facilities, assets, liabilities or net
worth of the Company and will have no material accounting implications. All
benefit plans of the Company will be continued by Western Micro Delaware, and
each stock right or option issued pursuant to such plans will automatically be
converted into an option or right to
-20-
<PAGE>
purchase the same number of shares of Western Micro Delaware Common Stock at the
same price per share, upon the same terms and subject to the same conditions as
set forth in such plans. The Company's other employee benefit arrangements will
be continued by Western Micro Delaware upon the terms and subject to the
conditions then currently in effect. The Reincorporation Proposal and the
changes affected thereby are permitted and consistent with the rules of the
NASDAQ, on which the issued shares of the Company Common Stock are currently
quoted and traded. Moreover, as noted above, after the Reincorporation, the
shares of Western Micro Delaware Common Stock will be quoted and traded, as
applicable, without interruption, on the NASDAQ under the same symbol as the
shares of the Company Common Stock were quoted and traded prior to the
Reincorporation.
CERTAIN SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE
The most significant differences between the corporate governance
provisions of the charter documents of Western Micro Delaware and the Company,
and the reasons for and certain possible effects of these provisions, are
described below.
DELAWARE BUSINESS COMBINATION LAW. Section 203 of the Delaware GCL was
adopted by Delaware's legislature to encourage potential acquirors to negotiate
with a target company's board of directors and, in the absence of successful (or
any) negotiations, to provide minority stockholders with protections against
certain takeover-related abuses. Because the Delaware Certificate and the
Delaware Bylaws are silent with respect to the application of Section 203,
Western Micro Delaware will be subject to the provisions of Section 203.
Section 203 regulates certain transactions incident to or following
large accumulations of shares, including those made by tender offers. Section
203 may have the effect of significantly delaying a purchaser's ability to
acquire the entire interest sought if such acquisition is not approved by a
corporation's board of directors. In general, Section 203 prevents an
"Interested Stockholder" (defined generally as a person with 15% or more of a
corporation's outstanding voting stock) from engaging in a "Business
Combination" (defined below) with a Delaware corporation for three years
following the date such person became an Interested Stockholder. For purposes of
Section 203, the term "Business Combination" includes, without limitation: (a)
mergers with the Interested Stockholder; (b) sales or other dispositions to the
Interested Stockholder (except proportionately with the corporations' other
stockholders) of assets of the corporation or a subsidiary having a market value
equal to 10% or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; (c) the issuance or transfer by
the corporation or a subsidiary of stock of the corporation or such subsidiary
to the Interested Stockholder (except for certain transfers in a conversion or
exchange or a pro rata dividend or distribution, none of which increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock, or certain other transactions); (d)
any transaction involving the corporation or a subsidiary which has the effect
of increasing the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the corporation
or of any such subsidiary which is owned by the Interested Stockholder, except
as a result of immaterial changes due to fractional share adjustments or as a
result of any purchase or redemption of any shares of stock not caused by the
Interested Stockholder; or (e) receipt by the Interested Stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
The three-year moratorium imposed on Business Combinations by Section
203 does not apply if, among other things: (a) prior to the date on which such
stockholder becomes an Interested Stockholder, the board of directors approves
either the Business Combination or the transaction which resulted in the person
becoming an Interested Stockholder; (b) the Interested Stockholder owns 85% of
the corporation's voting stock upon consummation of the transaction which made
the person an Interested Stockholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
"confidentially" (E.G., by giving confidential instructions to a plan's trustee)
whether to accept a tender or exchange offer); or (c) on or after the date such
person becomes an Interested Stockholder, the board approves the Business
Combination and it is also approved at a stockholder meeting by holders of
two-thirds (66-2/3%) of the voting stock not owned by the Interested
Stockholder.
-21-
<PAGE>
Under Section 203, the restrictions described above do not apply if,
among other things, the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203. The
Delaware Certificate does not contain such a provision. Western Micro Delaware
could, at its option, exclude itself from the coverage of Section 203 by
amending the Delaware Certificate or the Delaware Bylaws (with stockholder
approval) at any time to exempt itself from coverage; but an amendment will not
become effective for a period of twelve months after the amendment is adopted
and will not apply to an Interested Stockholder who became such prior to the
amendment.
The Company believes that Section 203 will encourage any potential
acquiror to negotiate with Western Micro Delaware's Board of Directors prior to
effecting any takeover attempt. Section 203 also should have the effect of (i)
limiting the ability of a potential acquiror to make a two-tiered bid in which
all stockholders would not be treated equally and (ii) otherwise discouraging
certain potential acquirors unwilling to comply with its provisions.
Shareholders should note that the application of Section 203 to Western Micro
Delaware will confer upon its Board of Directors the power to reject a proposed
Business Combination, even though the potential acquiror may be offering a
substantial premium for Western Micro Delaware's shares over the then current
market price.
The California GCL does not contain a provision similar to Section 203.
Section 1101 of the California GCL provides that if an acquiring corporation has
previously acquired more than 50% but less than 90% of the stock of a California
corporation, the acquiring corporation is prohibited from cashing out the
remaining shareholders in the target corporation in a cash merger without
unanimous consent of the affected class. There are similar prohibitions covering
asset acquisitions. Unless certain conditions are met, the acquiring corporation
must, in any asset acquisition or merger, issue non-redeemable common stock of
the acquiring corporation to the remaining shareholders of the target
corporation. California also regulates certain tender offers or proposals for
reorganization made by "interested parties." See "Proposals for Reorganization"
below.
LIMITATIONS ON ABILITY OF STOCKHOLDERS TO CALL MEETINGS. The California
Bylaws provide, in accordance with the California GCL, that a special meeting of
the shareholders of the Company may be called by the Board of Directors, the
Chairman of the Board, the President, a Vice President, the Secretary or the
holders of shares entitled to cast not less than 10% of the votes at such
meeting. Under the Delaware GCL, special meetings of stockholders may be called
by a corporation's board of directors or by any other person authorized to do so
by the certificate of incorporation or bylaws of the corporation. The Delaware
Bylaws contain provisions permitting the same such persons to call a special
stockholder meeting.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. Both the Delaware GCL and
the California GCL permit securityholders, unless specifically prohibited by the
certificate or articles of incorporation, to take action without a meeting by
the written consent of the holders of at least the number of shares necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted; provided, however, that the California GCL
requires unanimous written consent to elect Directors. The Delaware GCL does not
permit the election of Directors by written consent. Neither the California
Articles nor the Delaware Certificate restrict stockholder action by written
consent.
NUMBER OF DIRECTORS. Under the California GCL, although a change in the
number of directors must in general be approved by the shareholders, the board
of directors may fix the exact number of directors within a stated range set
forth in either the articles of incorporation or bylaws, if that stated range
has been approved by the shareholders. Any change outside of the established
range or a change in the established range must be approved by the shareholders.
The Delaware GCL permits the board of directors alone to change the authorized
number of directors by amendment to the bylaws or in the manner provided in the
bylaws, unless the certificate of incorporation fixes the number of directors
(in which case a change in the number of directors may be made only by an
amendment of such certificate).
The California Bylaws establish a range of five (5) to nine (9)
directors and this number is presently fixed by the Board of Directors at six
(6). The Delaware Certificate is silent on the number of directors; however, the
Delaware Bylaws provide that the number of directors shall be five (5) until
such time as the Board of Directors modifies such authorized number of directors
by amendment to the Delaware Bylaws (and, given their ability to
-22-
<PAGE>
amend the Delaware Bylaws, a majority of the stockholders of Western Micro
Delaware also could effect a change in the number of directors). The Board of
Directors has no present intention to change the current number of directors;
however, the Board believes that the flexibility provided to it in this regard
will be beneficial should the need arise to provide for an increase in the
number of directors beyond the Company's current range, or to eliminate
vacancies below such range for which suitable candidates are not available.
OTHER SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA
AND DELAWARE
In addition to the provisions of the California GCL and the Delaware GCL
which are discussed above in the context of distinctions between the charter
documents of the Company and Western Micro Delaware, other provisions of the
California GCL and the Delaware GCL differ in many respects, and consequently it
is not practical to summarize all differences. However, a summary of certain
significant differences which may affect the rights and interests of
stockholders in Western Micro Delaware is set forth below.
CUMULATIVE VOTING. Under cumulative voting, each share of stock entitled
to vote in an election of directors has such number of votes as is equal to the
number of directors to be elected. A shareholder may then cast all of his or her
votes for a single candidate or may allocate them among as many candidates as
the shareholder may choose. As a result, shareholders holding a significant
minority percentage of the outstanding shares entitled to vote in an election of
directors may be able to effect the election of one or more directors. If
cumulative voting is available, then it is mandatory upon timely notice given by
any shareholder at a meeting at which directors are to be elected.
The California GCL generally provides for cumulative voting; however,
cumulative voting may be eliminated by corporations with outstanding securities
listed on the NYSE or the American Stock Exchange or with securities designated
for trading as a National Market System security on the NASDAQ and having at
least 800 stockholders (including record and beneficial owners) (collectively,
"Listed Corporations"). The Company believes it is a Listed Corporation. The
California Bylaws eliminated cumulative voting in June 1994.
Under the Delaware GCL, cumulative voting is not available unless it is
provided for in a corporation's certificate of incorporation. The Delaware
Certificate does not provide for cumulative voting. As a result, the holder or
holders of shares representing a majority of the votes entitled to be cast in an
election of directors for Western Micro Delaware will be able to elect all
directors then being elected. The absence of cumulative voting could have the
effect of preventing representation of minority stockholders on the Board of
Directors of Western Micro Delaware. However, the Board believes that, in
general, and especially in publicly held corporations, each director should
represent the interests of all stockholders rather than the interests of a
special constituency, and that the presence on the Board of one or more
directors representing such a constituency could disrupt and impair the
efficient management of Western Micro Delaware.
INDEMNIFICATION AND LIMITATION OF LIABILITY. California and Delaware
have similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their articles or certificate of
incorporation eliminating the liability of a director to the corporation or its
securityholders for monetary damages for breach of a director's fiduciary duty
of care. There are nonetheless certain differences between the laws of the two
states respecting indemnification and limitation of liability.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions: (a) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines such person
is fairly and reasonably entitled to indemnity for expenses, and then such
indemnification may be made only to the extent that such court shall determine,
and (b) no indemnification may be made without court approval in respect of
amounts paid or expenses incurred in settling or otherwise disposing of a
threatened or pending action or amounts incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
Indemnification is permitted only for acts taken in good faith and believed to
be in the best interests of the corporation and its shareholders, as determined
by a majority vote of a disinterested quorum of the directors, independent legal
counsel (if a quorum of independent directors is not obtainable), a
-23-
<PAGE>
majority vote of a quorum of the shareholders (excluding shares owned by the
indemnified party), or the court handling the action. The California GCL
requires indemnification when the individual has successfully defended the
action on the merits (as opposed to Delaware law which requires indemnification
relating to the successful defense on the merits or otherwise).
Delaware law generally permits indemnification of expenses incurred in
the defense or settlement of a derivative or third-party action, provided there
is a determination by a disinterested quorum of the directors, by independent
legal counsel (if a quorum of independent directors is not obtainable) or by a
majority vote of a quorum of the stockholders that a person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or (in contrast to California law) not opposed to the best interests of the
corporation. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
Delaware GCL provides that indemnification permitted by statute shall not be
deemed exclusive of any other rights under any bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Both the California Articles and the Delaware Certificate provide for
the elimination of monetary liability of the corporation's directors to the
fullest extent permissible under applicable law. The Delaware Certificate
provision is potentially more expansive in that it incorporates future
amendments to Delaware law with respect to elimination of such liability.
Moreover, while the California Articles and the California Bylaws permit the
Company to indemnify its directors, officers and agents to the fullest extent
allowed under California law, the Delaware Certificate requires Western Micro
Delaware to indemnify its directors, officers and agents to the fullest extent
permitted under Delaware law.
Currently, there are no actions pending or threatened against officers
or directors of the Company in their capacities as such. The indemnification and
limitation of liability provisions of California law, and not Delaware law, will
apply to actions of the directors and officers of the Company made prior to the
Reincorporation.
PROPOSALS FOR REORGANIZATION. Section 1203 of the California GCL
("Section 1203") provides that if a proposal for a merger or other
reorganization (including a share-exchange tender offer) or for certain sale of
assets transactions (a "Proposal") is made by a party controlling, either
directly or indirectly, the target corporation or that is controlled, directly
or indirectly, by an officer or director of the target corporation or that is an
entity in which a material financial interest is held by an executive officer or
director of the target corporation, an affirmative opinion of an independent
appraiser as to the fairness of the consideration to the stockholders of the
target corporation must be delivered. The fairness opinion requirement does not
apply to short-form mergers between a parent company and its 90%-owned
subsidiaries, or if the target company does not have shares held of record by
100 or more persons or if the transaction has been qualified under California
securities laws. If any other proposal for reorganization (the "Later Offer") is
received while the Proposal is pending, the directors must transmit the Later
Offer and any accompanying documents to the shareholders of the target
corporation and the target corporation's shareholders must be afforded a
reasonable opportunity to withdraw any vote, consent or proxy previously given
before the vote or written consent on the Proposal becomes effective, or a
reasonable time to withdraw any tendered shares before the purchase of shares
pursuant to the Proposal. The Delaware GCL does not contain a provision similar
to Section 1203. However, unlike many other states, California has not adopted
special laws (such as Section 203 of the Delaware GCL described above) designed
to make certain kinds of corporate takeovers, or other transactions with
significant shareholders more difficult.
VOTE REQUIRED FOR CERTAIN MERGERS AND CONSOLIDATIONS. Delaware law
relating to mergers and other corporate reorganizations differs from California
law in a number of respects. Generally, California law requires a shareholder
vote in more situations than does Delaware law. Both California and Delaware law
provide for securityholder votes (except as indicated below and for certain
mergers between a parent company and a subsidiary which is at least 90% owned by
the parent company) of both the acquiring and acquired corporation to
-24-
<PAGE>
approve mergers, and of the selling corporation for the sale of substantially
all of its assets. In addition to the foregoing, subject to the exceptions
described below, California law requires the affirmative vote of a majority of
the outstanding shares of (i) an acquiring corporation in a share-for-share
exchange or a share-exchange tender offer, (ii) the acquiring and acquired
corporations in a sale-of-assets reorganization, and (iii) any parent
corporation whose equity securities are being issued or transferred in
connection with a corporate reorganization.
Delaware law does not require a stockholder vote of the surviving
corporation in a merger if (i) the merger agreement does not amend the existing
certificate of incorporation, (ii) each outstanding or treasury share of the
surviving corporation before the merger is unchanged after the merger, and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the number of shares to be issued by the
surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger. California law contains an
exception to its voting requirements for reorganizations where any corporation
or its shareholders immediately before the reorganization own (immediately after
the reorganization) more than five-sixths of the voting power of the surviving
or acquiring corporation (or its parent); provided, however, that such exception
is not available if (a) any amendments to the articles of the surviving
corporation are made which would otherwise require shareholder approval or (b)
if the holders of a disappearing corporation receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
than the shares surrendered.
CLASS VOTE FOR CERTAIN REORGANIZATIONS. With certain exceptions, the
California GCL requires that a merger or reorganization and certain sale of
assets or similar transactions be approved by a majority vote of each class of
shares outstanding, and provides for separate series votes in certain
circumstances. By contrast, the Delaware GCL generally does not require such
class voting, except in circumstances where the transaction involves an
amendment to a corporation's certificate of incorporation which would increase
or decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class, or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely.
DISSOLUTION. Under the California GCL, shareholders holding 50% or more
of the total voting power may authorize a corporation's dissolution, with or
without the approval of the board of directors, and this right may not be
modified by the articles of incorporation. Under the Delaware GCL, unless the
board of directors approves the proposal to dissolve, the dissolution must be
approved by stockholders holding 100% of the total voting power of the
corporation. Only if the dissolution is initiated by the board of directors may
it be approved by a simple majority of the corporation's stockholders under the
Delaware GCL.
APPRAISAL RIGHTS IN MERGERS. Under both California and Delaware law, a
dissenting securityholder of a corporation participating in certain transactions
may, under varying circumstances, receive cash in the amount of the fair value
of his or her shares (as determined by a court), in lieu of the consideration
that he or she would otherwise receive in any such transaction. Under Delaware
law, such appraisal rights are not available with respect to (i) a sale, lease
or exchange of substantially all the assets of a corporation; (ii) a merger or
consolidation by a corporation, the shares of which are either listed on a
national securities exchange (or designated as a NASDAQ National Market System
security) or widely held (by more than 2,000 stockholders), if such stockholders
receive shares of the surviving corporation or shares of any other corporation
which are either listed on a national securities exchange (or designated as a
NASDAQ National Market System security) or held of record by more than 2,000
stockholders; or (iii) stockholders of a corporation surviving a merger if no
vote of the stockholders of the surviving corporation is required to approve the
merger. Under the Delaware GCL, no vote of the stockholders of the surviving
corporation is required if the number of shares to be issued in the merger does
not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger and certain other conditions are met. See "Vote
Required for Certain Mergers and Consolidations" above.
In general, California law affords dissenters' rights (appraisal rights
are referred to as "dissenters' rights" in California) (a) in any reorganization
for which shareholder approval is required and (b) to the shareholders of a
subsidiary corporation in a short-form merger, and the exclusions from
dissenters' rights in mergers are somewhat different from those in Delaware. For
example, in the case of a corporation whose shares are listed on a national
securities exchange or on a list of over-the-counter margin stocks issued by the
Board of Governors of the Federal
-25-
<PAGE>
Reserve System, dissenters' rights generally are not available unless the
holders of five percent or more of such class claim dissenters' rights. Also,
under California law, shareholders of a corporation involved in a reorganization
are not entitled to dissenters' rights if the corporation, or its shareholders
immediately before the reorganization, or both, will own immediately after the
reorganization more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity (as will be the case in the proposed
Reincorporation).
Appraisal or dissenters' rights are, therefore, not available to
shareholders of the Company with respect to the Reincorporation.
VOTING AND APPRAISAL RIGHTS IN CERTAIN OTHER TRANSACTIONS. The Delaware
GCL does not provide stockholders of a corporation with voting rights or
appraisal rights when the corporation acquires another business through the
issuance of its stock either (i) in exchange for the assets of the business to
be acquired, (ii) in exchange for the outstanding stock of the business to be
acquired, or (iii) in a merger of the corporation to be acquired with a
subsidiary of the corporation. In contrast, the California GCL treats these
kinds of acquisitions in the same manner as the merger of the corporation
directly with the business to be acquired.
DIVIDENDS. The California GCL provides that a corporation may not make
any distribution (including dividends, whether in cash or property, and
repurchases or redemptions, of its shares for cash or property) unless (i) the
corporation's retained earnings immediately prior to the proposed distribution
equal or exceed the amount of the proposed distribution, or (ii) immediately
after giving effect to such distribution, the corporation's assets (exclusive of
goodwill, capitalized research and development expenses and deferred charges)
would be at least equal to 125% of its liabilities (not including deferred
taxes, deferred income and other deferred credits) and the corporation's current
assets would be at least equal to its current liabilities (or 125% of its
current liabilities if the average pretax and preinterest earnings for the
preceding two fiscal years were less than average interest expense for such
years). In addition, the California GCL provides that a corporation may not make
any such distribution if, as a result, the excess of the corporation's assets
over its liabilities would be less than the liquidation preference of all shares
having a preference on liquidation over the class or series to which the
distribution is made. Such tests are applied to California corporations on a
consolidated basis.
The Delaware GCL provides that a corporation may, unless otherwise
restricted by its certificate of incorporation, declare and pay dividends out of
surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year (provided that
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets). Like the California Articles, the Delaware Certificate
does not place any restrictions on the declaration or payment of dividends. The
Delaware GCL also provides that a corporation may redeem or repurchase its
shares only out of surplus. The ability of a Delaware corporation to pay
dividends on, or to make repurchases or redemptions of, its shares is dependent
on the financial status of the corporation standing alone and not on a
consolidated basis.
While the Company presently qualifies under the tests of both California
and Delaware for the payment of dividends, it is the present policy of the Board
of Directors to retain earnings for use in the Company's business. However, in
the event that the present policy of the Board changes in the future, Delaware
generally provides a broader ability for companies to pay dividends.
INTERESTED DIRECTOR TRANSACTIONS. Under both the California GCL and the
Delaware GCL, certain contracts or transactions in which one or more of a
corporation's directors has an interest are not void or voidable because of such
interest provided that certain conditions, such as obtaining the required
approval and fulfilling the requirements of good faith and full disclosure, are
met. With certain exceptions, the conditions are similar under California and
Delaware law. Under the California GCL and the Delaware GCL, (a) either the
securityholders or the board of directors must approve any such contract or
transaction after full disclosure of the material facts, and in the case of
board approval the contract or transaction must also be "just and reasonable"
(in California) or "fair" (in Delaware) to the corporation, or (b) the contract
or transaction must have been just and reasonable or fair as to the corporation
at the time it was approved. In the latter case, California law explicitly
places the burden of proof on the interested director. Under California law, if
shareholder approval is sought, the interested director is not
-26-
<PAGE>
entitled to vote his or her shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if board approval is sought, the contract or
transaction must be approved by a majority of the disinterested directors (even
though less than a majority of a quorum). Therefore, certain transactions that
the Board of the Company would lack the authority to approve, because of the
number of interested directors, could be approved by a majority of the
disinterested directors of Western Micro Delaware representing less than a
majority of a quorum. The Company is not aware of any plans to propose any
transaction involving interested directors of the Company which the Board would
lack the authority to approve under California law but could approve under
Delaware law.
SHAREHOLDER DERIVATIVE SUITS. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a stockholder may only bring a derivative
action on behalf of the corporation if he or she was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. California law also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
INSPECTION OF SECURITYHOLDER LISTS. The California GCL provides for an
absolute right of inspection of the shareholder list for any shareholder holding
five percent or more of a corporation's outstanding voting shares or any
shareholder holding one percent or more of a corporation's outstanding voting
shares who is involved in an election contest. The California GCL also provides
a right of inspection of the shareholder list to any shareholder for any purpose
reasonably related to such holder's interest as a shareholder. The California
GCL purports to apply the foregoing provisions to any foreign corporation (such
as Western Micro Delaware) if its principal executive office is in California or
if it customarily holds meetings of its board of directors in California. The
Delaware GCL does not provide any similar absolute right of inspection, but does
permit any stockholder of record to inspect the stockholder list for any purpose
reasonably related to such holder's interest as a stockholder and, for a ten-day
period preceding a stockholder meeting, for any purpose germane to such meeting.
Restricted access to stockholder records, even though unrelated to a
stockholder's interests as a stockholder, could result in impairment of the
stockholders' ability to coordinate opposition to management proposals,
including proposals with respect to a change in control of the Company. However,
the Delaware GCL provisions regarding access to a company's stockholder list
have been broadly construed by Delaware courts. Moreover, stockholders in
Western Micro Delaware will be able to avail themselves of provisions of the
federal proxy rules which provide stockholders, in certain circumstances, with
the right either to obtain access to the stockholder list or to have the company
mail stockholder proxy materials to the company's other stockholders of record.
STAGGERED BOARD OF DIRECTORS. Under the California GCL, a "Listed
Corporation" (as defined above) may, by amendment to its certificate of
incorporation, divide its board into two or three classes. The California GCL
restricts, however, the minimum number of directors which a corporation may have
in the event it divides its board and, effectively, the minimum number of
directors which can be elected at any annual meeting. The Delaware GCL has no
comparable restrictions on staggered boards. The Delaware GCL permits, but does
not require, a board of directors with staggered terms. The California Articles
do not provide for a staggered board. Similarly, the proposed structure of
Western Micro Delaware will not include a staggered board. Although the Board
does not presently have an intention to propose a staggered board to
shareholders, there can be no assurance that the Board will not determine
otherwise in the future.
REMOVAL OF DIRECTORS. Under the California GCL, a director or the entire
board of directors may be removed with or without cause by the affirmative vote
of the holders of a majority of shares then entitled to vote; provided, however,
that if less than the entire board of directors is to be removed, no director
may be removed without cause if the shares voted against such removal (or not
consenting in writing to such removal) would be sufficient to elect the director
or directors in an election of the full authorized number of directors involving
-27-
<PAGE>
cumulative voting by shareholders. Under the California GCL, a director may also
be removed for cause by the superior court in a suit by shareholders holding at
least 10% of the outstanding shares.
Similarly, under the Delaware GCL one or more directors of a corporation
without a staggered board of directors can be removed with or without cause by
the holders of a majority of shares then entitled to vote in an election of
directors; provided, however, that if cumulative voting is available, if less
than the entire board of directors is to be removed, no director may be removed
without cause if the shares voted against such removal would be sufficient to
elect the director or directors in an election of the full authorized number of
directors involving cumulative voting by stockholders. In the instance of a
staggered board, the Delaware GCL provides that, unless otherwise provided in
the certificate of incorporation, directors of a corporation may be removed only
for cause by the holders of a majority of the shares then entitled to vote in an
election of directors. The term "cause" is not defined in the Delaware GCL or in
the Delaware Certificate. Consequently, in the event that Western Micro Delaware
elects, in the future, to have a staggered board and an issue arises regarding
the removal of directors, questions concerning the legal standard for "cause"
may have to be judicially determined.
LOANS TO OFFICERS AND EMPLOYEES. Under the Delaware GCL, a corporation
may make loans to, or guarantee the obligations of, or otherwise assist, its
officers or other employees and those of its subsidiaries (including any officer
or employee who is a director of the corporation or its subsidiary) when such
action, in the judgment of the corporation's board of directors, may reasonably
be expected to benefit the corporation. In contrast, the California GCL provides
that, subject to certain exceptions, a corporation may not make any such loan or
guarantee to or for the benefit of any officer or director of a corporation or
its parent, unless approved by a majority of its shareholders or, in the case of
companies having outstanding shares held of record by 100 or more persons,
unless a bylaw provision adopted by the affirmative vote of the majority of the
outstanding shares entitled to vote thereon authorizes the disinterested
directors alone to approve such loan or guarantee and such directors determine
that such loan or guarantee may reasonably be expected to benefit the
corporation. The Company is not aware of any plans for activities in this regard
which the Board would lack the authority to approve under California law but
could approve under Delaware law.
VOTING BY BALLOT. California law grants to each shareholder the right to
require a vote by written ballot for the election of directors at a shareholder
meeting. Under Delaware law this right may be restricted if so provided in the
certificate of incorporation. The Delaware Certificate does not place any
restriction on the right of stockholders to require a vote by written ballot.
APPLICATION OF THE CALIFORNIA GCL TO DELAWARE CORPORATIONS
Under Section 2115 of the California GCL ("Section 2115"), certain
foreign corporations (I.E., corporations not organized under California law) are
placed in a special category if they have characteristics of ownership and
operation which indicate that they have significant contacts with California. So
long as a Delaware or other foreign corporation is in this special category, and
it does not qualify for one of the statutory exemptions, Section 2115 purports
to subject it to a number of key provisions of the California GCL applicable to
corporations incorporated in California. Among the more important provisions are
those relating to the election and removal of directors, cumulative voting,
restrictions relating to classified boards of directors, standards of liability
and indemnification of directors, distributions, dividends and repurchases of
shares, shareholder meetings, approval of certain corporate transactions,
dissenters' and appraisal rights and inspection of corporate records. See
"Certain Significant Differences in Corporate Governance" and "Other Significant
Differences Between the Corporation Laws of California and Delaware" above.
Saliently, an exemption from Section 2115 is provided for "Listed
Corporations" (as defined above). Following the Reincorporation, the
stockholders of the Company will automatically become stockholders of Western
Micro Delaware and the Western Micro Delaware Common Stock will likely be traded
without interruption on the NASDAQ. Accordingly, the Board of Directors believes
that Western Micro Delaware will be exempt from Section 2115.
-28-
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following is a summary of certain of the material anticipated
federal income tax consequences under current law relating to the merger of the
Company into Western Micro Delaware (the "Merger"). The following discussion
does not purport to deal with all aspects of federal income taxation that may be
applicable to specific shareholders.
EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR FEDERAL TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE
MERGER, AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER LAWS.
The Company believes that, for federal income tax purposes, the Merger
will constitute a tax-free reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended. Accordingly, the Company believes
that the Merger and the conversion of shares of the Company's Common Stock into
shares of Western Micro Delaware Common Stock will not be a taxable transaction
to the shareholders, the Company or Western Micro Delaware. Each shareholder's
tax basis in his or her shares of the Western Micro Delaware Common Stock
received in the Merger will be equal to such shareholder's tax basis in the
shares of the Company's Common Stock held immediately prior to the effectiveness
of the Merger; and his or her holding period of such shares of Western Micro
Delaware Common Stock will include the holding period of such shares of the
Company's Common Stock, provided such shares were held as a capital asset at the
time of the effectiveness of the Merger.
BOARD RECOMMENDATION AND VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the Reincorporation. A vote
for the Reincorporation will constitute specific approval of the Merger
Agreement and all other transactions and proceedings related to the
Reincorporation, including the assumption by Western Micro Delaware of all
leases, stock options, warrants, employment agreements and other obligations of
the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
REINCORPORATION. An abstention or the failure of a broker or other nominee to
vote shares held of record will have the same effect as a vote against the
proposal.
-29-
<PAGE>
PROPOSAL NUMBER 5
DESIGNATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the retention of Coopers & Lybrand
L.L.P. as independent accountants for the Company until revoked by further
action. Coopers & Lybrand L.L.P. has been the Company's independent accountants
since 1977.
The shareholders are asked to ratify the designation of Coopers &
Lybrand L.L.P. as independent accountants for the Company for the fiscal year
ending December 31, 1997. A representative of Coopers & Lybrand L.L.P. is
expected to be present at the Annual Meeting to make a statement if he or she
desires to do so, and such representative is expected to be available to respond
to appropriate questions.
Should the shareholders fail to ratify the designation of Coopers &
Lybrand L.L.P. as independent accountants, retention of the firm for the fiscal
year ending December 31, 1997 will be reconsidered by the Board of Directors.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of Coopers & Lybrand L.L.P. as independent
accountants for the Company's fiscal year ending December 31, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE COMPANY'S INDEPENDENT ACCOUNTANTS.
OTHER MATTERS
PROPOSALS INTENDED TO BE PRESENTED AT NEXT ANNUAL MEETING. Proposals of
security holders intended to be presented at the Company's 1998 Annual Meeting
of Shareholders must be received by the Company for inclusion in the Company's
proxy statement and form of proxy no later than December 5, 1997.
OTHER MATTERS. Management knows of no business that will be presented
for consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
PROXY SOLICITATION. The expense of solicitation of proxies will be borne
by the Company. In addition to solicitation of proxies by mail, certain
officers, directors and Company employees who will receive no additional
compensation for their services may solicit proxies by telephone, telegraph or
personal interview. The Company may retain a proxy solicitation firm and, if it
does so, would pay approximately $6,000 in fees plus a reasonable amount to
cover expenses. The Company is required to request brokers and nominees who hold
stock in their name to furnish this proxy material to beneficial owners of the
stock and will reimburse such brokers and nominees for their reasonable
out-of-pocket expenses in so doing.
ANNUAL REPORT. The Company will provide a copy of its 1996 Annual Report
to Shareholders, without charge, to any shareholder who makes a written request
to Mr. P. Scott Munro, Secretary, Western Micro Technology, Inc., 254 East
Hacienda Avenue, Campbell, California 95008.
By Order of the Board of Directors,
P. Scott Munro
Secretary
Campbell, California
June 27, 1997
-30-
<PAGE>
EXHIBIT A
---------
1994 STOCK OPTION PLAN
OF
WESTERN MICRO TECHNOLOGY, INC.
(As Amended and Restated Effective as of May 18, 1997)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. ESTABLISHMENT AND PURPOSE....................................... 1
SECTION 2. DEFINITIONS..................................................... 1
(a) "Board of Directors"........................................ 1
(b) "Change in Control"......................................... 1
(c) "Code"...................................................... 2
(d) "Committee"................................................. 2
(e) "Company"................................................... 2
(f) "Consultant"................................................ 2
(g) "Employee".................................................. 2
(h) "Exchange Act".............................................. 2
(i) "Exercise Price"............................................ 2
(j) "Fair Market Value"......................................... 2
(k) "ISO"....................................................... 2
(l) "Nonstatutory Option"....................................... 2
(m) "Option".................................................... 2
(n) "Optionee".................................................. 3
(o) "Outside Director".......................................... 3
(p) "Plan"...................................................... 3
(q) "Service"................................................... 3
(r) "Share"..................................................... 3
(s) "Stock"..................................................... 3
(t) "Stock Option Agreement".................................... 3
(u) "Subsidiary"................................................ 3
(v) "Total and Permanent Disability"............................ 3
SECTION 3. ADMINISTRATION.................................................. 3
(a) Committee Procedures........................................ 3
(b) Committee Responsibilities.................................. 3
SECTION 4. ELIGIBILITY..................................................... 4
(a) General Rule................................................ 4
(b) Outside Directors........................................... 4
(c) Ten-Percent Shareholders.................................... 5
SECTION 5. STOCK SUBJECT TO PLAN........................................... 5
(a) Basic Limitation............................................ 5
(b) Additional Shares........................................... 6
SECTION 6. TERMS AND CONDITIONS OF OPTIONS................................. 6
(a) Stock Option Agreement...................................... 6
(b) Number of Shares............................................ 6
(c) Exercise Price.............................................. 6
(d) Withholding Taxes........................................... 6
(e) Exercisability and Term..................................... 6
-i-
<PAGE>
Page
----
(f) Nontransferability.......................................... 7
(g) Exercise of Options Upon Termination of Service............. 7
(h) Leaves of Absence........................................... 7
(i) No Rights as a Shareholder.................................. 7
(j) Modification, Extension and Renewal of Options.............. 7
(k) Restrictions on Transfer of Shares.......................... 7
SECTION 7. PAYMENT FOR SHARES.............................................. 7
(a) General Rule................................................ 7
(b) Surrender of Stock.......................................... 8
(c) Cashless Exercise........................................... 8
(d) Other Forms of Payment...................................... 8
SECTION 8. ADJUSTMENT OF SHARES............................................ 8
(a) General..................................................... 8
(b) Reorganizations............................................. 8
(c) Reservation of Rights....................................... 8
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS............................... 8
SECTION 10. NO EMPLOYMENT RIGHTS........................................... 9
SECTION 11. DURATION AND AMENDMENTS........................................ 9
(a) Term of the Plan............................................ 9
(b) Right to Amend or Terminate the Plan........................ 9
(c) Effect of Amendment or Termination.......................... 9
-ii-
<PAGE>
1994 STOCK OPTION PLAN
OF
WESTERN MICRO TECHNOLOGY, INC.
(As Amended and Restated Effective as of August 15, 1996)
SECTION 1. ESTABLISHMENT AND PURPOSE.
- ---------- -------------------------
The Plan was established in 1994 to offer selected employees,
consultants and non-employee directors an opportunity to acquire a proprietary
interest in the success of the Company, or to increase such interest through the
grant of Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as ISOs intended to qualify under Code section 422.
This amendment and restatement (a) increases the individual grant
limitation of section 162(m) of the Code, (b) revises the formula for granting
Options to Outside Directors and recognizes the service of advisory directors,
and (c) increases the number of Shares subject to the Plan.
SECTION 2. DEFINITIONS.
- ---------- -----------
(a) "Board of Directors" shall mean the Board of Directors of the
------------------
Company, as constituted from time to time.
(b) "Change in Control" means the occurrence of any of the following
-----------------
events:
(i) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(ii) The shareholders of the Company approve (A) a plan of
complete liquidation of the Company or (B) an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets; or
(iii) Any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the
Company's then outstanding voting securities.
For purposes of Subsection (iii) above, the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act,
but shall exclude (A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a parent or Subsidiary of the Company
and (B) a corporation owned directly or indirectly by the shareholders of the
Company in substantially the same proportions as their ownership of the common
stock of the Company.
-1-
<PAGE>
Any other provision of this Section 2(b) notwithstanding, the term
"Change in Control" shall not include either of the following events, if
undertaken at the election of the Company:
(i) A transaction, the sole purpose of which is to change the
state of the Company's incorporation; or
(ii) A transaction, the result of which is to sell all or
substantially all of the assets of the Company to another corporation
(the "surviving corporation"); provided that the surviving corporation
is owned directly or indirectly by the shareholders of the Company
immediately following such transaction in substantially the same
proportions as their ownership of the Company's common stock immediately
preceding such transaction; and provided, further, that the surviving
corporation expressly assumes this Plan and all outstanding options.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean the full Board of Directors and/or a
---------
committee designated by the Board of Directors, which is authorized to
administer the Plan under Section 3 hereof. The Committee's membership shall
enable the Plan to qualify under Rule 16b-3 with regard to the grant of Options
under the Plan to persons who are subject to section 16 of the Exchange Act.
(e) "Company" shall mean Western Micro Technology, Inc., a California
-------
corporation.
(f) "Consultant" shall mean an individual who provides services to the
----------
Company or any Subsidiary other than as a common-law employee.
(g) "Employee" shall mean any individual who is (i) a common-law
--------
employee of the Company or of a Subsidiary, (ii) a Consultant, or (iii) an
Outside Director.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(j) "Fair Market Value" shall mean (i) the closing price of a Share on
-----------------
the principal exchange which the Shares are trading, on the first trading day
immediately preceding the date on which the Fair Market Value is determined, or
(ii) if the Shares are not traded on an exchange but are quoted on the Nasdaq
National Market or a successor quotation system, the closing price on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the Shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
---
Code section 422.
(l) "Nonstatutory Option" shall mean an employee stock option that is
-------------------
not an ISO.
(m) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
-2-
<PAGE>
(n) "Optionee" shall mean an individual who holds an Option.
--------
(o) "Outside Director" shall mean a member of the Board of Directors who
----------------
is not a common-law employee of the Company or of a Subsidiary.
(p) "Plan" shall mean this 1994 Stock Option Plan of Western Micro
----
Technology, Inc., as amended from time to time.
(q) "Service" shall mean service as an Employee.
-------
(r) "Share" shall mean one share of Stock.
-----
(s) "Stock" shall mean the Common Stock of the Company.
-----
(t) "Stock Option Agreement" shall mean the agreement between the
----------------------
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
(u) "Subsidiary" shall mean any corporation, if the Company and/or one
----------
or more other Subsidiaries own not less than fifty percent (50%) of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(v) "Total and Permanent Disability" shall mean that the Optionee is
------------------------------
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than twelve (12) months, as determined by the Committee.
SECTION 3. ADMINISTRATION.
- --------- --------------
(a) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select Optionees;
-3-
<PAGE>
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, the vesting or
duration of the Option (including accelerating the vesting of the
Option), to determine whether such Option is to be classified as an ISO
or as a Nonstatutory Option, and to specify the provisions of the Stock
Option Agreement relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions;
(ix) To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in
the event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted
in replacement of other grants under an incentive or other compensation
plan of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable for
the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Optionees and all persons deriving their rights from an Optionee. No member
of the Committee shall be liable for any action that he has taken or has failed
to take in good faith with respect to the Plan or any Option.
SECTION 4. ELIGIBILITY.
- --------- -----------
(a) General Rule. Only Employees shall be eligible for designation as
------------
Optionees by the Committee. In addition, only individuals who are employed as
common-law employees by the Company or a Subsidiary shall be eligible for the
grant of ISOs.
(b) Outside Directors. Outside Directors shall also be eligible to
-----------------
receive Options as described in this Section 4(b):
(i) Outside Directors shall only be eligible for the grant of
Nonstatutory Options.
-4-
<PAGE>
(ii) Each Outside Director shall automatically be granted a
Nonstatutory Option to purchase 15,000 Shares (subject to adjustment
under Section 8) as a result of his or her initial appointment as an
Outside Director. Upon the conclusion of every regular annual meeting of
the Company's shareholders following the annual meeting at which an
Outside Director was appointed, each such Outside Director who will
continue serving as a member of the Board thereafter shall receive a
Nonstatutory Option to purchase 4,000 Shares (subject to adjustment
under Section 8). All such Nonstatutory Options shall vest and become
exercisable at the rate of twenty-five percent (25%) upon each one (1)
year anniversary of the date the option is granted to the Outside
Director.
(iii) All Nonstatutory Options granted to an Outside Director
under this Section 4(b) shall also become exercisable in full in the
event of (A) the termination of such Outside Director's service because
of death or Total and Permanent Disability or (B) a Change in Control of
the Company.
(iv) The Exercise Price of any Nonstatutory Option granted to an
Outside Director under this Section 4(b) shall be equal to the number of
Shares covered by such Option multiplied by one hundred percent (100%)
of the Fair Market Value of a Share on the date of grant, and shall be
payable in a form described in Section 7.
(v) All Nonstatutory Options granted to an Outside Director under
this Section 4(b) shall terminate on the earliest of (A) the 10th
anniversary of the date of grant of such Nonstatutory Options, (B) the
date ninety (90) days after the termination of such Outside Director's
Service for any reason other than death, Total and Permanent Disability
or voluntary retirement as an Outside Director at or after the age of
60, or (C) the date twelve (12) months after the termination of such
Outside Director's Service because of death, Total and Permanent
Disability or voluntary retirement as an Outside Director at or after
the age of 60. For purposes of this subsection (v), service as an
"advisory director" of the Company or a Subsidiary, as determined by the
Board of Directors, shall count as Service as an Outside Director.
(c) Ten-Percent Shareholders. An Employee who owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless such grant satisfies the requirements of Code section
422(c)(5). For purposes of this Subsection, in determining stock ownership, an
Employee shall be deemed to own the stock owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Stock owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. For purposes of this Subsection,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant. "Outstanding stock" shall not include shares
authorized for issuance under outstanding options held by the Employee or by any
other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- --------- ---------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares or Shares acquired on the open market. The aggregate number
of Shares which may be issued under
-5-
<PAGE>
the Plan upon the exercise of Options shall not exceed 1,521,801 plus the shares
that remained available for grant under the Western Micro Technology, Inc.
Amended and Restated Incentive and Non-Incentive Stock Option Plan as of June
15, 1994, including any shares subject to any option granted under such plan and
outstanding on such date that is terminated prior to exercise. The aggregate
number of Shares which may be issued under the Plan shall at all times be
subject to adjustment pursuant to Section 8. The number of Shares which are
subject to Options outstanding at any time under the Plan shall not exceed the
number of Shares which are available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- --------- -------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. Except for options granted pursuant to Section 4(b), the
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option. Options granted to any Optionee in a single calendar year shall in no
event cover more than 300,000 Shares, subject to adjustment in accordance with
Section 8. Options granted to an Optionee in the calendar year in which he or
she is newly hired shall in no event cover more than 500,000 Shares, subject to
adjustment in accordance with Section 8.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant, except
as otherwise provided in Section 4(c). Subject to the preceding sentence and
Section 4(b), the Exercise Price under any Option shall be determined by the
Committee at its sole discretion. The Exercise Price shall be payable in a form
described in Section 7. The Exercise Price of an Option that is intended to
qualify under Code section 162(m) shall not be less than one hundred percent
(100%) of the Fair Market Value of a share on the date of grant.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option. Such methods may include
the withholding of Shares or the delivery of previously owned Shares.
-6-
<PAGE>
(e) Exercisability and Term. Subject to Section 4(b), each Stock Option
-----------------------
Agreement shall specify the date when all or any installment of the Option is to
become exercisable. The Stock Option Agreement shall also specify the term of
the Option. The term shall not exceed ten (10) years from the date of grant,
except as otherwise provided in Section 4(c). Subject to the preceding three
sentences, the Committee at its sole discretion shall determine when all or any
installment of an Option is to become exercisable and when an Option is to
expire.
(f) Nontransferability. Unless the Option Agreement otherwise provides,
------------------
during an Optionee's lifetime, his or her Option(s) shall be exercisable only by
him and shall not be transferable. In the event of an Optionee's death, his or
her Option(s) shall not be transferable other than by will or by the laws of
descent and distribution.
(g) Exercise of Options Upon Termination of Service. Each Stock Option
-----------------------------------------------
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with the
Company and its Subsidiaries, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Subject to Section 4(b), such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of Service.
(h) Leaves of Absence. An Optionee's Service shall be deemed to continue
-----------------
while the Optionee is on military leave, sick leave or other bona fide leave of
absence (as determined by the Committee); provided, however, that the Committee
may determine, consistent with applicable law, that Service shall continue
during a leave of absence only if the Optionee returns to employment with the
Company or a Subsidiary at the expiration of the leave.
(i) No Rights as a Shareholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 8.
(j) Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification, extension or
renewal of an Option shall, without the consent of the Optionee, impair his or
her rights or increase his or her obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
-7-
<PAGE>
SECTION 7. PAYMENT FOR SHARES.
- --------- ------------------
(a) General Rule. The entire Exercise Price for Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or his or her representative and which are surrendered to
the Company in good form for transfer. Such Shares shall be valued at their Fair
Market Value on the date when the new Shares are purchased under the Plan.
(c) Cashless Exercise. To the extent that a Stock Option Agreement so
-----------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.
(d) Other Forms of Payment. To the extent that a Stock Option Agreement
----------------------
so provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
SECTION 8. ADJUSTMENT OF SHARES.
- --------- --------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares covered by each outstanding
Option, or (iii) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a
---------------
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement may provide for the
assumption of outstanding Options by the surviving corporation or its parent or
for their continuation by the Company (if the Company is a surviving
corporation); provided, however, that if assumption or continuation of the
outstanding Options is not provided by such agreement then the Committee shall
have the option of offering the payment of a cash settlement equal to the
difference between the amount to be paid for one Share under such agreement and
the Exercise Price, in all cases without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject to
an Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
-8-
<PAGE>
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS.
- --------- ---------------------------------
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations and the regulations of any stock exchange on which the
Company's securities may then be listed, and the Company has obtained the
approval or favorable ruling from any governmental agency which the Company
determines is necessary or advisable.
SECTION 10. NO EMPLOYMENT RIGHTS.
- ---------- --------------------
No provision of the Plan, nor any Option granted under the Plan, shall
be construed to give any person any right to become, to be treated as, or to
remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
- ---------- -----------------------
(a) Term of the Plan. The Plan shall become effective on May 18, 1997,
----------------
except for those provisions relating to Sections 5(a) and 6(b) hereof that have
been submitted to stockholders for approval at the 1997 annual meeting which
shall become effective upon such approval. The Plan shall terminate
automatically ten (10) years after its original adoption by the Board of
Directors and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted before amendment of the Plan shall not be materially altered,
or impaired adversely, by such amendment, except with consent of the person to
whom the Option was granted. An amendment of the Plan shall be subject to the
approval of the Company's shareholders only to the extent required by applicable
laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or
----------------------------------
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
-9-
<PAGE>
EXHIBIT B
---------
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
WESTERN MICRO TECHNOLOGY, INC.
a California Corporation
P. SCOTT MUNRO and JAMES W. DORST certify that:
1. They are the President and the Assistant Secretary, respectively,
of WESTERN MICRO TECHNOLOGY, INC., a California corporation.
2. That the first paragraph of the FIFTH Article of the Articles of
Incorporation of this Corporation is amended to read as follows:
"FIFTH: This Corporation is authorized to issue two classes of
shares to be designated "Common" and "Preferred," respectively.
The total number of Common shares authorized is 20,000,000
without par value and the total number of Preferred shares
authorized is 10,000,000 without par value.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of the shareholders in
accordance with Sections 902 and 903 of the California Corporations
Code. The total number of outstanding shares of Common and
Preferred Stock of the Corporation is ___________ and 0,
respectively. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required
was more than 50% of the Common shares. There are no shares of
Preferred Stock outstanding.
<PAGE>
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: August ___, 1997
--------------------------
P. SCOTT MUNRO
President
--------------------------
JAMES W. DORST
Assistant Secretary
<PAGE>
EXHIBIT C
---------
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
----------------------------------------------
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION ("Agreement") dated
as of June __, 1997 by and between WESTERN MICRO TECHNOLOGY, INC., a California
corporation (the "California Company"), and WESTERN MICRO TECHNOLOGY, INC., a
Delaware corporation (the "Delaware Company"),
W I T N E S S E T H:
WHEREAS, the California Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of California
and, on the date of this Agreement, has authority to issue Ten Million
(10,000,000) shares of Common Stock, without par value, of which Four Million
Eight Hundred One Thousand Four Hundred Seventy (4,801,470) shares are issued
and outstanding and Ten Million (10,000,000) shares of Preferred Stock, without
par value. There are no shares of Preferred Stock outstanding; and
WHEREAS, the Delaware Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and, on
the date of this Agreement, has authority to issue [Twenty] Million
([20,000,000]) shares of Common Stock, $0.01 par value, of which One Hundred
(100) shares are issued and outstanding, all of which are owned by the
California Company, and Ten Million (10,000,000) shares of Preferred Stock,
$0.01 par value. There are no shares of Preferred Stock outstanding; and
WHEREAS, upon the effectiveness of the Merger, all of the outstanding
Common Stock of the California Company will be converted into Common Stock of
the Delaware Company; and
WHEREAS, the respective Boards of Directors of the California Company
and the Delaware Company have determined that it is advisable and in the best
interests of each of such corporations that the California Company merge into
the Delaware Company under and pursuant to the General Corporation Laws of
Delaware and California and upon the terms and subject to the conditions
provided in this Agreement for the purpose of effecting a reincorporation of the
California Company in the State of Delaware in a transaction qualifying as a
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code and have, by resolutions duly adopted, approved this Agreement and
directed that it be submitted to a vote of their respective shareholders and
executed by the undersigned officers:
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby promise and agree that the
California Company shall merge with and into the Delaware Company on the
following terms, conditions and other provisions:
-1-
<PAGE>
ARTICLE 1
---------
Definitions
-----------
When used in this Agreement (and any Exhibit in which such terms are
not otherwise defined) the following terms shall have the following meanings,
respectively:
1.1 "California Common Stock" shall mean shares of Common Stock, without
-----------------------
par value, of the California Company.
1.2 "California GCL" shall mean the California General Corporation Law.
--------------
1.3 "Delaware Common Stock" shall mean shares of Common Stock, par value
---------------------
$0.01 per share, of the Delaware Company.
1.4 "Delaware GCL" shall mean the Delaware General Corporation Law.
------------
1.5 "Effective Time" shall mean the date and time when the Merger shall
--------------
become effective, in accordance with Section 2.1.
1.6 "Merger" shall mean the merger of the California Company into the
------
Delaware Company.
1.7 "Surviving Corporation" shall mean the Delaware Company from and
---------------------
after the Effective Time.
ARTICLE 2
---------
Merger
------
2.1 Filings and Effectiveness. The Merger shall become effective when
-------------------------
the following actions shall have been completed:
(i) This Agreement and the Merger shall have been adopted and
approved (a) in accordance with the California GCL by the shareholders
of the California Company and (b) in accordance with the Delaware GCL
by the California Company, as the sole stockholder of the Delaware
Company and;
(ii) All of the conditions precedent to the consummation of
the Merger specified in this Agreement shall have been satisfied or
duly waived by the party entitled to satisfaction thereof;
-2-
<PAGE>
(iii) An executed Certificate of Merger or an executed
counterpart of this Agreement shall have been filed with the Secretary
of State of the State of Delaware; and
(iv) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the
California GCL shall have been submitted for filing with the Secretary
of State of the State of California.
2.2 Merger. At the Effective Time, the Merger shall become effective
------
under Section 252 of the Delaware GCL and Section 1108(d) of the California GCL,
and the California Company shall merge into the Delaware Company, the separate
existence of the California Company shall cease, and the Delaware Company shall
continue in existence under the Delaware GCL.
2.3 Effects. At the Effective Time:
-------
(i) the separate existence of the California Company shall cease
and the California Company shall be merged into the Delaware Company;
(ii) the Certificate of Incorporation of the Delaware Company
shall continue as the Certificate of Incorporation of the Surviving
Corporation until changed or amended as provided by law;
(iii) the bylaws of the Delaware Company shall continue as the
bylaws of the Surviving Corporation until amended as provided therein;
(iv) the Statement and Designation By Foreign Corporation of the
Delaware Company shall be amended to reflect the name of the Delaware
Company as stated in its Certificate of Incorporation.
(v) the Certificates of Authorities in each jurisdiction of the
California Company shall be withdrawn and the Certificates of
Authorities of the Delaware Company shall be simultaneously filed to
duly qualify the Delaware Company to transact business in such
jurisdictions as a foreign entity.
(vi) the directors of the California Company in office on the
Effective Date shall be and continue as directors of the Surviving
Corporation until their successors are elected in accordance with the
Certificate of Incorporation and the bylaws of the Surviving Corporation
and are duly qualified;
(vii) each officer of the California Company in office on the
Effective Date shall be and continue as an officer of the Surviving
Corporation and, until their successors are elected or appointed in
accordance with the bylaws of the Surviving Corporation and are duly
qualified, such officers shall hold the office in the same capacity of
the Surviving Corporation which they held before the Merger;
-3-
<PAGE>
(viii) each share of California Common Stock outstanding
immediately prior to the Effective Time shall be converted into one
share of Delaware Common Stock pursuant to Article 3 hereof; and
(ix) without further transfer, act or deed, the separate existence
of the California Company shall cease and the Surviving Corporation
shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and shall be subject to all the
restrictions, disabilities and duties of the California Company; and
each and all of the rights, privileges, immunities, powers and
franchises of the California Company, and all property, real, personal
and mixed, and all debts due to the California Company on whatever
account, stock subscriptions and other things in action or belonging to
the California Company shall be vested in the Surviving Corporation; and
all property, rights, privileges, powers and franchises, and each and
every other interest of the California Company shall be thereafter as
effectually the property of the Surviving Corporation as they were of
the California Company; and the title to any real estate vested by deed
or otherwise, under the laws of the States of Delaware or California or
of any other jurisdiction, in the California Company shall not revert or
be in any way impaired by reason of the Merger; but all rights of
creditors of the California Company and all liens upon any property of
the California Company shall be preserved unimpaired and all debts,
liabilities and duties of the California Company shall thenceforth
attach to the Surviving Corporation and may be enforced against it to
the same extent as if such debts, liabilities and duties had been
incurred or contracted by it.
2.4 Further Assurances. The California Company agrees that if, at any
------------------
time, or from time to time, after the Effective Time, the Surviving Corporation
shall consider or be advised that any further deeds, assignments or assurances
are necessary or desirable to vest, perfect or confirm in the Surviving
Corporation title to any property, rights, privileges, immunities, powers or
franchises of the California Company, the Surviving Corporation and its proper
officers and directors may execute and deliver all such proper deeds,
assignments and assurances and do all other things necessary or desirable to
vest, perfect or confirm title to such property, rights, privileges, immunities,
powers or franchises in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, in the name of the California Company or otherwise.
ARTICLE 3
---------
Conversion of Shares
--------------------
3.1 Conversion of Shares. At the Effective Time, the California Common
--------------------
Stock shall be converted into Delaware Common Stock as follows:
-4-
<PAGE>
(i) each share of California Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into one share of Delaware Common Stock;
(ii) each share of Delaware Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger, be canceled without consideration and shall resume the
status of authorized and unissued shares of Delaware Common Stock; and
(iii) each share of Delaware Common Stock will continue to be
quoted on the National Association of Security Dealers Automatic
Quotation System ("NASDAQ") under the symbol "WSTM" without
interruption, as shares of
the California Common Stock now quoted and traded.
3.2 Stock Certificates. At and after the Effective Time, all of the
------------------
outstanding certificates which immediately prior to the Effective Time represent
shares of California Common Stock shall be deemed for all purposes to evidence
ownership of, and to represent, shares of Delaware Common Stock into which the
shares of California Common Stock formerly represented by such certificates have
been converted as provided in this Agreement. The registered owner on the books
and records of the Delaware Company or its transfer agents of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to the Delaware Company or
its transfer agents, have and be entitled to exercise any voting and other
rights with respect to, and to receive any dividends and other distributions
upon, the shares of Delaware Common Stock evidenced by such outstanding
certificate as above provided.
3.3 Employee or Director Option and Benefit Plans. Each option or other
---------------------------------------------
right to purchase or otherwise acquire shares of California Common Stock granted
under any employee or director option or benefit plan of the California Company
(collectively, the "Plans") which is outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become an option or right to
purchase or acquire (and the Delaware Company hereby assumes the obligation to
deliver) the same number of shares of Delaware Common Stock at the same price
per share, and upon the same terms and subject to the same conditions, as set
forth in each of the Plans, as in effect at the Effective Time. The same number
of shares of Delaware Common Stock shall be reserved for purposes of the Plans
as is equal to the number of shares of California Common Stock so reserved as of
the Effective Time. As of the Effective Time, the Delaware Company hereby
assumes the Plans and all obligations of the California Company under the Plans
including the outstanding options and rights granted pursuant to the Plans.
3.4 Validity of Delaware Common Stock. All shares of Delaware Common
---------------------------------
Stock into which California Common Stock are to be converted pursuant to the
Merger shall not be subject to any statutory or contractual preemptive rights,
shall be validly issued, fully
-5-
<PAGE>
paid and nonassessable and shall be issued in full satisfaction of all rights
pertaining to such California Common Stock.
3.5 Rights of Former Holders. From and after the Effective Time, no
------------------------
holder of certificates which evidenced California Common Stock immediately prior
to the Effective Time shall have any rights with respect to the shares formerly
evidenced by those certificates, other than to receive the shares of Delaware
Common Stock into which such California Common Stock shall have been converted
pursuant to the Merger.
ARTICLE 4
---------
Covenants To Be Performed Prior to Closing Date
-----------------------------------------------
4.1 Consents. Each of the California Company and the Delaware Company
--------
shall use its best efforts to obtain the consent and approval of each person
(other than shareholders of the California Company in their capacities as such)
whose consent or approval shall be required in order to permit consummation of
the Merger.
4.2 Governmental Authorizations. Each of the California Company and the
---------------------------
Delaware Company shall cooperate in filing any necessary reports or other
documents with any federal, state, local or foreign authorities having
jurisdiction with respect to the Merger.
ARTICLE 5
---------
Conditions
----------
The obligations of the California Company and the Delaware Company to
consummate the Merger are subject to satisfaction of the following conditions:
5.1 Authorization. The holders of a majority of the voting power of the
-------------
California Company shall have approved and adopted this Agreement and the Merger
at a meeting of the shareholders. All necessary action shall have been taken to
authorize the execution, delivery and performance of this Agreement by the
California Company and the Delaware Company. The California Company and the
Delaware Company shall have full power and authority to consummate the Merger.
5.2 Consents and Approvals. All authorizations, consents and approvals
----------------------
(contractual or otherwise) of any state, federal, local or foreign government
agency, regulatory body or official or any person (other than the California
Company or the Delaware Company) necessary for the valid consummation of the
Merger in accordance with this Agreement shall have been obtained and shall be
in full force and effect.
-6-
<PAGE>
ARTICLE 6
---------
Miscellaneous
-------------
6.1 Waiver and Amendment. This Agreement may be amended by action of the
--------------------
respective Boards of Directors of the California Company and the Delaware
Company without action by the shareholders or stockholders of the parties,
except that any amendment altering any terms of this Agreement if such
alteration would adversely affect the holders of any class or series of the
capital stock of the California Company or the Delaware Company must be approved
by a majority of the voting power of the California Company.
6.2 Termination. This Agreement may be terminated and the Merger and
-----------
other transactions provided for by this Agreement abandoned at any time prior to
the Effective Time, whether before or after adoption and approval of this
Agreement by the shareholders of the California Company, by action of the Board
of Directors of the California Company if the Board determines that the
consummation of the transactions contemplated by this Agreement would not, for
any reason, be in the best interests of the California Company and its
shareholders.
6.3 No Waiver. No waiver by any party of any condition, or the breach of
---------
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other term or covenant contained in this Agreement.
6.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to contracts
entered into and to be performed wholly within the State of California, except
to the extent that the laws of the State of Delaware are mandatorily applicable
to the Merger.
6.5 Approval of the California Company as the Sole Stockholder of the
-----------------------------------------------------------------
Delaware Company. By its execution and delivery of this Agreement, the
- ----------------
California Company, as the sole stockholder of the Delaware Company, consents
to, approves and adopts this Agreement and approves the Merger, subject to the
approval and adoption of this Agreement by the holders of a majority of the
voting power of the California Company pursuant to Section 5.1 hereof. The
California Company agrees to execute such instruments as may be necessary or
desirable to evidence its approval and adoption of this Agreement and the Merger
as the sole stockholder of the Delaware Company.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
CALIFORNIA COMPANY: WESTERN MICRO TECHNOLOGY, INC., a
California corporation
By:___________________________
Its:__________________________
Attest:
- ----------------------------------
DELAWARE COMPANY: WESTERN MICRO TECHNOLOGY, INC., a
Delaware corporation
By:___________________________
Its:__________________________
Attest:
- ----------------------------------
-8-
<PAGE>
EXHIBIT D
---------
CERTIFICATE OF INCORPORATION
OF
WESTERN MICRO TECHNOLOGY, INC.
I.
The name of the Corporation is Western Micro Technology, Inc.
II.
The address of the registered office of the Corporation in the State of
Delaware is located at 30 The Green, in the City of Dover, Delaware, Kent
County. The name of the registered agent of the Corporation at such address is
The Corporation Trust Company.
III.
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware as the same exists or hereafter may be amended.
IV.
1. The Corporation is authorized to issue two classes of stock to be
designated Common Stock ("Common Stock") and Preferred Stock ("Preferred
Stock"), respectively. The total number of shares which the Corporation is
authorized to issue is Thirty Million (30,000,000). The number of shares of
Common Stock authorized to be issued is Twenty Million (20,000,000), $0.01
par value. The number of shares of Preferred Stock authorized to be issued is
Ten Million (10,000,000), $0.01 par value.
2. The Board of Directors is expressly authorized to provide for the
issue, in one or more series, of all or any shares of the Preferred Stock and,
in the resolution or resolutions providing for such issue, to establish for each
such series:
-1-
<PAGE>
(a) the number of its shares, which may thereafter (unless
forbidden in the resolution or resolutions providing for such issue) be
increased or decreased (but not below the number of shares of the series
then outstanding) pursuant to a subsequent resolution of the Board of
Directors;
(b) the voting powers, full or limited, of the shares of such
series, or that such shares shall have no voting powers; and
(c) the designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof.
3. In furtherance of the foregoing authority and not in limitation of
it, the Board of Directors is expressly authorized, in the resolution or
resolutions providing for the issue of a series of Preferred Stock:
(a) to subject the shares of such series, without the consent of
the holders of such shares, to being converted into or exchanged for
shares of another class or classes of stock of the Corporation, or to
being redeemed for cash, property or rights, including securities, all
on such conditions and on such terms as may be stated in such resolution
or resolutions; and
(b) to make any of the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of the shares of
the series dependent upon facts ascertainable outside this Certificate
of Incorporation.
4. Whenever the Board of Directors shall have adopted a resolution or
resolutions to provide for:
(a) the issue of a series of Preferred Stock;
(b) a change in the number of authorized shares of a series of
Preferred Stock; or
(c) the elimination from this Certificate of Incorporation of all
references to a previously authorized series of Preferred Stock by
stating that none of the authorized shares of a series of Preferred
Stock are outstanding and that none will be issued;
-2-
<PAGE>
the officers of the Corporation shall cause a certificate, setting forth a copy
of such resolution or resolutions and, if applicable, the number of shares of
stock of such series, to be executed, acknowledged, filed and recorded, in order
that the certificate may become effective in accordance with the provisions of
the General Corporation Law of the State of Delaware, as from time to time
amended. When any such certificate becomes effective, it shall have the effect
of amending this Certificate of Incorporation, and whenever such term is used in
this Certificate of Incorporation, it shall be deemed to include the effect of
the provisions of any such certificate.
5. As used in this Article IV, the term "Board of Directors" shall
include, to the extent permitted by the General Corporation Law of the State of
Delaware, any duly authorized committee of the Board of Directors.
6. Holders of shares of Common Stock shall be entitled to receive such
dividends or distributions as are lawfully declared on the Common Stock; to have
notice of any authorized meeting of stockholders; to one vote for each share of
Common Stock on all matters which are properly submitted to a vote of such
stockholders; and, upon dissolution of the Corporation, to share ratably in the
assets thereof that may be available for distribution after satisfaction of
creditors and of the preferences, if any, of any shares of Preferred Stock.
V.
The name and mailing address of the incorporator are as follows:
Dawn C. Steele
Pillsbury Madison & Sutro, LLP
2700 Sand Hill Road
Menlo Park, California 94025
VI.
The number of Directors which constitute the whole Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation.
VII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, amend, rescind
or repeal the Bylaws of the Corporation.
-3-
<PAGE>
VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the General
Corporation Law of the State of Delaware) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the Bylaws of the Corporation.
IX.
1. A Director's liability to the Corporation for breach of duty to the
Corporation or its stockholders shall be limited to the fullest extent permitted
by the laws of the State of Delaware as now in effect or hereafter amended. In
particular, no Director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
Director derived an improper personal benefit.
2. Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director existing at the time of such repeal or modification.
3. If the General Corporation Law of the State of Delaware is amended
to authorize corporate action further eliminating or limiting the liability of
directors, then a Director, in addition to the circumstances in which he or she
is not now liable, shall be free of liability to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
X.
This Corporation shall indemnify its officers, Directors, employees and
agents to the maximum extent permitted by the General Corporation Law of the
State of Delaware, which power to indemnify shall include, without limitation,
the power to enter into indemnification agreements and amendments thereto upon
such terms as the Board of Directors shall deem advisable.
-4-
<PAGE>
The undersigned, being the Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
under penalties of perjury, under the laws of the State of Delaware, that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this _____ day of June, 1997.
-----------------------------------
Dawn C. Steele
Incorporator
-5-
<PAGE>
EXHIBIT E
---------
PROXY
WESTERN MICRO TECHNOLOGY, INC.
254 EAST HACIENDA AVENUE
CAMPBELL, CALIFORNIA 95008
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING--AUGUST 1, 1997
The undersigned hereby appoints JAMES W. DORST AND P. SCOTT MUNRO, or
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Annual Meeting of Shareholders of WESTERN MICRO
TECHNOLOGY, INC. on August 1, 1997, and any adjournments or postponements
thereof, upon all matters that may properly come before the meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
This proxy, which is solicited on behalf of the Board of Directors,
will be voted FOR the matters described in paragraphs 1, 2, 3, 4 and 5 unless
the shareholder specifies otherwise, in which case it will be voted as
specified. If you wish to vote in accordance with the Board of Directors'
recommendations, please sign the proxy. You need not mark any boxes. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
-Fold and Detach Here-
<PAGE>
<TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS TO COME
BEFORE THE MEETING:
1. To elect a Board of five directors: NOMINEES: James J. Heffernan, Carlton J. Mertens, II, P. Scott Munro, K. William Sickler
and J. Larry Smart
FOR nominees WITHHOLD
listed (except as AUTHORITY to INSTRUCTION: To withhold authority to vote for any individual nominee, write name or
marked to the vote for nominees names here.
contrary) listed
------------------------------------------------------------------------------------------
/ / / /
<C> <C> <C> <C>
2. To approve certain 3. To approve the amendment 4. To authorize the Board 5. To ratify the designation
Amendments to the Company's of the Company's Restated of Directors and Officers of Coopers & Lybrand
1994 Stock Option Plan Articles of Incorporation of the Company to change L.L.P. as independent
to increase the number of the state of incorporation accountants for the
authorized shares of of the Company from period ending
Common Stock. California to Delaware December 31, 1997.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / / / / / / / / / / / / / /
Dated: , 1997
----------------------------------------
----------------------------------------------------
Signature(s) of Shareholder or Shareholders,
(Executors, Administrators, Trustees,
etc. should give full title.)
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
-FOLD AND DETACH HERE-
</TABLE>
